Immigration is Good for Your Pension

According to the National Institute of Economic and Social Research a Brexit cap on immigration would mean bad news for the State Pension

Emma Wall 3 June, 2016 | 12:23PM
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Immigration is an emotive issue. Both sides of the Brexit debate have used the number of migrants coming every year to Britain as a battering ram – with the Remain campaign claiming the flow of workers helps prop up the British economy, and the Leave campaign claiming immigrants are a drain on the already-strained public purse.

The latest report from the National Institute of Economic and Social Research (NIESR) weighs in on the side of Remain, claiming that a cap on immigration would mean bad news for the State Pension. In a report commissioned by the Institute and Faculty of Actuaries (IFoA) entitled ‘The Impact of Possible Migration Scenarios after ‘Brexit’ on the State Pension System’, the institute finds:

“Reductions in immigration would have a negative impact on the public finances.  To offset these impacts policy change in the form of increases in national insurance contributions, reductions in pensioner benefits, or increases in the state pension age could be used.  More restrictive immigration policies would, not surprisingly, have more negative impacts.”

The report, authored by Dr Angus Armstrong and Dr Justin van de Ven used official migration statistics and projections, which show net migration falling to 185,000 from 2020/21, and remaining constant at that level in subsequent years.

Last year the official net migration figure for the UK was 333,000, although many believe the actual number to be much higher. In 2011, David Cameron pledged to the Conservative Party to reduce and control immigration saying: “If we take the steps set out today, and deal with all the different avenues of migration, legal and illegal, then levels of immigration can return to where they were in the 1980s and 90s, a time when immigration was not a front rank political issue.

“And I believe that will mean net migration to this country will be in the order of tens of thousands each year, not the hundreds of thousands every year that we have seen over the last decade.”

Cameron’s failure to meet this target has been a boon to the Leave campaign, with both Boris Johnson and Michael Gove challenging the Prime Minister on the figures this week.

Raising Immigrants’ Incomes Could Balance Negatives

All is not lost for the Leave campaign however – the report does go on to say that in the event there were more restrictive immigration policies in place, a rebalance to the wages received by high-skill workers coming in on controlled visas could mitigate the negative impact.

“These [negative] impacts could be mitigated, and indeed reversed, were the government to be able to successfully implement a very significant change in the incomes, and implicitly the skills or qualifications, of new migrants by introducing a skills or points based migration policy, perhaps similar to the policy in Australia,” it reads.

“The reduction in EU migrants, an increase in total non EU migrants and an up-scaling of skills are all possible policies which have been aired in the referendum debate. However, an important policy question, which we do not address here, is whether these policies would and could actually be delivered in practice.”

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About Author

Emma Wall  is former Senior International Editor for Morningstar