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Economics of an Ageing Population
The UK population is aging rapidly, with the number of people over pension age projected to rise significantly in coming decades. This aging population will place greater pressure on public services like healthcare and the state pension system. It may also impact economic growth by reducing the proportion of working age people. However, an older population also presents opportunities for businesses if they adapt to changing spending patterns and demand. Policymakers will need to consider reforms to ensure public services and the welfare system remain financially sustainable in light of these demographic challenges.
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Economics of an Ageing Population
- 1. Economics of anAgeing Population
- 2. The UK’s AgeingPopulation • The UK has an aging population: there are around 12.4 million people of pensionable age today. • Population projections predict that there will be 16.3 million people of pensionable age in the UK by 2041. • Population of pension age: • 1951: 6,828,000 (16 per cent) • 2016: 12,435,000 (19 per cent) • 2041: 16,275,000 (22 per cent) • Population older than 75 years: • 1951: 1,779,000 (4 per cent) • 2016: 5,326,000 (8 per cent) • 2041: 9,797,000 (13 per cent)
- 4. UK population projections- 2046 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100 & over Age Structure of the UK Population in 2016 and projection for 2046 2046 2016
- 6. Median age byselected country The median age divides a population into two numerically equal groups; half the people are younger than this age and half are older 46.5 46.5 41.1 40.4 39.1 37.8 36.8 31.1 27.3 0 5 10 15 20 25 30 35 40 45 50 Japan Germany France United Kingdom Russia United States China Brazil India Medianageinyears Source: CIA Factbook Median age by selected country
- 7. Source: OECD Demographyand Population Statistics (database) Japan’s population is ageing rapidly and shrinking
- 8. Changes in UKmedian age The ageing of the UK population is shown in this chart which tracks mid-year estimates for the median age of the UK population. 30 31 32 33 34 35 36 37 38 39 40 41 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Median age of the UK population, years, mid-year estimate Changes in UK median age
- 9. What is meantby the dependency ratio? Age-dependency ratios are a measure of the age structure of the population. They relate the number of individuals that are likely to be “dependent” on the support of others for their daily living – youths and the elderly – to the number of those individuals who are capable of providing such support What is meant by the dependency ratio? • Dependency ratio = • Number of children aged (0-15) + number of people aged 65+ / divided by number of working age (16-64) • The real dependency ratio = ratio of economically active workers to economically inactive population
- 10. Changes in UKmedian ageUK Old Age Dependency Ratio 20 21 22 23 24 25 26 27 28 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Older Dependents to Working-Age Population for the United Kingdom – Measured as Percent of Working-Age Population
- 11. Estimated population aged50 and above, in millions and as a % of total population in 2025 Estimated population aged 50 and above in Asia
- 12. Ageing Population –Synoptic Issues Funding social care Productivity growth Health care demand Spending patterns Attitudes to retirement Ageing and migration
- 13. Ageing Population –Synoptic Issues Funding social care Productivity growth Health care demand Spending patterns Attitudes to retirement Ageing and migration
- 14. Why ageing matters:In one picture
- 15. Ageing and pressureon welfare • Around 55% of UK welfare spending is currently paid to pensioners, with the state pension by far the largest element of this. • The prevalence of chronic health conditions increases with age; and according to a 2010 estimate made by the Department of Health, such conditions account for 70% of total health and social care spending in England. • The Department of Health also estimates that the average cost of providing hospital and community health services for a person aged 85 years or more is around three times greater than for a person aged 65 to 74 years.
- 16. Ageing increases therisk of certain types of costly illnesses (e.g. dementia)
- 17. Key drivers ofUK health care spending • Ageing and death-related costs • New technologies / treatments • Rising incomes (positive income elasticity of demand) • Persistent income inequality • Growing incidence of mental health problems • Productivity / efficiency in health care services – health care tends to be labour intensive / rising wage pressures • Balance of market power i.e. pharmaceuticals industry versus major drugs purchasers such as NHS (oligopoly v monopsony)
- 18. Whither the statepension age? The UK state pension age is set to rise from 66 to 67 between 2026 and 2028 In the recent budget the government brought forward the next increase in the pension age by 7 years. It will rise from 67 to 68 between 2037 and 2039
- 19. Spending on theUK state pension • For people reaching the state pension age from April 2016 onwards, the state pension currently pays £155.65 a week) • The state pension is uprated each year in line with the ‘triple lock’ that states it will rise by the highest of CPI inflation, average earnings growth or 2.5 per cent • State pension spending in 2016-17 was £91.6 billion, with 12.9 million recipients paid an average of £7,100 each. That is 12 per cent of total government spending, and is equivalent to £3,300 per household and 4.7 per cent of GDP.
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- 22. A: Long termunemployed are those people who have been out of work for at least one year
- 23. Ageing population, saving& housing • Are people saving enough? • Many don’t have sufficient savings for retirement • Households will need to build more wealth to fund retirement • Ageing and housing: • What effect will an ageing population have on house prices • More people continue to live in their own home for longer • But a rising scale of people needing social care
- 24. Net wealth andthe life-cycle
- 25. Auto enrolment inpensions
- 26. Ageing Population –Business Challenges & Response Labour shortages Improved wages and conditions Investment in labour-saving technologies Changing spending patterns Smart businesses anticipate changing patterns of demand in markets The Grey Pound is already worth £ billions each year
- 27. Ageing population &changing demand DIY Experience holidays Sheltered housing Nutritional products
- 28. Micro and macropolicies to address an ageing population in the UK The end of the default retirement age Labour market reforms to raise productivity Auto enrolment in occupational pensions New taxes on social care Incentives to increase the supply of sheltered housing Investment in life-long learning especially for over 55s
- 29. Economics of anAgeing Population Nudging choices Improving equity Promoting healthy ageing Raising productivity Tackling ageism Seeing the opportunities
- 30. Economics of anAgeing Population
Editor's Notes
- #2 This webinar looks at synoptic issues surrounding ageing economies. How will ageing affect productivity, innovation, competitiveness, growth and the future of the welfare state? The share of old people is set to rise dramatically and not just in the UK. The share of old people compared to workers has already increased sharply in Japan and Germany, China too is ageing rapidly leading some economists to ask, will China grow old before she grows rich? How will dependency rates change and could this – without reform of health and social care – potentially bankrupt some governments? Or will attitudes change towards the concept of retirement? Skilled workers for example tend to work longer / later than people will fewer skills and qualifications. Many are changing their attitudes to retirement, business are adapting too.
- #3 First we look at the data on the changing population structure in the UK. Declining fertility and increasing longevity have created what is usually termed an ageing population England for example will see a projected 50% rise in those aged 65+ and a 100% increase in those aged 85+ from 2010 to 2030. This increase in the number of older people is likely to have a profound impact on a wide range of public services raising big questions about fiscal sustainability.
- #5 The baby boomers born in the late 1950s and early 1960s are now moving into retirement and overall, people are living longer. Higher life expectancy should be celebrated but Britain faces big challenges about how to respond to an ageing population. The average life expectancy of a girl born in 2015 is 94 years and 91 for a boy.
- #8 Japan’s population is ageing rapidly and shrinking.
- #10 It is predicted that each person of the new full state pension age in 2035 will be supported by 2.87 people of working age, as compared to 3.22 people in 2015
- #12 Estimated population aged 50 and above, in millions and as a percentage of total population in 2025
- #13 NHS free at point-of-use - but what about social care? Prevention of some of the worst chronic health and social care outcomes is fundamental to limit the burden on the state, communities and individual households.
- #14 Living standards – there is a very steep social gradient in the UK when measuring years of healthy life expectancy Males and females living in the most deprived areas in Britain can expect to spend nearly 20 fewer years in good health compared with those in the least deprived areas: they spend nearly a third of their lives in poor health
- #15 Why ageing matters: in one picture Consider in particular what happens to health care / social care spending per capita across the life-cycle and especially when people move beyond retirement age.
- #16 A rise in the elderly population, particularly if not matched by health improvements, will place ever-greater pressure on public finances, as a relatively smaller working-age population supports growing spending on health, social care and pensions. In 2015-16, councils in England spent £17bn on adult social care (covering everyone over age 18), according to NHS Digital. More than £7bn of that went on people aged 65 and over, and the proportion has been rising
- #17 This chart shows the estimated prevalence of dementia across OECD countries 2017 and 2037 Ageing increases the risk of certain types of costly illnesses (e.g. dementia) But key evaluation point: Ageing does not automatically mean worse health and higher costs Extent of healthy ageing will determine how much ageing increases health expenditure
- #18 Most of the drivers of health care spending are determined by long run economic, social and demographic pressures although the media tends to focus in short term issues such as demand for A&E services during the winter months. Health care is relatively labour intensive. Harder to generate productivity improvements but wages have to keep up with the rest of the economy Mental health: Thanks to ageing and lifestyle. King’s Fund says mental health costs (including dementia) will rise nearly 50% from 2007 to 2026
- #19 Core principle behind the UK state pension is that that people should expect to spend on average up to a third of their adult life (beginning from age 20) in receipt of the state pension. The third-of-life principle is often described as a ‘longevity link’.
- #21 Is it true that older workers are typically less dynamic than younger participants in the labour market? Are we at risk of assuming too easily that older workers – perhaps with higher incomes and a different attitude to life – might be left productive? What of the value of accumulated experience? A shortage of workers overall – in part deriving from from an ageing population, low unemployment and, in the UK’s case, a fall in net migration – could end up prompting companies to invest which will increase the capital stock and - over time - provide a stimulus to productivity.
- #23 One of the big risks from an ageing population is increased levels of long-term unemployment. Opportunities to work at an older age vary considerably across OECD countries 82% of older people (aged 55 64) in Iceland were employed in 2013 but this falls to only 48% in Slovenia. Most countries plan to increase the official age for receiving a pension beyond 65 but, on average in the OECD, only 20% of people aged 65-69 were working in 2013
- #24 Many people are not saving enough, and the Government must work to improve defined contribution pensions, which are seriously inadequate for many. People need help to make better use of the wealth tied up in their property to support their longer lives. How can housing provision meet the needs of the ageing population? How should the private and public sectors respond to the challenge? Will your children be willing and able to support you in your old age? Auto-enrolment: By changing the default from opt-in to opt-out, automatic enrolment is successfully reversing the long-term decline in the number of people saving into workplace pensions in the UK.
- #25 Wealth peaks close to retirement age and then falls gradually
- #26 Auto-enrolment in pensions: Millions of workers have been excluded from the scheme simply because they’re too young, work part-time or are self-employed. In low wag jobs – for example in the gig economy – hundreds of thousands of people cannot afford to put money aside for a pension Low interest rates are also a problem – low returns on saving make it difficult to grow a good pension
- #27 Not only is the share of older people in the workforce growing rapidly, people also work for longer. However, many older people also exit the labour market prematurely because they are unable to combine work with illness, disability or care commitments, they have become unemployed, or they are not motivated to continue working, sometimes due to poor working conditions.
- #28 Maurice Chevalier: “Old age isn’t so bad when you consider the alternative.” Spending habits change with age – for many older people shopping is more of a social experience – often localized – they shop more frequently
- #29 Higher net migration would improve outlook as immigrants more likely to be of working age