Professor David Bell: Move echoes private sector changes

When I started contributing to a pension scheme, Scottish men could expect to live an average of 11.5 years beyond the age of 65 and women, on average, for 15.3 years.

In 2008, 65-year-old men could expect to live for 16.4 years and, on average, women aged 65 will live to the age of 84.

The Scottish population is living longer and the improvement in life expectancy is expected to continue. This should be celebrated. But it does have some negative consequences.

Principal among these is the difficulty of funding adequate pensions. UK pensions are not especially generous. The UK only allocates the equivalent of 5.4 per cent of its GDP to the state pension, compared with an average of 7 per cent across OECD countries. Unfortunately, due to the financial crisis, the quality of pensions is falling.

This has been particularly marked in the private sector where defined benefit schemes are being replaced by defined contribution pensions.

In present fiscal circumstances, it is no surprise that the UK government is seeking to reduce costs of public sector pensions. Many of these schemes are unfunded, meaning today's workers have to pay for today's pensioners.

If the contributions fall short of the commitments, the taxpayer has to make up the difference. Employment in Scotland among those aged over 50 has increased, while the main fall in employment has been among those aged 16-24.

Many older workers have chosen to stay in their jobs because of the declining benefits of private sector pension schemes.

The difficulties for young workers in the labour market will increase if public sector workers opt to retire later.

But it is important not to be taken in by the "lump of labour" fallacy. There is not a fixed number of jobs in the Scottish economy that are given either to young workers or older ones.

• David Bell is professor of economics at Stirling University.