Demographic change

I was in Parliament today giving evidence to the Finance Committee on the consequences of demographic change.

It is clear that Scotland faces an increase in the number of older people in Scotland in the future, which will in turn create pressures on public finances. The population aged 65 and over will increase by 21% from 2010 to 2016 and 62% by 2031 and that for those aged over 85 there will be an increase in the population by 38% by 2016 and 144% by 2031.

This is usually announced as bad news, but I argued today that there are positives. Many older people are living healthier lives to a greater age which will decrease the number of years that they require care. Older people, particularly those with good pensions, have a huge spending power and businesses and policy makers should recognise the needs of ageing consumers. They also make a productive contribution through caring and volunteering in various settings and, since the abolition of the Default Retirement Age many of them are continuing to work well beyond the previous norm of 65. Scotland's population is also rising thanks mainly to younger migrants and that has some balancing impact.

The main focus of the session was on pensions. The Hutton Report shows clearly that the cost of public pensions will fall from 2% of GDP to 1.8% in 2030 and 1.4% in 2060 as a consequence of the 2007/8 reforms. In addition, other recent changes to schemes will reduce costs even more including: increased member contributions; switching from RPI to CPI will save at least 15%; and a later retirement age. As a consequence employer contributions in the Scottish LGPS are already reducing since the 2008 changes.

But cost is only one aspect of the issue. One in four workers in UK earning less than £300pw have no pension provision. At a time of wage restraint and rising costs these numbers are likely to rise as more workers opt out of good schemes just to put food on the table now. Auto enrolment will at best make a marginal difference as the amounts put in are inadequate for a decent retirement income. This will be compounded by later retirement ages as many Scottish workers calculate that they are unlikely to live long enough to collect their pension.

The committee also asked about pension investment. The Scottish LGPS has assets of over £20bn and we believe this could be used more effectively to support the Scottish economy. There are challenges in doing this, but improve governance arrangements could assist this process. This will be a high priority for the trade unions in the coming scheme review.

An ageing population is going to be a challenge for Scotland in the coming years but we should remember the positives. Good quality pension schemes for everyone are essential and affordable.