Much of what goes on in economics has a short time span. Will economic growth accelerate or slow this year? What will happen to inflation next month? What will be the impact of Brexit? However one of the most significant challenges we and other countries are facing is much longer term and has to do with increasing life expectancy.
Pre 1800, according to The Economist, no country had an average life expectancy of over 40 while today, every country does. In the UK today, life expectancy is 79.5 for men and 83.1 for women. Infectious diseases are now much less significant; people with cancer now survive for much longer than in the past and survival rates from heart attacks have improved.
Why the concern? Surely we can look forward to a long, healthy retirement, with a high standard of living provided by our state and private pensions, living in properties which we own (and with the mortgage paid off long ago), spending time playing golf, becoming a “silver surfer” and embarking on regular SAGA holidays (the travel company catering for the older traveller).
Unfortunately the picture for the majority of the population will not be so rosy. A study by Public Health England, published earlier this year, suggested that the average woman has poor health from the age of 64 and the average man from 63½ and, although life expectancy has increased, much of it will be spent in ill health, with back pain, diabetes, obesity and dementia becoming common among older people. As people live longer in poor health, the demands on the NHS increase. A BBC report (http://www.bbc.co.uk/news/health-38887694) suggested that spending per patient for a 65 year old was double that for a 30 year old while, for an 85 year old, the cost was five and a half times as much. The Office for Budget Responsibility has suggested that spending on the NHS and care will rise from 6.1% of GDP in 2021 to 12.6% by 2066. In addition, there has much comment in the press recently about the rising cost of providing care homes for the elderly. And, finally, the spread of ill health is not uniform across the country. In the richest areas of the UK people enjoy nearly 20 years more good health than in the poorer areas. A survey by Canada Life, an insurer, found that three million more people think that they will need to work beyond 65 than did in 2016 and 10% of those surveyed expected to be working until they are 85 because of the increased costs of care home provision. Another issue to take into account is the way that low interest rates have reduced returns for pension funds and savers (many of whom save for retirement).
It is not just the elderly who will suffer. As people live longer, the amount of money needed to provide pensions increases and this money comes from the taxes paid by the relatively fewer working-age tax payers who find themselves supporting an ever-increasing number of retired workers as well as paying for the increased cost of NHS treatment for the elderly. Three years ago, the Institute of Economic Affairs suggested that Britain faces significant tax rises and government spending cuts in order to meet the needs of an aging population in terms of pension payments and health care.
The situation is not restricted to the UK. In Japan, the country with the most rapidly aging society and where 33% of the population are already over 65, a report found that over half of live-in carers are themselves pensioners and the Prime Minister, Shinzo Abe, suggested that Japan’s declining birthrate and aging population was the major obstacle to economic growth. To reduce the problem, the pension age is gradually being increased to 65 and Mr Abe has set a goal of increasing the number of women, and hence taxpayers, in the labour force.
The Government has just announced that the state pension age for men and women will rise to 68 in 2037, seven years earlier than previously planned. However a retirement age of 68 compared with one of 65 in 1948, when the NHS was founded, does not fully take into account the much greater increase in life expectancy since 1948.
So what are the solutions? Do we all work even longer and is this viable in some occupations? Does part-time work become more common for older workers? Do we encourage migration so that there is a relatively larger working population? Do taxes increase to cover the rising costs of pensions and care for the elderly? Does the government encourage (or force) people to save more towards their old age or cut the real value of the state pension? This is something for the younger reader to decide. I am off to book a Saga holiday!