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How to build societies to be inclusive of ageing populations

WGS001B35 Dealing with the financial pain of ageing populations Shutterstock 1039995148
WGS001B35 Dealing with the financial pain of ageing populations Shutterstock 1039995148

On an individual level, the ageing process can be a cause of pain and despair that forces many people to radically alter how they live. 

 

The same is also true for countries. Increasingly, they are having to cope with populations in which the old outnumber the young.

 

“Ageing may be one of the most far-reaching processes defining the economic, fiscal, and social changes societies are likely to experience over the next 40 years,”  a 2015 World Bank report said.

 

The writers also warned that the coming decades will bring a demographic transition on a scale never previously experienced.

Who’s paying for this?

 

While some countries are having population booms, the United Nations says the percentage of older people in many countries is set to increase dramatically.

 

The number of over-60s in Japan is expected to rise from 33% of the population to 42% by 2050. France will see an increase from 26% to 32%. In the UAE the number will go up from 2.4% to 18.7% by the middle of the century.

 

The shift in the ratio of workers to elderly people is the key problem arising from this demographic drift. Globally, there were 10 employed people for every person over 64 in 1970. By 2050 that number is expected to fall to just four workers to every pensioner.  In some European countries there may be only two workers to every person over 64.  

 

As a result, it will simply not be possible for the working population to fund the care and pensions of the elderly.

 

Policy makers will have to find alternatives.

 

Moving the goalposts

 

Many countries are already looking to increase the retirement age, and the age at which they begin to pay state-funded pensions.

 

The Japanese historically retired at 55, but this increased to 60 in 1998 and is set to rise to 65 by 2025. Some doctors in Japan are advising that the definition of a senior citizen should be delayed until 75. This would classify 65-74 year-olds as pre-old age and empower them to work or volunteer for longer.

 

 

Meanwhile, the Netherlands is taking away incentives for early retirement schemes. The UK will increase the state pension age to 68 between 2037 and 2039, five years earlier than planned.

 

Gradual retirement is also an option in many countries – where older workers can choose to work part-time after the official retirement age. This is often beneficial to both employers – who value the expertise and historical knowledge of older workers, and to the employees as they adjust to a new phase of life. 

Enforcing change

 

Many different schemes have been devised to persuade the younger generations to save more for their retirement. But, as the problem grows in urgency, policymakers are now increasingly looking at ways to make pension savings compulsory.

 

Australia was one of the pioneers of compulsory private pension schemes, and employers must now pay 9.5% of an employee’s salary into a superannuation system. That figure is set to grow incrementally in the years ahead. Many other countries are now introducing a level of compulsion to pension savings, either through automatic enrollment, or by forcing the hand of private companies to do more.

 

And while telling people how they spend their money has sometimes seemed unpalatable, many experts say this is no different to the compulsory nature of taxation.

 

A changing landscape

 

Another way of reducing the dependency ratio between old and young is through immigration. In the best-case scenario, migrant workers would fill the skills shortages and pay taxes, without being eligible for state pensions.

 

In reality, the situation is always far more complicated, as demonstrated by Germany. The chancellor, Angela Merkel originally welcomed migrants with open arms – partly out of compassion for the plight of refugees, and partly because of a real shortage of skilled labour in Germany. But as more and more migrants arrived, the political landscape changed, and eventually forced the government to limit the number of migrants coming in.

 

Nevertheless, if migration – and the integration of immigrants – can be managed effectively, skilled workers from overseas are likely to make a significant contribution to the workforce of countries that suffer most from ageing populations.

 

Time to act

 

There is perhaps one more matter for policymakers to bear in mind.

 

While ageing populations are playing havoc with the budgets of nations, older people are also becoming increasingly influential in democracies – simply because of the rise in number of the so called grey votes.

 

Few people vote for polices that penalise them unduly. If governments want to push through significant change that increases the financial burden on older people, it will be much easier to make those changes sooner rather than later.