The World Health Organization has declared the decade starting 2020 as the Decade of Healthy Ageing. Actually the world is undoubtedly entering a pivotal period. Countries all over the world face tremendous pressure to effectively manage their aging populations, but preparing for this demographic shift early will contribute to the economic advancement of countries, and allow populations, both young and old, to live long and prosper.
Related to this topic, The Organization for Economic Cooperation and Development (OECD) has released a report on the long term implications of an aging population. The world is experiencing a seismic demographic shift and every country will feel the effects and consequences.
Increasing life expectancy and declining birth rates are considered major achievements in modern science and healthcare, but they portend a significant impact on future generations. Most countries face a decrease in the working population. The US is among the few which will not see this decline.
Current estimates are that there will be 10 billion people by 2050, compared to 7.7 billion today. The average life expectancy is increasing. As a result, the number of elderly people per 100 working-age people will nearly triple, from 20 in 1980, to 58 in 2060.
Though the general trend is for aging populations, there are clear differences in the pace of aging. For instance, Japan leads with the oldest population, with one-third of its citizens already over the age of 65. By 2030, the Japan’s workforce is expected to fall by 8 million with a consequent major potential labor shortage.
South Korea is another example with a currently younger than average population, which will age rapidly and end up with the highest old-to-young ratio among developed countries.
Globally, the working-age population will see a ten percent decrease by 2060. The countries most drastically effected with declines of 35 percent or more will be: Greece, Japan, Korea, Latvia, Lithuania, and Poland. By contrast, Australia, Mexico, and Israel will increase by more than 20 percent. Indeed, Israel’s increase is estimated at 67 percent due to the high fertility rate, which is comparable to “baby boom” numbers seen in the U.S. following the World War II.
As countries prepare for the coming decades, workforce shortages are just one of the impacts of aging populations already being felt. Some of the many social and economic risks we can expect will be:
- The Squeezed Middle: With more people claiming pension benefits but less people paying income taxes, the shrinking workforce may be forced to pay higher taxes.
- Rising Healthcare Costs: Longer lives do not necessarily mean healthier lives, with those over 65 more likely to have at least one chronic disease and require expensive, long-term care.
- Economic Slowdown: Changing workforces may lead capital to flow away from rapidly aging countries to younger countries, shifting the global distribution of economic power.
The strain on pension systems is perhaps the most evident sign of a drastically aging population. Although the average retirement age is gradually increasing in many countries, people are saving insufficiently for their increased life span, resulting in an estimated $400 trillion deficit by 2050.
Although 59% of US employees expect to continue earning well into their retirement years, providing people with better incentives and options to make working at an older age easier could be crucial for ensuring continued economic growth.
Keep in mind that a pension is promised, but not necessarily guaranteed. Any changes made to existing government programs can alter the lives of future retirees entirely, but effective pension reforms that lessen the growing deficit are required urgently.
Certain countries are making great strides towards more sustainable pension systems, and the Global Pension Index, published by OECD, suggests initiatives that governments can take into consideration, such as:
- Continuing to increase the age of retirement
- Increasing the level of savings both inside and outside pension funds
- Increasing the coverage of private pensions across the labor force, including self-employed and contract employees, to provide improved integration
- Preserving retirement funds by limiting the access to benefits before the retirement age
- Increasing the trust and confidence of all stakeholders by improving transparency of pension plans
There is much food for thought here both for us as a society and for our elected officials.