How can countries deal with ageing of societies?

by | May 15, 2017 | Ageing societies | 0 comments

by Aleksander Palka

Today, there are more elderly people than ever before. To provide the old with means of living when retired, pension systems have been introduced. The first such system was set up in Germany by chancellor Otto von Bismarck in 1889, a compulsory social insurance scheme into which both workers and employers paid contributions. This scheme – the ‘Gesetz zur Alters- und Invaliditätsversicherung’ – allowed workers to retire with an annuity pension when they turned 70. In 1916, the pensionable age was lowered to 65. However, at the time, average life expectancy was only 45 years. Now, over 100 years later, an average German citizen is expected to live over 70 years, and the retirement age will soon be increased to 67. Why do developed societies age so fast and how can governments prevent pension funds from going bust or paying next to nothing pensions?

First of all, let’s explain why societies age so quickly. According to the WHO, the percentage of the global population aged over 60 will almost double by 2050 from 12% to 22%. People are living longer for a variety of reasons. The implementation of a better healthcare system has decreased child mortality and increased adult life expectancy. Modern medicine has developed drugs and vaccinations for many diseases, and although there is no cure for diseases like HIV, present-day medicaments can prevent viruses from expanding and subdue the symptoms, therefore extending an infected person’s life.
Because improved healthcare and modern medicine have increased life expectancy, the world’s population has grown from 3 billion people in the 1960s to an estimated 7.4 billion in 2017. By examining each country’s population pyramid, we can see that developing countries are not ageing at all. At least not yet. Due to their rapid economic growth, birth rates are increasing and more children live long enough to reach adulthood. On the other hand, populations in developed countries will most likely decrease due to a lower birth rate. That decline causes many problems for politicians. How can pension systems work efficiently and not go bust if fewer people will work for pensions?

In Japan, pensioners make up a quarter of the population and their share will soon reach 40%. Experts predict that by 2050 there will be only one child under the age of 15 for three adults over 65. Dealing with ageing is a huge challenge for governments around the world. The Polish pension system already has a deficit of £10bn a year. To encourage birth rates, the Polish government introduced a programme ‘500+’ last year. Its aim is to pay parents 500 PLN (roughly £100) per child. This programme is designed for families with two or more children or those with one child and a low income. The Polish government is not alone, all around the world politicians are raising the retirement age to fight a huge pension system deficit. This is a troublesome issue. Making people work longer is beneficial to the economy. Tax revenues will increase as people will pay income tax longer, and the pension system will save billions on delaying payment of pensions. Unfortunately, this policy is highly unpopular and politicians may shy away from introducing it in fear their popularity will fall.

The other way for European countries to deal with ageing populations is accepting millions of immigrants to increase the workforce. In recent years, Europe has experienced a wave of immigrants. People from Eastern Europe and the Middle East are migrating to Western Europe looking for work. Governments hope that they will contribute to the social system by paying taxes, having families and decreasing the share of pensioners. Nonetheless, countries like Poland have a huge problem with ageing. Over a million Polish citizens left their homeland. Companies are now looking for migrants from countries like Belarus and Ukraine to fill the gaps. Already more than one million of Ukrainians have moved to Poland and there are still more to come.

There are many policies introduced by governments to prevent the adverse effects of ageing populations. Increasing the length of maternity and paternity leave, building new kindergartens, improving people’s wealth and introducing laws forbidding to fire women when pregnant or on maternity leave. All of these policies may help, but will they? Governments need to invest billions to increase the birth rate and there is no certainty that it will help. Furthermore, they need to invest in healthcare as well. As there will be more elderly people, the demand for healthcare and nursing homes will soar. According to the OECD, pensioners account for 40-50% of healthcare spending. Ageing is a serious and worldwide problem, and unfortunately, there is no simple solution for it.

Marlow,I. Japan’s Bold Steps
Pettinger, T. How to deal with an ageing population
ILO.  Ageing societies: The benefits, and the costs, of living longer
Arak,P. Polska . kraj dzietnosci nizszej niz w Chinach

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