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Forever young More people will grow old this century than ever before. That will change the nature of retirement, says Frances Cairncross. Something unprecedented and irreversible is happening to humanity. This year or next, the proportion of people aged 60 or over will surpass the proportion of under-fives. For the rest of history, there are unlikely ever again to be more toddlers than grey heads. Already those aged 65 or over, who throughout recorded time have rarely accounted for more than 2-3% of most countries' people, make up 15% of the rich world's inhabitants.
The Centre for Strategic and International Studied posts details of its Global Ageing Initiative. The OECD has information about the Ageing Society. The United Nations publishes ¡°World Population Ageing: 1950-2050¡±. See also ¡°Social Security Programs and Retirement Around the World¡±, by Jonathan Gruber and David Wise and the American Association of Retired People.
The rise in the proportion of the world's old will be the century's defining demographic trend. In some countries it may also determine the nature of politics, rates of economic growth (ageing countries will have slower rates of growth per head than those with younger populations) and global clout. In fact, three trends are running in parallel, each at a different pace. The first is a bulge in retirement, which will become noticeable in just over a decade. In many countries, especially in America, the birth rate rose sharply for some years after the end of the second world war. The older members of the American baby-boom generation are due to turn 62 (the minimum age at which Social Security allows early retirement) in 2008. The last baby-boomers retire in the late 2020s. But the generation, like a pig in a python, will guarantee an unusually large proportion of old folk¡ªand then of very old folk¡ªin the populations of most rich countries in this century's middle years. Its impact will be aggravated by a second trend: the widespread fall in fertility rates. In most countries women on average are not having enough babies to replace the people who die. Even in more fertile America, births only just equal deaths. In some countries, mainly in continental Europe and Japan, birth rates have been below replacement for a quarter of a century. When the baby-boomers retire, the size of the working population will plummet. That in itself is worrying enough. But there is a third problem: the old spend much more time in retirement than ever before. Life expectancy continues to rise, yet people are drawing their pensions earlier and earlier. A century ago most old people worked almost up to the end of their days. Now, by the age of 65, only 16% of men are still in the workforce in America and only 4% in continental Europe. Thus, a larger generation of old folk than ever before will need support for longer than ever before from a population of working age that is shrinking continuously in absolute size for the first time since the Black Death. And the level of that support is unprecedented. The triumph of Europe's welfare state and America's Social Security system has been more or less to eradicate poverty among the old. All rich countries¡ªeven America¡ªnow have health-insurance systems with near-universal coverage for the retired. The cost of these benefits, in effect, falls on those in work. This has prompted books with scary titles, such as ¡°The Coming Generational Storm¡± by Laurence Kotlikoff, of Boston University, and Scott Burns, a journalist.
Moreover, if things look bad in America and worse in continental Europe, they will one day look calamitous in some parts of the developing world. There, the passage of the pig within the python will be even more rapid. Countries as diverse as Brazil, Iran and Turkey will all be below replacement rate within 15 years. China's huge Red Guard generation¡ªits equivalent of America's baby-boomers¡ªreaches retirement age around 2015. Meanwhile, thanks to China's one-child policy, the fertility rate has plunged from six to seven children per woman in the 1960s to below replacement rate. Richard Jackson of the Centre for Strategic and International Studies (CSIS) in Washington, DC, author of a study of demographic change called ¡°The Greying of the Middle Kingdom¡±, thinks that China's leaders will find it hard, after years of relentless growth, to adjust to a fall in the population of working age from the middle of the next decade. In a decade's time, many countries thus start to face a huge problem: how to support a vastly larger population of old folk. There are only three ways to provide income in old age: one, to store goods for later consumption, which in practice doesn't work (just try storing a hip-replacement operation); two, to exchange current production for claims on future production, by saving or by extracting promises from your children or the government; and three, to go on producing yourself.
Better than the alternative
Fortunately there is a time window, of about a decade, during which the population of working age will be at a historic high. Projections by the OECD in Paris show that the impact of retiring baby-boomers will not begin to be felt until the next decade, and will culminate in 2025-35. So governments have a chance¡ªbut one that they must grab fast. It will not be easy. The notion of retirement¡ªan abrupt end to paid employment¡ªis relatively recent but has been hugely popular. Cutting it back is expected to cause uproar. Dora Costa, an economist at the Massachusetts Institute of Technology (MIT) who wrote a brilliant history, ¡°The Evolution of Retirement¡±, points out that people began to reduce the length of their working lives as soon as they could afford to do so, and long before generous social benefits were widely available. Not only do the old live longer than ever; the range of pleasures available in retirement, such as foreign holidays and home entertainment, are more varied and less expensive than ever before. The longer that countries postpone the steps needed to make retirement sustainable, the more abrupt and damaging the transition will be. But given the will, change is possible. Pioneering work by two American economists, Jonathan Gruber and David Wise, has shown that retirement decisions are greatly influenced by the structure of pensions and other benefits. If it pays to stop working, people will. Driven by fiscal desperation, governments will increasingly steel themselves to alter the way benefits work. Once that change begins, there will be jobs for those who want them. When the baby-boomers start to retire in large numbers, they will empty out workplaces¡ªsuch as public services¡ªthat now have lots of staff in their 50s. To replace them, employers will have to come up with the sort of flexible deals they once used to attract women back to work. That may make it more appealing to continue to work. Indeed, the workplace revolution that lies ahead may be very like the one that, in the course of the 1970s and 1980s, brought millions of mothers into the job market. Since then, the workplace has been feminised; in future it will be grizzled. A quarter of a century from now, retirement will look different from the way it does now: a mix of work and gardening, rather than gardening alone. For older people, work may then offer some of the charms that have lured so many women into the job market: stimulus, companionship and the freedom from worry that a bit of extra money can bring. |
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So this is the start of what the Japanese (who will have a
million centenarians by mid-century) call the ¡°Silver Century¡±. Most middle-aged
people find it hard to think of themselves as part of this trend. When, in 1996,
the first members of America's vast generation of baby-boomers reached 50, many
were aghast to find on the doormat an application form from the American
Association of Retired People (AARP). A generation that still pictures itself as
rebels in blue jeans is bemused by the notion of imminent old age. For this
correspondent, due to turn 60 later this year, the moment of truth came in a
paper by a (youthful) academic: ¡°We define as ¡®elderly' people aged 60 and
over.¡±
This survey will argue that the promises governments have made to people
retiring today are too large to be met in full. As a result, people will have to
work longer, and retire later, than they do now. And the old will have to insure
themselves for more of the cost of health care.
