The United Kingdom State Pension System: Analysis of Proposed Reforms and the Viability of Immigration-Based Policies in Response to Demographic Ageing

This paper briefly examines the options for reform proposed by the Pensions Commission in 2004 to sustain the United Kingdom state pension system in response to an ageing population. It further explores, under various scenarios, the long-term viability of immigration as an alternative policy response, by developing a population projection model to determine the replacement migration levels which would be required to maintain contributions (taxes) at current levels, using population data and assumptions in the public domain. The economic and social implications of immigration-based policies are also considered. This paper does not consider the specific policy recommendations in the Commission's Second Report published in autumn 2005, which at the time of writing was undergoing an internal consultation process. The results indicate that not only does each policy option proposed by the Pensions Commission require changes which are too large for the policy to be implemented on its own, but that a combination of options is likely to require discomforting changes at the individual level when considered under plausible scenarios. Economic and social implications aside, the results also indicate that immigration is an inefficient and ineffective way of mitigating demographic ageing. The required replacement migration levels are abnormally high and too volatile for it to be considered as a viable policy alternative.