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FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC 4322
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHED/AMCONSUL EDINBURGH 0775
RUEHBL/AMCONSUL BELFAST 0836

UNCLAS SECTION 01 OF 03 LONDON 002595 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: SOCI ECON TBIO UK
SUBJECT: THE UK'S AGING POPULATION STRAINS THE SOCIAL 
SAFETY NET 
 
REF: STATE 29783 
 
LONDON 00002595  001.2 OF 003 
 
 
¶1. (U) Summary:  The UK is grappling with the booming growth 
of its elderly population.  There were 20 million Britons 
aged 50 and over in 2003, a 45 percent increase since 1951. 
This number is projected to increase by a further 36 percent 
by 2031, to 27.2 million, or 42 percent of the population. 
Rising public health care expenditures, at 7.1 percent of the 
UK's GDP, have not yet been matched by greater longevity or 
better quality of life.  Gordon Brown has already brushed up 
against this third rail as Chancellor; his choices will not 
be any easy as Prime Minister.  End Summary. 
 
Boomers Age, Demand Attention 
----------------------------- 
 
¶2. (U)  The aging population in the UK, as defined by the 
Department for Work and Pensions (DWP), is anyone aged 50 or 
over.  There were 20 million such people in 2003, in a total 
population under 60 million, a 45 percent increase since 
¶1951.  This number is projected to increase by a further 36 
percent by 2031, to 27.2 million, or 42 percent of the 
population.  For the first time ever, the majority of voters 
are likely to be aged over 50 in the next General Election, 
expected in 2009 or 2010.  A 2006 study by the OECD places 
the UK 9th in terms of public spending on health care, while 
its life expectancy rates (76.2 for men and 81.3 for women) 
put it in the bottom quarter of all 30 OECD countries.  Since 
coming to power in 1998, the Labour government has more than 
doubled the National Health Service (NHS) budget, increasing 
it from 33 billion in 1997 to 72 billion in 2006.  Although 
the Labour Party's spending increases have yet to produce 
immediate improvements in health and well-being, it is, 
arguably, 
 too soon to ascertain what impacts they will have in the 
long term.  In terms of old age pension rates, the UK falls 
short, coming in last among OECD countries, although 
pensioners' incomes have risen faster than average earnings 
-- over 28 percent in 8 years -- and the number of pensioners 
living in poverty fell by 800,000, or 8 percent, during 
Brown's chancellorship, according to the Office for National 
Statistics and Institute for Fiscal Studies (IFS), 
respectively. 
 
¶3. (U) The DWP is the government body most directly involved 
in addressing the concerns of the elderly.   Opportunity Age, 
first published by the DWP in June 2005, is the UK 
government's official strategy for addressing the challenges 
and opportunities presented by an aging society.  The 
strategy aims to end the perception of older people as 
dependent; ensure that longer life is healthy and fulfilling; 
and that older people are full participants in society.  It 
also aims to achieve higher employment rates overall and 
greater flexibility for the over 50s in continuing careers, 
managing health conditions and combining work with family and 
other commitments.  Specifically, the government's program 
under Opportunity Age aspires to a world-leading 80 percent 
overall employment rate, including one million more older 
people in work. 
 
Later Retirement Could Help 
--------------------------- 
 
¶4. (U)  In 2003, the British government appointed a special 
committee chaired by Lord Adair Turner, Vice Chairman of 
Merrill Lynch Europe and former head of the Confederation of 
British Industries, to undertake a comprehensive study of 
pension benefits in the UK.  In May 2006, the government 
published a White Paper -- the precursor to draft legislation 
-- which adopted virtually all of the reforms recommended by 
the Turner Commission.  The White Paper proposes sweeping 
changes to the British pension system, both public and 
private.  The changes include an increase in the retirement 
age for both men and women to 68 by 2050, more generous state 
pensions with indexing linked to earnings rather than prices, 
and creation of a voluntary national savings plan, based on 
employee/employer contributions that would require 
individuals to "opt-out" if they did not wish to participate. 
 The number of years required to pay into the system in order 
to receive benefits will drop to 30 to make it easier for 
individuals to l 
eave the workforce to care for children or other relatives. 
 
¶5. (U) In a recent lecture at the London School of Economics, 
Turner identified pensions, healthcare systems, and 
creativity output from older workers as the major concerns 
associated with an aging UK society.  Turner believes the UK 
population will be living healthier lives, allowing for them 
to work productively until an older age.  This conclusion 
allowed his commission to recommend the cost saving measure 
 
LONDON 00002595  002.2 OF 003 
 
 
of raising the State Pension Age to 68 from the current 65. 
Lower fertility rates combined with greater family 
inheritance per person will also be an effective way to 
provide for increased GDP spending on the aged population, as 
less will be spent on youth and new housing development. 
 
¶6. (U) Andrew Harrop, the Head of Policy for Age Concern, a 
non-profit organization that promotes the well-being of older 
people, tells us he sees Opportunity Age as the best 
government policy thus far to deal with aging in the UK, but 
feels that it is not suited to meet long-term problems. 
There is talk of possibly creating a governmental Office of 
Aging, but Harrop believes there is not a lot of enthusiasm 
for this within the government. 
 
Next Headache: Long Term Care 
----------------------------- 
 
¶7. (U) Over the past five years, pension reforms have been at 
the forefront of the political debate, while the long-term 
care system will likely become the next big issue.  Age 
Concern's assessment of increased longevity in the UK, unlike 
that of the government's Pensions Committee, does not 
indicate that the UK public will lead healthier, longer 
lives.  This gloomy conclusion directly contradicts a 
fundamental assumption on which all the recommendations of 
the Turner Commission rely.  Age Concern argues recent 
research predicts a very large increase in disability caused 
by increases in age-related non-communicable disease in all 
areas of the world, and foresees an increase in the need for 
long-term healthcare and a debate about how it will be 
funded. 
 
¶8. (U) Funding at the national level is not the only source 
of support for the aged.  In a report "Securing Good Care for 
Older People" by the independent health care charity King's 
Fund in March 2006, author Derek Wanless indicates that for 
the over one-million older people (65 and over) who use 
publicly funded social services, local authorities spent GBP 
8 billion ($16b) in 2004-2005, with private spending on 
residential and home care estimated at more than GBP 3.5 
billion ($7b). 
 
 
Brown's Choice:  The Young or the Old 
------------------------------------- 
 
¶9. (U)  The political sensitivity of pensions was 
demonstrated by a storm of public criticism of Chancellor 
Brown's "5 billion pound tax raid on pension funds" of civil 
servants, as the media dubbed the building impact of pension 
reforms announced in his first budget message in 1997. 
Brown's decision was reexamined publicly in 2007 following 
its release through a Freedom of Information Act request. 
Brown was accused of weakening the private pension system 
through a tax law change.  Although removing the 25 percent 
tax credit on share dividends did real damage to pension 
funds, (estimated to be about a 50 billion dollar reduction 
in their existing asset values), each individual pension fund 
lost only about 1 percent a year.  Furthermore, shifting 
markets and increased longevity have had more negative 
impacts on pension funds than the removal of the credit, yet 
Brown's cuts remain the primary target of blame for total 
pension drops.  The outrage over the perceived "raid on 
pension funds" reveals the primacy of political assumptions 
about aging and retirement and their power to color economic 
realities.  The May 2006 UK Government White Paper "Security 
in Retirement: Towards a New Pensions System," proposed ways 
other than restoring the tax cuts to strengthen the system as 
a whole, including offering low-cost personal retirement 
savings accounts to those individuals who do not have access 
to work pension plans, increasing the State Pension age, and 
improving the basic State Pension to average earnings. 
 
¶10. (U) The IMF weighed in on the economics of aging in its 
bi-annual World Economic Outlook 2007, reporting the UK is 
ill-prepared to deal with a population that, peaking at 67 
million in 2050, will consist of more than 27 million 
individuals aged 50 and older--4 million of whom will be 85 
and older-- and will have to spend an extra 4 percent of its 
GDP to cope with it.  Her Majesty's Treasury in December 2006 
published a "Long-term Public Finance Report: An Analysis of 
Fiscal Sustainability," a study that contains analysis of the 
implications of an aging society from a public finance 
perspective.  It found that even though the UK is projected 
to age less rapidly than other developed countries, these 
trends are likely to have a profound effect on Britain's 
society and economy over the coming decades. 
 
¶11. (U) The future of the UK government policy on aging in a 
 
LONDON 00002595  003.2 OF 003 
 
 
Brown government is uncertain.  Harrop speculates that Gordon 
Brown will treat aging issues in ways similar to Prime 
Minister Tony Blair, although instead of favoring increased 
benefits for all pensioners, Brown will continue to champion 
the use of means testing to direct increases to the poorest 
pensioners first.  Additionally, Harrop worries about the 
priority Brown will give to older people in the future, as he 
believes Brown is more interested in children and families 
and might give less financial attention to the care of older 
people. 
 
¶12. (U) The preceding report was prepared by ECON interns 
Lauren Sible and Jennifer Storz. 
 
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