By 2050, one in four people in Europe and Northern America could be aged 65 years or over, according to the UN’s World population prospects 2022.
Drops in the dependency ratio mean fewer young people to support an elderly population, causing more pressure on those who are working and difficulties in financing public pensions and healthcare. The UN highlights the importance of countries with ageing populations taking steps to adapt public programmes accordingly, including by improving the sustainability of social security and pension systems and by establishing universal healthcare and long-term care systems.
Some countries are attempting to reverse falling birth rates by financially incentivising childbirth. In Singapore, for example, where the fertility rate is exceptionally low at 1.12 per female (parity is 2.05 per female), the government awards a ‘baby bonus’ of S$8,000 (nearly £5,000) upon the birth of a couple’s first child, rising to three times as much for the third. In Japan, which has a similarly low fertility rate, civil servants may be offered ten days’ paid leave a year to receive fertility treatment in the hopes of encouraging more births.
Migration will be the sole driver of population growth in high-income countries In the UK, childcare is prohibitively expensive and the country has a similar problem with declining fertility rates, now just 1.75 per female. The average cost of a two-year- old attending nursery in England is £265 per week for 50 hours’ care, or over £1,000 per per month. Lowering the cost of childcare should be a key priority for the UK government, to encourage a strong labour market for parents and help boost the birth rate.
More controversial steps that the UK and European nations can consider to combat labour shortages are supporting immigration and encouraging people to stay employed for longer. The UN concludes that migration will be the sole driver of population growth
in high-income countries over the next few decades, pointing to the contribution of international migration to population growth exceeding the balance of births over deaths from 2000 to 2020.
Labour shortages in the UK have been exacerbated by the pandemic, which saw a rise in the number of those aged over 50 moving from economically active to inactive, according to the ONS, as individuals took early retirement. These are contentious issues, with no easy solutions, but must be addressed in a UK market where, for the first time, there are fewer unemployed people than job vacancies.
For financial services professionals, the demographic changes also mean preparing for all of the opportunities and challenges that having an older population brings: the need for money to last longer, proactive recognition of vulnerabilities associated with older consumers, and perhaps most importantly, how to fund long-term care.
An increase in life expectancy does not necessarily mean a commensurate increase in what is termed ‘healthy life expectancy’. In England, a man could expect to live over 79 years in 2020, but his average healthy life expectancy was only around 63 years. Similarly, a woman could expect to live over 83 years, of which more than 19 years would have been spent in ‘not good’ health. In Japan, adult nappies have outsold those for babies since 2013.
As well as adjustments on an individual level, the demographic shifts will bring changes in the global power balance. Firms are likely to look to sub-Saharan Africa, where the population is expected to almost double by 2050, for investment and opportunity. The UN concludes that by 2050, changes in birth rates, life expectancy, and migration around the globe will mean that Nigeria will be level with the US as the third most populous country in the world (375 million people each), behind India (1.7 billion) and China (1.3 billion).
The new UK prime minister, Liz Truss, will need to add demographic changes to her long list of challenges, such as inflation and climate change. Information on future demographic trends must be incorporated into policies and planning in areas such as childcare, retirement, healthcare, and immigration if we are to prevent or at least mitigate the looming labour shortage.
This article is published in the September 2022 print edition of The Review.
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