- Article
- Global Research
- Demographics
- General Research Insights
An ageing dilemma
Future promises, fiscal problems
Rapidly ageing populations pose growth and fiscal challenges that governments may be unwilling to fully tackle meaning debt levels look set to keep rising.
Demographic change is one of the great challenges of our time. Birth rates are falling, populations are ageing, and commitments to the population in terms of health, defence, and pension spending are racking up at a time when governments can ill afford it.
In Europe, in 1950, just 8% of the population was over the age of 65. In the 1990s it was up to 14%. Today we’re at 20%, and before we get to 2050, we’re on track to be at 30%. In some economies, that trajectory is much worse. Based on the UN’s low fertility assumptions, by 2086, South Korea is on track to have 65% of its population aged over 65, and mainland China wouldn’t be far behind. Shockingly, with birth rates continuing to fall, those projections may even be too optimistic.
This poses many enormous macroeconomic challenges that current policy settings are ill-equipped to handle. They will weigh on growth and mean crippling fiscal strains unless something dramatically changes.
In many places, it’s too late for demographic-led solutions. Lifting birth rates isn’t easy, and it would be twenty years before demographic pyramids started to turn. Increasing migration could work, but people need to be integrated, and migration rates would have to stay consistently high – something that is unlikely to prove popular electorally.
There is an alternative way to tackle the challenge at its core. Today, with life expectancy rising in most economies, with people healthier than ever in their 60s and 70s, the option to lift retirement ages meaningfully is much more viable than it otherwise would be. However unpopular this might be, it’s the closest thing we have to a silver bullet to fix the demographic crisis. And indeed, with some policymakers taking this option seriously, it may be an idea whose time has come.
But on top of this, other problems need to be tackled. How sustainable can state-funded healthcare be in a world of such skewed population pyramids? How about social care funding? Are pensions viable at current levels in such a world?
The problem, however, is where politics meets the economic reality. Hard decisions on this front get even harder each year. Across Europe roughly 40% of people who turn up to vote in elections are over the age of 60, and this figure is rising – and so policies that directly impact that age group become harder to push through. It may need a crisis to force substantial enough change.
As a result, without that shock, governments keep kicking proverbial cans down the road, but with debt problems and promises building – they cannot afford to keep doing so.
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