This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

The past few days have seen a new burst of concerns about pensions.

Tory leader Kemi Badenoch is under pressure to ditch the triple lock, whereby the state pension is increased by whichever is highest: inflation, average earnings, or 2.5 per cent.

Standard Life has just done a survey that shows that half of workers expect to carry on in some form of job beyond official retirement age.

Research from Aegon UK shows that an even higher proportion of people expect to go on working, making retirement a gradual process rather than a sudden stop.

And behind all this are the rumours that one way Rachel Reeves will try to cut the fiscal deficit will be to hit private pensions, perhaps by reducing the tax-free amount that people can withdraw, in her next Budget on 26 November.

So many worries – but what’s new, and what’s to be done?

The new concern is the growing awareness that public finances, certainly here in the UK but also right across the developed world, are even more fragile than was apparent a few months ago.

Actually, thanks to a VAT data error at the Office for National Statistics, it looks as though government borrowing will be about £3bn lower this financial year than was previously expected – but unfortunately Rachel Reeves does not have a £3bn gap. It looks more like a £30bn one. So while the correction is in the right direction, it doesn’t go very far in solving the problem. Borrowing is running at an unsustainable level, so some mix of tax increases and cuts in spending seems inevitable.

In any case, this focus on what is happening in one year ignores the deteriorating demographic trend. The latest figures for the fertility rate in England and Wales – that’s the number of children born on average to each mother – show that it has fallen to 1.41. That is way below the replacement rate of 2.1 babies and the lowest ever recorded.

While the UK population is still increasing, thanks to immigration, it seems likely that the size of the workforce will start to fall within the next decade. Unless something changes, that would leave fewer people in work paying taxes to support the growing numbers of pensioners.

If you take into account the growing pressure on the public purse from other forces, including more spending on defence and higher charges to finance the national debt, the problem of finding the money to finance pensions can only grow.

It is easy to see the social tensions that are already evident looming even larger. To what extent will younger people in work be prepared to pay yet higher taxes to support retirees – when they have to save more for their own pensions as well?

This is a challenge that runs right across the developed world, but that doesn’t make it any easier to tackle. And remember, if instead of increasing taxes governments simply borrow more to meet these obligations, they are loading yet more debt onto future generations.

If this sounds dispiriting, there have been some chinks of light. Politicians focus on specifics such as the triple lock and increasing taxation on pensioners because those are high-profile issues. But behind the headlines, ordinary people are quietly becoming more aware that they will have to plan their later years more thoughtfully.

That Standard Life survey reveals a growing realism. For example, while on average people say they would like to retire aged 62, they accept that they will have to work, again on average, until they are 67. The view that 50 per cent now expect to work beyond retirement age is an increase from 46 per cent a year earlier. People are unsure, with nearly three-quarters feeling that retirement in the future will be more complicated than it is now. But that is surely a positive, for it encourages everyone to take more responsibility for their own future, rather than relying on future taxpayers to stump up.

Even more encouraging is the evidence from the Aegon UK survey that people are thinking of making a gradual transition to retirement rather than a “hard stop”.

There is a lot of evidence that a gradual shift is much better for people’s health and well-being than a sudden switch. For example Age UK reports that many people expect retirement to be wonderful but then find it unfulfilling – that they somehow lose their identity. PensionBee notes that people are faced with stress, anxiety and depression. Carrying on in some form of work not only buffers the transition, but helps on the financial side too.

The problem, as so often, is how to make the transition. We have a state pension system that sees retirement as a sudden event. But that is not what most people want. So the issue is not simply about saving the taxpayer money. It is about making lots of small, incremental changes to the workplace environment that encourage people who would like to carry on working to find some way of doing so.

And if the financial pressures on the Government encourage more constructive thinking about how to help, then that’s progress too.

Need to know

I am fascinated by the way in which attitudes to retirement have shifted the years. Students of economics will be familiar with the history of the state retirement age and unfunded pension schemes. 

Otto von Bismarck, the 19th-century German chancellor, created what became the model for the world: people should get a state pension at a specific age, and it should be paid by existing workers. He set the age initially at 70, not, as popularly supposed, 65. The idea was first proposed in 1881, and sickness insurance was added in 1883. Eventually unemployment pay was started in 1927. 

It worked very well, partly because a rising population created a situation where, with a few blips, each generation of workers was larger than the previous one, and also because people did not live very long after retirement. Both those circumstances are now radically different. Germany’s population in 1880 was around 45 million, whereas now it is 84 million, and with somewhat smaller boundaries. And life expectancy in 1900 (I don’t have the 1880 number) was only 47, against 82 now. 

It is odd, if you think about it, that a model developed in very different circumstances between 100 and 150 years ago should still be the normal one for the developed world. There surely must be a better way. 

The other thing that has changed is attitudes to retirement. Back in the 1970s and 1980s, when unemployment levels were much higher than today, the idea of early retirement was seen as a way of reducing unemployment. There’s a report from the OECD on this here. Now, that seems extraordinary, and there certainly isn’t the money to fund such a plan anyway. 

But the concept of a single retirement age still stands. There is an obvious argument for that in some activities: the military, any form of manual labour, some activities where physical alertness is important, such as airline pilots, and so on.  

For many jobs, however, people at the top at least seem to go on and on. Larry Ellison, head of cloud computing company Oracle and now the second-richest person in the world, is 81. Warren Buffett, who has recently said he is stepping down from running Berkshire Hathaway, is 95. And here in the UK our two richest people are into their sevenities: Sir James Dyson is 78, and Sir Jim Ratcliffe is 72. Come to think about it, in US politics voters have lately seemed to favour people far past regular retirement age for president, too. 

My own feeling is that it is largely the luck of the draw. Some people go on working and want to, while others can’t or don’t. But the idea that people in mid-careers should plan for their future independence – so they can choose or not to go on working – is surely a valuable one.