The world is getting older and this has significant implications for the working population, those who have retired and those about to enter employment. The country facing the most immediate crisis is Japan with its rapidly ageing population. Those over 65 years old now account for 28% of their population and their life expectancy is 84 – the highest in the world. It is predicted that over half of the babies born there today will live to over 100 years old. In addition, it has the lowest birthrate since its records began 120 years ago and therefore its population is falling. In the UK the population is ageing. The proportion aged 65 or over in 2016 was 18% of the population (11.8 million) and the ONS predict that by 2066 this figure will have increased to 26% of the total population (20.4 million).
We can expect this to result in an increasing budget deficit as pension payments increase because of longer life expectancy. Governments will face increasing costs of health care as people live longer and consume more health care which is becoming increasingly expensive for those in later life as medical science has improved. Linked to this, the tax burden on those of working age will increase as the proportion of the population not working increases. Partially offsetting this, there has been an increase in the proportion of older people working as their health has improved; for example, in the UK, the proportion of over 70s working has more than doubled in the last ten years but it is still only one in twelve. However if people are working longer, their ability to provide care for elderly relatives will diminish. A key concept to consider is the “Old age dependency ratio” (OADR) – the number of people of State Pension age (SPA) per 1,000 people of working age. In the UK this is forecast to increase significantly beyond 2030, therefore suggesting either increased taxes, reduced levels of care, increased immigration,reduced real pensions or making the elderly pay an increased proportion of costs currently paid by the state.
The impact on the structure of the economy is also significant. Many older people live in houses which are too large for them, bought when they had children who have now left home. A shortage of suitable smaller accommodation, combined with the relatively high costs of down-sizing prevents some of them from moving, thereby restricting the supply of housing for younger families. There is also an increasing need for workers in the NHS and care industries to look after the rising number of elderly people. There is also a regional impact since proportionately more elderly people live in rural and coastal areas, placing a proportionately higher burden on local authorities and the NHS in those areas. Another issue is that over the past few years, the relative income of UK pensioners has increased due to the introduction of the “Triple Lock” in 2011 – a government commitment to increase pensions annually by the highest of average earnings, the rate of inflation or a minimum of 2.5%. Since then both inflation and earnings growth have been low and the 2.5% increase has therefore increased pension incomes relative to earnings. This is supported by a government study which looked at the percentage of people in 2015/16 of different age groups reporting it “quite or very difficult to get by financially” which showed that the lowest percentage of those in difficulty were the two highest age groups, 65 – 74 and 75 and over, which reported 3.1% and 1.4% respectively. These returns compare with the next lowest, the 16 – 24 age group, who reported 5.8% in difficulty.