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Forever young
(Agencies)
Updated: 2004-03-29 15:23 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.
 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.”
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—and then of very old folk—in 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—even America—now 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—its equivalent of America's
baby-boomers—reaches 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
 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.
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—but one that they must grab fast.
It will not be easy. The notion of retirement—an abrupt end to paid
employment—is 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—such as public services—that 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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