Reality check on the costs of ageing

via ToUChstone blog: A public policy blog from the TUC by Craig Berry

It would be unwise to deny that population ageing will produce significant fiscal pressures on governments around the world, not least the UK. The Office for Budget Responsibility projects age-related public spending to rise from 21.3 per cent to 26.3 per cent of GDP per year, between 2016/17 and 2061/62.

The problem is the kind of assumptions that these figures lead to, namely that the state pension age needs to rise, to automatically reduce the “old age dependency ratio”, i.e. the number of people of working age supporting people in retirement. Firstly, the bulk of age-related spending increases will be on healthcare; I don’t quite see how compelling people to work for longer before they become entitled to the state pension minimises health spending pressures . In fact, it might increase these pressures.

Secondly, increasing the state pension age might artificially reduce the old age dependency ratio by increasing, statistically speaking, the working-age population – but this does not mean it actually increases the working population. Any money saved on state pension expenditure would be partially offset by increases in expenditure on out-of-work benefits, for those individuals in a limbo zone, too old for work but too young to retire.

This is why an important report released this week [of 14 December 2012] by the International Longevity Centre calls for the adoption and publication of “labour market adjusted dependency ratios”.

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