In the next four decades, the number of people aged over 60 globally is set to jump from 800m to 2bn. This huge increase will pose enormous economic, political and health-related challenges. But for those countries that adequately prepare, the increase will also present opportunities.
Britain faces a particularly daunting challenge. The country will see a 60 per cent rise in the number of people over 65 by 2032. The Spending Review next week will see further significant reductions in public spending, but one thing is certain: pensioner benefits will be protected. Does this mean the UK will be one of those countries that takes advantage of this demographic shift?
Not unless something changes. The government’s triple-lock promise to raise pensions by the highest of inflation, earnings or 2.5 per cent is at best a sticking plaster, and at worse an unsustainable give-away. What are needed are not more promises but new ideas. For this reason, last week the Legatum Institute and AIG launched the AIG Legatum Prize. The Prize asks the next generation to come up with ideas to ensure that ageing societies are more prosperous societies.
In one respect, pensioners today are more prosperous than ever. Work by the IFS shows that pensioners now have higher incomes than workers. Yet this is not translating into improvements in quality of life. A 2010 study using data from the British Household Panel Survey showed that satisfaction with life declines steeply once people reach 70. And if current trends continue, it is unlikely that public spending on pensions and pensioner benefits will continue to be so generous. Tomorrow’s pensioners may find themselves both broke and unhappy.
For such a bleak situation to be avoided, a number of challenges must be addressed. The first is fiscal. Having greater numbers of older people, in and of itself, does not necessarily translate into greater public spending. Having fewer workers does. For a long time, the official retirement age in the UK was 65 for men and 60 for women. Current reforms to change this do not make up for the fact that people are living a lot longer. The result is that fewer working age adults will be around to support an increasingly elderly population. This does not need to be the case: technology and changes in working practices can mean that more people work for longer and are not reliant on the state.
The next challenge is political. Much was made of the importance of the “grey vote” in the General Election: 43 per cent of 18-24 year olds voted compared to 78 per cent of the over 65s. As society ages, the danger is that the needs of the elderly crowd out the needs of the young. All OECD countries spend more per capita on the elderly than on children. Similarly, in the UK, more has been done to stoke demand in the housing market than supply. The CBI estimates that 240,000 new homes need to be built annually to satisfy demand, yet more than 200,000 homes have been built in just four of the last 14 years. The market works for those (generally older people) who own property, rather than those (generally the young) who need to buy it. There is nothing natural or inevitable about this.
The final challenge relates to healthcare. The government has promised to protect NHS spending, but it has had to impose cuts on social care and public health. But the main takeaway should not be that more spending is required. If the current budget is already stretched, it is no use chucking more money at a problem that will only grow worse as society ages. The Taiwanese healthcare system costs just 6.6 per cent of GDP yet delivers comparable outcomes. Smarter use of technology, smarter financial planning, better public policies, all can help address this problem.
If these challenges can be met, an older society will not be one where more people are reliant on the state, but one where more people work and there are more opportunities for businesses. Yet to make this a reality, smart ideas are needed. The Legatum Institute and AIG are asking those 35 and under to come forward with ideas. The current generation is struggling to get to grips with this issue so maybe it’s time the next generation is heard.