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Geo file 384
John Pallister
group of elderly people who have Figure 3: Old age dependency ratios, 1950–2040
passed the age of retirement. They
Key
depend upon pensions as their main 70
source of income. In most countries, Ratio of old people to workers
money for state pensions is provided 60 Italy
by the working population, so the UK
elderly also depend upon the 15–64 50
Germany
age group as well. USA
40
Percent
As Figure 2 shows, there are
considerable variations between
countries in the official age(s) of 30
retirement. It tends to be lower in
LEDCs, where life expectancy is less. 20
quite marked after 2010, is not as the development of new drugs and Greece 0.2
rapid as those predicted for the other general advances in medical Netherlands 0.2
three countries. The greatest change knowledge and treatment, mean that Sweden 0.2
Denmark 0.1
60s. However, more recent 12 0.3 0.2 0.1 0 0.1 0.2 0.3 0.4 0.5
per pensioner
in Asia, where the problem of ageing spending on health services, from the state.
populations is likely to become as available to all age groups, but which Although the arrangements appear
great a concern to governments there are consumed more by the elderly. to be fundamentally different, in
in the near future as it is in MEDCs one important way the distinction
today. Spending on pensions is the most between them is a false one. The
obvious and potentially most money from which pensions are
Economic consequences contentious economic issue paid always comes out of current
associated with an ageing production. Most investments
As the world’s population grows population, because it already through which private pensions are
older, governments in MEDCs must accounts for a very high proportion funded involve the purchase of
address the possible economic of welfare spending in MEDCs. shares and bonds in companies.
consequences. Although operating There are two types of funding Although the number of shares in a
under different names and in arrangement for pensions; the UK fund is built up over the years, it is
different ways, welfare systems exist uses a bit of both: the current generation of
in all MEDCs. Welfare systems production (and hence profits) by
cover pensions, health care and 1. Pay-as-you-go. The state pension companies in which funds have
social security. The roots of the that is paid when the retirement been invested which maintains the
economic problem are not hard to age is reached (currently 65 for value of the investment from which
identify: men and 60 for women) is an the pension cash is drawn.
example of a ‘pay-as-you-go’
• The proportion of working scheme. It is the type that most Governments in MEDCs have
people, who create wealth and governments operate. The money inherited pensions systems from
pay direct taxes, is going down. for pensions comes from taxes times when both life expectancy
• The proportion of the elderly paid by the present generation of and the age dependency ratio were
people dependent upon the workers. The obligation to pay lower. However, any given cohort
welfare system is increasing. for the pensions of those who of pensioners is unlikely to be
• A point must be reached where have retired is passed down the willing to accept an inferior
the amount being paid in cannot line from one generation to pension package to that which
keep pace with the amount that another, so that each generation previous cohorts of pensioners
needs to be paid out. of workers takes on the enjoyed (and which they
obligation to provide for the themselves helped pay for during
Welfare systems tend to be more generation that went before it. their working lives). Nevertheless
generous in most European All people currently in work are governments now realise that the
countries than in the USA, but even helping to pay for the pensions of cost of current pension systems
in the USA the public pension those who have already retired. If must be reduced; the term used for
scheme is predicted to go into deficit such a system is to work well and this is ‘downsizing’. To achieve
between 2015 and 2020 unless fairly, income and expenditure downsizing, a combination of one
amendments are made to it. need to be reasonably in balance. or more the following approaches is
In the past, when income was in probable:
At present, an average of 25% of surplus, the surplus was usually
GDP goes on welfare spending in spent on other areas of the • a higher retirement age (Figure
EU countries. Just under half this welfare system, or invested in 2);
expenditure goes on pensions. The projects for growth from which • reduced levels of benefit by
rest goes on unemployment benefits those of working age benefited. changing the basis for its
and maternity, housing and family Governments are becoming calculation – for example, by
allowances, which are spread more increasingly alarmed by likely indexing pension rises against
broadly through the age ranges. In future funding deficits for the retail price index instead of
addition there is significant state pensions. average earnings (as has already
been done in the UK);
2. Self-funded. This arrangement is • a flatter structure of benefits to
Figure 6: Percentage of people suffering usually referred to as private target the poor better.
from long-standing illnesses requiring pension provision. Individuals
medical treatment in the UK, by age save for their old age when Meeting the demands of increasing
group, 1995–96 working by making personal numbers of elderly people for
contributions to private pension pensions, health, social services and
schemes or by joining an residential care means higher taxes
Years 0-4 occupational pension scheme to and reduced spending and
which both employers and investment on services for those in
5-15
employees contribute a certain other age groups. There are plenty
16-44 of other competitors for
percentage of gross wages. The
45-64 funds are invested and build up government money, such as
65-74 over time. The bigger the fund regional aid and investment in new
75 and over on retirement, the larger the economic activities. At the same
All ages person’s pension. This scheme time there are limits to the
has gained increased favour with proportion of earnings that
0 10 20 30 40 50 governments can take in taxes.
UK governments because it
shifts some of the funding
Source: Financial Times, 30 January 1997, p.14 obligation for pensions away However, there are some beneficial
consequences of an ageing property. The political and social population growth would spread
population. Some manufacturing interests of this group are quite havoc across the world, European
companies have tapped into the different to those of other and North American countries, as
growing niche market for products pensioners who have no income well as Japan, are now more afraid
such as stair lifts and wheelchairs. other than the basic state pension. of the explosion in numbers of
The service sector has been boosted All that some of the latter will have their elderly populations. In his
by the purchase of leisure and known is low-paid, part-time and recent book, Agequake, Paul
recreational facilities at off-peak irregular work without Wallace predicts that ‘Populations
times during the working week. A occupational pension schemes. in Europe generally are poised to
proportion of pensioners is Some are single or divorced. Many plunge on a scale not seen since the
sufficiently wealthy to bear the full live in rented accommodation that Black Death’. He speaks of a glut of
costs of their own health, private swallows up a proportion of their retirees, supported by fewer and
nursing and residential care. Some meagre weekly income. Their life is fewer workers; of overloaded state
large properties that were formerly characterised by poverty and pension systems facing bankruptcy.
of little commercial value because struggle and an over-dependence The breakdown of European
of size and location have been upon the quality of local social economic and monetary union, and
converted into residential homes services. stock market crashes as the baby-
and become profitable. Many boomers start cashing in their
elderly people are great travellers, More and more people are retiring shares (in around 2024, if you want
and take advantage of the lower early, yet some still-healthy elderly the most likely date) are other
prices outside school holidays, people would love to top up their elements of this scenario. Agequake
which has helped to extend the pensions by working. They come reads a bit like Malthus, but the
tourist season and allowed hotels up against the problem of ageism focus of the book – the change in
and tour companies to spread their among employers. In the demographic structure within the
costs over more of the year. recruitment of workers there world’s most developed countries –
remains, at present, a widespread lies beyond even the wildest
Social consequences bias on the grounds of age. The dreams of the Reverend Thomas
elderly are seen as less dynamic and Malthus.
Governments make economic flexible than young people – they
decisions that have social don’t fit the image of an expanding
consequences. They are responsible company. Only a few companies,
for setting levels of spending on notably the DIY chain B&Q, have
pensions and services for the positive policies for employing
elderly. Balancing expenditure in older people. One estimate is that
these areas with spending on 40% of 55—65-year-olds in the UK
measures for job creation or on would like a full-time job, but are
education, areas where there is a unable to find one. Possibly,
more direct effect upon other age however, as the proportion of the
groups, is a delicate task. Younger population that is of working age
generations of workers have a diminishes, attitudes to age and
strong interest in the cost of caring suitability for employment will
for a rapidly ageing population change.
being spread evenly so that they, as
the wealth creators, are left with
sufficient funds to enjoy interesting Conclusion
and healthy lives. As the numbers After decades of fearing Malthusian
and proportions of elderly people predictions that unstoppable
increase, so also does their political
clout. In areas where there are
concentrations of the elderly, such
along the south coast of England,
Focus Questions
or in the Sun Belt states of the 1 (a) Identify the main characteristics of an ageing population.
USA, politicians cannot afford to (b) Why is an ageing population more of an issue in MEDCs than in
ignore the voting interests and LEDCs?
concerns of the old. The potential
for conflict between the generations 2 (a) What is meant by the ‘old age dependency ratio’?
is likely to increase when the baby (b) From Figure 3, describe:
boomer generation – born in the (i) the common trends, and
1960s – reaches retirement age from (ii) the differences between the four MEDCs.
2025 onwards. (c) Describe and comment upon what Figure 6 shows.
(d) Why are any problems associated with an ageing population structure
There are also conflicts of interest likely to worsen with time?
between different groups of
pensioners. Some are financially 3 (a) Explain the economic problems caused by ageing populations and
secure. Their wealth is derived comment upon the possible ways of managing these problems.
from occupational pensions, (b) Why might the economic problems have social consequences as well in
income from savings and inherited MEDCs?