Supplementary memorandum by Mr Anthony
Scholefield
This submission addresses particularly question
8 in the Call for Evidence "As the UK population ages, does
immigration affect the shortfall in pension funding?"
1. The terms used in this question need
some definition. The UK population has been ageing since at least
the last third of the nineteenth century as fertility began to
fall.
It is not a new phenomenon.
Pension provision in the UK is partly public
and partly private. Public pension provision is essentially supplied
by current general taxation as no proper fund was ever set up
following the establishment of old age pensions. One can recall
Aneurin Bevan's remark that the great secret of the National Insurance
fund was that there was no fund.
Private pension funding is effectively an individual's
claim, via pension funds, on income and wealth in the private
sector, possibly overseas.
2. In principle, the arrival of a migrant
worker who works for the whole of his working life and claims
a public pension will simply be the same as any other worker paying
tax in his working life and drawing a public pension in his retirement
years—all into and out of general taxation.
An immigrant's private pension arrangements
depend on his contributions. If they are high, he will have a
good pension. If they are low he will have a poor pension.
3. "The shortfall in funding"
would appear to refer to the obligation of the government to pay
for state pensions for an increasing number of pensioners in relation
to workers, a change that has been going on since the old age
pension was introduced. The question, therefore, is what's new—other
than a greater burden on general taxation?
4. The shortfall in pension funding, as
applied to private sector pension arrangements, refers to the
fact that private pensions depend on the profits of the private
sector.
If there are less workers in the private sector
and more pensioners, then the pensions will, in principle, be
lower but surely this is a matter for the private pension provider
in calculating his offer to the pensioner.
5. Two points are worth making. Diversion
of workers from the private sector to the public sector reduces
profits available for private pensions. The second point is that
private pension funding is global and, for the next century, there
will be no fall in the global workforce. There is, therefore,
no reason why profits available to private pension funds should
decline and in the global world there will be no shortfall in
private pension funding for at least a century.
6. It should be noted that countries such
as Norway and Singapore have established global funds as part
of their public pension arrangements. Lee Kuan Yew refers to the
necessity to establish proper inter-generational accounting in
the public pension provision in Singapore.
7. There are, however, those who promote
the idea that immigration will in some way mitigate the effects
of population ageing and fund pensions for the existing population.
As private pensions are essentially global, they are in particular
thinking of public pension provision. Most of the continental
EU countries of course rely on public pension provision.
The latest advocate is Franco Frattini, the
EU Commissioner for Justice, who is to announce on 23rd October
a directive on the admission of skilled migrants to the EU.
Frattini says in a speech in Lisbon on 19/9/07,
that immigration is not "the" solution but only "a"
solution to a decline in the workforce/pensioner ratio but also
that "migrants are a crucial part of the EU's comprehensive
strategy". Less moderate is the rapporteur in the European
Parliament, Lily Gruber, an Italian Socialist who commented:
"Our economies will not be able to survive
without immigrant workers. By 2050 one third of the 490 million
Europeans will be aged over 65."
Gruber's report menacingly recommended "Politicians
at both EU and member-states' level must be able to act by going
beyond purely electoral considerations and must adopt a comprehensive,
integrated approach to immigration policy" and "emphasise
the responsibility of the media in the dissemination of an accurate
image of immigration and in countering stereotypes."
The idea put forward by Frattini and Gruber
is called "replacement migration" and is a belief that
a fall in the support ratio, that is the ratio between worker
and pensioners, is bad, unprecedented, and, second, that immigration
will mitigate or solve this.
8. Plainly the rise in the number of inactive
or state supported people, whether pensioners or not, is a burden
if the state regards it as an obligation to tax to support the
inactive.
It always was and always will be. The question
is—are we entering a phase where this is a new phenomenon?
Second, will replacement migration change the support ratio in
any meaningful way?
9. The population of the EU is ageing and
will continue to age. This is hardly a new discovery since it
has been going on since the middle of the nineteenth century.
Look at the historic figures for the increase
in the number of over 65's.
|
| % over 65's to total population
|
| France
| Germany | UK
|
|
| 1851 | 6.7
| — | —
|
| 1901 | 8.5
| — | 5.5
|
| 1950 | 11.4
| 9.7 | 10.7
|
| 1974 | 13.2
| — | —
|
| 2005 | 16.4
| 16.7 | 16.1
|
| 2025 (forecast) | 21.2
| 24.6 | 21.9
|
| 2050 (forecast) | 26.7
| 31.0 | 27.3
|
|
Broadly speaking the percentage of over 65's in the total
population has doubled in France between 1901and 2005 and nearly
trebled in the UK. During this period there was no requirement
for immigration to fill "skill gaps". The economy and
society adjusted to the change. The rate of change is forecast
to be slightly greater over the period 2005 to 2050. The change
means that some of the economy's extra growth is diverted to increasing
the amount transferred to the over 65 non-workers as it was between
1901 and 2005.
The over 60's present the following picture:
|
| % over 60's to total population
|
| 1936
| 2005 | 2050
(UN estimate)
|
|
| Japan | 7.4
| 26.2 | 42.3
|
| Italy | 10.9
| 25.2 | 42.3
|
| USA | 9.1 |
16.7 | 26.9
|
| Germany | 11.9
| 24.8 | 38.1
|
| France | 14.7
| 26.8 | 32.7
|
| UK | 12.9 |
21.4 | 34.0
|
|
The great surge in the over 60's in western countries has
taken place and the adjustment has taken place already.
All countries must age at some point as life-expectancy increases.
Otherwise we end up with the constant-fertility scenario as portrayed
by the UN study "World population in 2300" where the
world population is ten thousand times what it is now (134 trillion)
and in some countries the population is standing on each others'
shoulders.
In fact, countries as diverse as China, Turkey and Bangladesh
are all ageing faster than the UK although from a lower age level.
None of them are planning "blue cards" to attract "highly
skilled" immigrants.
So the conclusion is that the EU is ageing, much of the ageing
has taken place and has already been adjusted to.
10. The support ratio (of working age to over 65's) has
already dropped dramatically and in the UK is now 4.09:1. Without
immigration, the support ratio in the UK is projected to be 2.36:1
by 2050. We should note it was over 10:1 for 1901. To be precise,
in 1901 it was higher than this as many over 65's in 1901 were
at work.
11. Is this a problem? What are the solutions? Can replacement
migration help?
If no over 65's worked, there would plainly be a greater
burden on workers. In the same way, Britain would have a smaller
burden today if it still had the ratio of pensioners to workers
as it did in 1901.
12. However, there are plenty of other ways to improve
the ratio of workers to pensioners. One source of labour is to
encourage the over 65's to carry on working. Then there are the
5 million of unemployed and non-workers and social security claimants
in the UK. The effect of the welfare state has encouraged the
idea that the current workforce will be supported in retirement
by a future workforce whereas true inter-generational accounting
would make the current workforce provide for its own pensions
in its working lifetime. This led to the tremendous savings of
pre-welfare state Britain or of the current Far-East economies.
13. The idea of replacement migration, that is that Britain
and the EU need immigrant workers to compensate for an ageing
society, has been described by Anthony Browne, Director of the
Policy Exchange think-tank, as "one of the most widespread
and comforting self-delusions since humanity believed the sun
went round the earth. It is the triumph of wishful thinking .
. . over elementary demographics: immigrants are no fix for an
ageing society because they age too."
Every reputable authority has pointed out that replacement
migration will not work because immigrants also age. As put by
Chris Shaw, the government actuary, in Population Trends in
Spring 2001, "Despite much recent attention being focused
on migration, it is clear that this is not a long term solution
to the `problem' of population ageing."
"The single reason why even large constant migration
flows would not prevent support ratios from falling in the long
term is that migrants grow old as well. Although a steady large
flow of migrants would continue to boost the working age population,
before long it would also start adding to the retirement-age population
and a four-to-one (say) potential support ratio would not be maintained."
As put by Anthony Browne in his book "Do we need Mass
Immigration", "The UN calculates that to keep the UK
dependency ratio at 4.09:1 (as in 2000) the UK would need to have
59,775,000 immigrants by 2050, increasing the population to 136
million. At the end of that period, immigration would need to
be running at 2.2 million a year, and still growing exponentially.
To carry out this strategy of replacement migration, the UK would
thus need to import another 130 million by 2100, doubling the
population to about a quarter of a billion!" And so on, ad
infinitum.
In other words the immigration would be huge and would mushroom
indefinitely.
As for the EU, the UN has calculated that to maintain the
ratio of pensioners to the working population, it would need to
import 674 million migrants by 2050. Nor is that a solution because
the 674 million will retire and need further migrants to support
them.
14. Among the many organisations which have looked at
and rejected replacement migration, perhaps the last word should
go to the Home Office [International Migration and the United
Kingdom: Patterns and Trends (2001)]:
"The impact of immigration in mitigating population ageing
is widely acknowledged to be small because migrants also age.
For a substantial effect, net inflows of migrants would not only
need to occur on an annual basis, but would have to rise continuously.
Despite this and other findings, debate about the link between
changing demography and a migration `fix' refuse to go away."
15. Of course, Frattini says migration is only part of
the solution—a partial "fix". His twenty million
immigrants will be 3% of the 674 million the UN calculates are
needed to maintain the support ratio and would change the UK support
ratio from a projected 2.36:1 in 2050 to 2.43:1—a tiny change.
Replacement migration is regarded with contempt by every expert
and has the ability to unleash massive cultural costs and disruption
throughout the EU but it has one great advantage for the Frattinis
and Grubers—it is all part of Europeanisation.
As Frattini says, "If managed well, immigration is one
area where our citizens will clearly see the added value of a
European approach."
16. More sensibly, the UK government actuary recommends
"measures such as raising workforce participation ratio or
discouraging early retirement are likely to remain a more practical
tool for increasing the working population", and "A
long term TFR [Total Fertility Ratio] of 2.0 children per woman
would produce much the same support ratio at 2100 as would annual
net migration of half a million people a year (to the UK) but
with a total population of 75 million rather than 120 million."
October 2007
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