The State Pension and debates around the State Pension Age could become irrelevant if A.I predictions play out
12 Sep 2017 - Estimated reading time: 3 minutes
- If 1 in 3 jobs are at risk of automation by 2030 (as the BoE and PWC estimates*), this would mean retirement shortfalls increase to £2.3 trillion; or one years' current UK economic output.
- The income shortfall of those of working age, relative to the living wage, would be another £1.25 trillion.
- Of course, AI is anticipated to increase GDP growth by 10% (PWC estimate) over the medium term.
- So, the question is not whether retirement income shortfalls are affordable, as there will be more money in the economy; it is what fiscal or other policy developments are required to ensure the benefits are shared?
- For example, in a world of job scarcity longer term, perhaps the State Pension becomes an irrelevance and what’s needed is a universal living allowance, potentially means-tested that is age agnostic.
- Otherwise, with the potential for job scarcity in longer term, we risk an increasingly economically unequal society with heightened intergenerational unfairness. Ultimately this inequality may undermine social stability.
- In this context the pensions industry is debating long term minutia rather than long term societal game changers and how we set policy in our future to handle those.
Many argue that Artificial Intelligence (AI) is set to change society and the economic landscape beyond recognition. Our Better Futures conference will debate challenges presented by an ageing society, the rise of AI and a lack of savings, Hymans Robertson, the leading pensions, benefits and risk consultancy, has looked at the implications for the State pension if predictions about the impact AI will have on jobs and UK GDP play out.
Commenting, Calum Cooper, Partner at Hymans Robertson, said:
“There are many predictions about the impact the rise of Artificial Intelligence will have in the future. While we can’t be certain about the specifics, we can be certain that change is on its way and arguably is in fact already underway.
“Looking ahead to the long-term, if there is as much employment uncertainty as many predict - and we see many jobs fully automated, others significantly computerised, and there aren’t enough new jobs to take their place - then debates around the State Pension Age (SPA) and the State pension become irrelevant.
“Some predict that UK productivity could increase by as much as 10% by 2030 (PWC); but in the same timeframe, 1 in 3 jobs could be replaced by automation*. Normally GDP growth translates to higher taxes and earnings growth, but not if it comes with unemployment. Clearly this raises questions over whether those 1 in 3 jobs will be replaced; and if GDP increases, who will be the beneficiaries of this rise in productivity?”
“If employment is limited to fewer people, it’s not hard to imagine a scenario whereby the State Pension is scrapped. If there is no work there is no 'pension'. And government benefits spend may need to become age agnostic.”
Discussing potential alternative models of wealth distribution, he said:
“To avoid the risks of rising and unsustainable inequality, a shift in the tax system to be increasingly progressive and wealth rather than income based may be necessary. In such a scenario, many argue a means tested universal living allowance (like the mooted Universal Basic Income, but for all generations) which is age agnostic and protects people from being destitute, could be an alternative. Particularly as those in work longer term – in highly skilled creative jobs that require strong interpersonal skills, will likely have great jobs and be able to look after themselves.
“In any case, the ages set for SPA over the long term are a bit of an irrelevance under most 'futurologists' views of longer term employment and the social landscape. We seem, as an industry, to be debating long term minutia rather than long term societal game changers; and how we set policy and our future to handle those.
“If GDP is 10% higher as a result of the technology revolution, as some predict, then there will be more money to go around. So in principle some form of universal basic income, if set at a sensible level, could be affordable, protecting people from destitution. This, however, would require significant fiscal change. And it would reshape the nature of left and right winged politics.
“Regardless, what will be key in the future is ensuring that technology value creation is shared in a socially sustainable and fair way. How we do this is what we should be debating as a nation.”
*30% unemployment source: BoE analysis that 33% of jobs have high probability of automation over next few decades; and PWC UK Economic Outlook March 2017