Demographic doom at the ballot box

An ageing population will vote for higher public spending on pensions

In an important new report* published today by the Institute of Economic Affairs, economist and actuary Professor Philip Booth** shows how older people are having progressively more influence over the political process – at the expense of the diminishing proportion of young people in the electorate.

This trend is set to continue very sharply. The research suggests that the average age of voters will rise from 46 to 53 over the next 30 years. More alarmingly, after allowing for the increased tendency of older people to vote, the average age of active voters will rise to 58. Within just 20 years, 50% of active voters will be over age 55.

This is alarming because other research in this field has shown that for every year by which the average age of voters increases, government spending on pensions increases by 0.5% of GDP. This projected increase in the average age of voters in the UK could therefore translate into an increase in pension spending of £45.5bn per annum.

Indeed, the IEA research calculates that the ageing electorate will have very strong financial incentives to vote for higher levels of pensions and state benefits and shows that middle-aged and older people will strongly prefer increases in state pensions, financed by the falling number of young taxpayers, to private solutions to pensions problems.

Politicians are responding already to pressure from the ballot box. The 2005 election was notable for the fact that the major political parties had few explicit promises. However, there were many particular, and sometimes bizarre, pledges to old people, in the party manifestoes, including proposals to exempt them from specific taxes and re-link pensions to earnings. In the recent past there has been significant redirection of government spending from the young (for example, the introduction of fees for higher education) to the old (in the form of higher welfare benefits). Changes to taxation have also hit the young hardest. Recent changes to state pension rules will remove contracted-out rebates from young people and use them to pay increased pensions to those already retired.

The author argues that the perfect storm is brewing. Booth commented "The evidence from many countries is clear. As the population ages, older people use the ballot box to transfer resources to themselves from the younger generation. Older voters have very clearly defined interests – often related to pensions, health and social care. Young people have much less incentive to vote and are forming a smaller and smaller proportion of active voters. The outlook will be very difficult for any party that wants to reduce public spending."

The report argues that the government must develop a radical new framework for state pensions if voter behaviour is not to lead to an unsustainable pensions burden. However, policy is currently moving in precisely the opposite direction.

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