18 March 2013

Changes to the State Pensionable Age set to boost economic growth over the next 20 years, but extent of boost will vary across the country, and will depend on local successes in creating additional jobs

Key evidence from Smart Growth Analytics suggests that the UK Government's proposed changes to the State Pensionable Age (SPA) will have hugely significant implications for economic growth across the country 1. The evidence also suggests that the extent of this impact will vary tremendously from one local area to another.

The Smart Growth SPA impact estimates show that, by 2033, there will be an additional 2.5 million people in England of working age following the implementation of the changes (Table 1). This represents a rise in the country's labour supply of just over 7% as a direct result of SPA changes over the next 20 years or so.

Many of these additional people of working age will obviously require work, with most staying on in their existing employment. The effect of more people staying on in work will be to reduce the volume of vacant employment opportunities as people retire, reducing the current level of 'churn' in the jobs market. In turn, and without further successful efforts to create additional jobs and self-employment opportunities to meet the additional supply of labour, it will be harder for people to find work, particularly at the 'entry level' into the employment market for younger people. However, those local areas which successfully create additional job opportunities will see a hugely significant boost to their employment levels, and, in turn, a hugely significant boost to their economic growth.

To gauge the extent of this potential for employment growth, and the need to create additional employment opportunities, requires some understanding of the likely 'employment rate' for the additional cohort of older people of working age. In the Smart Growth analysis, we have applied a range of employment rates, based around current employment rates for older workers (aged 50 to 64). Nationally, the application of these employment rates suggests that the SPA changes will boost potential additional workers by somewhere between 0.9 million, as a lowest estimate, to as many as 1.9 million, as a highest estimate.

As well as the overall impact across England as a whole, the Smart Growth analysis also gives valuable insight into the sub-national impact of changes to the SPA. Perhaps the most important finding is that it shows that the impact of the UK Government's suggested changes to the SPA will vary tremendously across the country (as will the need for policies aimed at job creation and entrepreneurship). For example, whilst the South West of England will see an increase in its working age population of almost 9% over the next 20 years, this falls to around 5% in London (Table 1). However, in terms of volumes of additional people of working age by 2033, it is the South East and London which head the list, with the South East having around 430,000 additional people of working age, and London having around 325,000 additional people of working age.

Below regional level, the variations in impact become even more startling. For example, in West Dorset, there will be a surge in the working age population of almost 16%, whilst in Tower Hamlets in London there will be a rise of just fewer than 3% (Table 2 and Table 3).

The potential implications of the SPA changes in most local areas across the country are likely to be hugely significant with respect to economic growth. For example, on the one hand, the SPA changes will increase the local supply of labour above the current expected supply growth through natural population change. This labour supply boost will help many local areas to achieve their targets for economic growth through the use of existing people, rather than putting pressure on the need for in-migration. On the other hand, the SPA changes will put considerable pressure on local economies to ensure they are successful in creating the jobs to accommodate the rise in the local labour supply. Without these additional jobs, it is likely that there will be insufficient additional employment opportunities, particularly for younger people who are trying to enter the jobs market for the first time. Such trends may well increase the risk of higher local levels of unemployment and youth unemployment, or the exodus of younger people from the local area as they go in search of employment opportunities elsewhere. In areas where the latter occurs, the workforce age profile will age faster as a direct result, and the local economy will increasingly face the longer-term economic challenges associated with a reliance on above-average proportions of older workers.

All in all, great care needs to be taken at the local level, through job creation and support for enterprise and investment, focused on young people, to ensure that the SPA changes do not seek to cause structural problems which ultimately widen the poverty gap and/or exacerbate the ageing workforce profile which exists in most local areas. Local Authorities and Local Enterprise Partnerships (LEPs) should plan early to avoid problems as a result of the SPA changes, and invest to proactively take advantage of the associated employment boost and associated economic boost. In turn, as well as a jobs boost and growth boost, local authorities up and down the country, that are successful in their job creation efforts, will benefit from increased Council Tax revenues and a decline in their expenditure on support benefits.

As well as further policies for the development of employment opportunities for younger people, higher levels of support for self-employment and business start-up amongst younger people should also take higher priority. Further local policy implications also exist in terms of the need for additional workspace capacity, increased capacity with respect to the under-pinning transport and communications infrastructure, and support for remote working (such as home working).

Jim Plunkett-Cole, Principal Analyst at Smart Growth Analytics, said:

"The findings from this analysis suggest that the impact of the proposed changes to the State Pensionable Age will see a hugely significant rise in additional labour supply across the country as a result. All local and regional economies should plan to raise their labour demand levels accordingly, through policies aimed at job creation, self-employment and entrepreneurship, and particularly for younger people. Additional consideration should also be given to increasing the capacity of the underpinning infrastructures of workspace and transport and communications. For Councils up and down the country, and their associated Local Enterprise Partnerships, the rewards from investing in job creation, inward investment and entrepreneurship are potentially tremendous, but so too are the risks of under-investment."

1 At the time of writing, the final planned changes to the SPA over the next four decades have yet to be established. All figures in this press release are based on the simple assumption that, by 2033, the state pension age will have changed from the current arrangement of 65 years for men and 60 years for women, to 66 years for both sexes. Since the coalition Government looks set to raise the SPA to 67 for both sexes in 2026, all figures in this press release should be viewed as low estimates of impact. However, the relative impact comparisons between areas set out here, will remain almost entirely valid. Our lower employment rate estimate is based on an employment rate some 30% below the 2012 employment rate, whilst our higher rate estimate is based on an employment rate some 10% above the 2012 employment rate.

Further data and information on the impact of the changes to the State Pensionable Age can be found on the pages below (in the three supporting tables which accompany this press release). Further tables with data for all local authorities across England can be found on our website at www.smartgrowthanalytics.co.uk). For a more detailed impact assessment for your local area please contact Smart Growth Analytics directly.

Full press release: (includes data tables)
Changes to the State Pensionable Age set to boost economic growth over the next 20 years (Embargoed 18 March 2013)


Data tables
Data tables 1, 2 and 3 PDF

... or see the full impact tables online PDF

Press release archive:
London 2012 set to boost home working across the Capital (29 February 2012)
The UK's home office hotspots revealed (21 February 2012)