That "pensions crisis" again. posted by Richard Seymour

The Pensions Commission bases dire predictions about “savings gaps” and “black holes” on a statistic called the “old age support ratio”.

This compares the number of people of working age with the number aged 65 and over.

It shows that there will be an increasing number of older people and a static number of workers — hence a crisis.

But this is utterly simplistic. It ignores, for example, the fact that nine million people of working age do not work.

Some are students, some are carers, some are ill. But about two million would take jobs if they were suitable.

A much more useful statistic is the “economic support ratio”, which relates the number of people working to the number not working.

Whereas the old age support ratio sees a fall of 42 percent between 2003 and 2045, the fall under the economic support ratio over the same period is only 13 percent. And over the same period workers will be producing far more.

Assuming a relatively modest productivity growth rate of 1.75 percent a year (well in line with past performance), the average British worker will produce about twice as much in 2045 as today.

If the change in the economic support ratio is 13 percent, this would more than offset by such an expansion.