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The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
The cost of our ageing society - Edinburgh
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The cost of our ageing society - Edinburgh

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The cost of our ageing society. An ILC-UK and Actuarial Profession joint debate, sponsored by …

The cost of our ageing society. An ILC-UK and Actuarial Profession joint debate, sponsored by Milliman

http://www.ilcuk.org.uk/index.php/events/the_cost_of_our_ageing_society._an_ilc_uk_and_actuarial_profession_joint

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  • Look up assumptions – no single-tier, PSPs as in latest agreement SPA rises, inflation and uprating assumptions
  • The fiscal impact of ageing is projected to be substantial in almost all Member States, with the effects becoming apparent already during the next decade in the EU. Overall, on the basis of current policies, pension expenditures are projected to increase on average by about 2 ¼ percentage points of GDP by 2060 in the EU and by about 2 ¾ percentage points in the euro area There is a very large diversity across Member States as regards the projected change in public pension expenditure, ranging from a decline of -3.5 p.p. of GDP (PL) to an increase of 15.2 p.p. of GDP (LU): The cost of ageing is likely to very significant in eight EU Member States (EL, ES, IE, CY, LU, MT, RO and SI) with a projected increase of 5 p.p. of GDP or more (and of more than 10 p.p. of GDP in EL, CY and LU). These countries have so far made only limited progress in reforming their pension systems or are experiencing maturing pension systems. For them there is an urgent need for a modernisation of pension to start to bend the curve of long-term costs. For a second group of countries – BE, BG, CZ, DE, LT, HU, NL, PT, SK, FI and the UK - the cost of ageing is more limited, but still high, ranging from 2 p.p. to 5 p.p. of GDP. Several of these countries have taken some steps in reforming pensions that contribute to limit the increase in public expenditure, but much more needs to be done. Finally, the increase is more moderate, 2 p.p. of GDP or less, in DK, EE, FR, IT, LV, AT, PL and SE. Most of these countries have implemented substantial pension reforms, in several cases also involving a partial switch to private pension schemes (BG, EE, LV, HU, PL, SK and SE). Old-age and early pensions are projected to increase by 2.4% of GDP between 2007 and 2060 in the EU. In the euro area, the increase is projected to be slightly higher at 2.6% of GDP. A smaller increase is projected for other pension expenditure, mainly disability and survivor pensions, increasing only slightly by 0.1. p.p. of GDP in the euro area.
  • Transcript

    • 1. The Cost of AgeingDavid Sinclair, International LongevityCentre – UK @ilcuk @sinclairda The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 2. ILC-UK Planning Tomorrow, Today think tank evidence based policy focussed balanced independent respected experts networked internationalThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 3. Who do we work with?The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 4. The cost of ageingGrowing dependencyratiosThe cost of ageing issignificant todayLooking forwardBut it is manageable ifwe actThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 5. The cost of our ageing societyEuropean Commission2012 Ageing ReportOffice for BudgetResponsibility: FiscalSustainability Report, July2012.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 6. Dependency ratios are increasing (by 2060)From around four working-agepeople to around two working-age people for every personaged 65 (UK)From more than six working-age people for every personaged 65 and over to just overtwo working-age people forevery person aged 65 andover (Globally)The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 7. Relatively fewer ‘working age’ adults (EU)The greater the old-age dependency ratio, the morepressure there is on state systems to fund pensions,benefits, and health and care costs for older people. Children Working-age Age 65 and over 100% 80% 60% 40% 20% 0% 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 8. The challenge in some places is more severe Old-age dependency ratio (65+ / 15-64)8070605040302010 0 F T E S T P V U N I I L A P R C M I I L L T T E B E S E S E K S U D C D G L L F Z K K Y E U H O G O B N R R T A E U U U E E E 7 1 5 1 7 2 2 1 2010 2010-2030 2030-2060The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 9. Cost of ageingIn the UK: age-relatedspending is projected torise from an annual cost of21.3% to 26.3% of GDPbetween 2016/17 and2061/62, a rise of 5% ofGDP (equivalent to a riseof around £79bn intoday’s money).The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 10. Pension costs• UK spending on public pensions (state pension, pensioner benefits and public service pensions) is projected to rise from an annual cost of 8.9% to 10.8% of GDP between 2016/17 and 2061/62 (equivalent to a rise of £33bn in today’s money). These assumptions do not include consideration of the impact of a single-tier pension.• EU spending on public pensions is projected to rise from an annual cost of 11.3% of GDP to 12.9% of GDP (2010 to 2060).• Globally: IMF project that global spending on pensions could rise from an annual cost of 5.3% to 11.1% of GDP between 2010 and 2050 in advanced economies.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 11. UK spending on pensions as a proportion ofGDP to rise to 10.8% by 206212% State Pensions Pensioner Benefits Public Service Pensions10% 8% 6% 4% 2% 0% 2016-17 2021-22 2031-32 2041-42 2051-52 2060-61 2061-62 The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 12. Progress with pension reforms: spending 16 14 12 +2,3 p.p. +1.5 p.p. 10 (2009 AR) (2012 AR) 8 6 4 2 0 F S E T P E T V I I U N E E I I K R C L L S S P C E B D A A L T S M Y Z U D F E G L O E T E K L B U L K H O R N -2 T U 7 2 E -4 2009 AR 2012 AR The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 13. Healthcare costs• In the UK: spending on health care is projected to see the largest rise of all elements of age-related spending, rising from an annual cost of 6.8% to 9.1% of GDP between 2016/17 and 2061/62, a rise of 2.3% of GDP (equivalent to a rise of around £36bn in today’s money).• In the EU: spending on health care is projected to rise from an annual cost of 7.1% to 8.3% of GDP between 2010 and 2060, a rise of 1.1% of GDP.• Globally: it is difficult to project the costs of health care because of the lack of data from developing countries. But evidence of growing numbers with long term conditions.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 14. Spending on health care will see thegreatest increase of all age-relatedspending over the next 50 years Projected health care spending as a proportion of GDPThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 15. Long term care costs• In the UK: spending on long term care is projected to rise between 2016/17 and 2061/62 from an annual cost of 1.1% to 2% of GDP, a rise of 0.9% of GDP59 (equivalent to a rise of around £14bn in today’s money).• EU spending on long term care is projected to rise from an annual cost of 1.8% to 3.4% of GDP between 2010 and 2060The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 16. Spending on long-term care Projected spending on long-term care as a proportion of GDP The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 17. Cost of education flat• In the UK: spending on education is projected to remain generally level between 2016/17 and 2061/62 at an annual cost of 4.5% of GDP. (NB Partly due to spending cuts in education announced in November 2011)• In the EU: spending on education is projected to reduce from an annual cost of 4.6% to 4.5% of GDP between 2010 and 2060The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 18. Costs of unemployment up in UK In the UK: spending on unemployment benefits is projected to rise from an annual cost of 0.3% to 0.6% of GDP between 2010 and 2060 (equivalent to a rise of around £5bn in today’s money).• In the EU: spending on unemployment benefits is projected to reduce from an annual cost of 1.1% to 0.7% of GDP between 2010 and 2060. Partly due to European Commission expectation that there will be a decrease in the structural unemployment rate.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 19. Looking forward Changes in longevity, fertility and migration Trends in health care and long-term care Labour market participation rates and labour market exit ages The economy and GDP growthThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 20. Changes in longevityLongevity is expected to continueincreasing: Increasingly long livesimpact the costs of pensions, healthcare and long-term care as individualsneed to receive these benefits andservices for longer.Globally, life expectancy at birth isprojected to increase by 13 years duringthis century from 68 years in 2005/10 to81 years in 2095/2100.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 21. Life expectancy is increasingIn the UK, life expectancy at birth isexpected to increase by 7 years formen and 6.7 years for womenbetween 2010 and 2060.Within the EU, life expectancy atbirth is expected to increase by 7.9years for men and 6.5 years forwomen between 2010 and 2060.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 22. And we might be underestimating The projected costs of ageing will be higher if people live for longer than current longevity projections indicate.• The IMF warns that, based on past underestimations, it is possible that current global longevity projections could be underestimated.• If longevity projections are being underestimated, this could add between 1.5% to 2% of GDP to the annual costs of pensions in countries with advanced economies by 2050The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 23. Fertility rates are below replacement rate• Fertility rates are increasing but are still lower than a 100% replacement rate of 2.1 births per woman per lifetime in the EU and the UK• A reduction in fertility relative to the rest of the population has implications for future proportions of working-age people to older people.• Global fertility rates are currently at 2.47 births per woman.• The UK has a fertility rate higher than the EU average, at 1.94 in 2010, which is projected to fall to 1.91 by 2060The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 24. Impact of the global economic downturnEU GDP growth is expected to be 1.4% per year between 2010 and2060 compared to 2.5% for the 10 years 1997-2006.More difficult for the state to pay for longevity: Employment andproductivity falling; falling tax intake; more difficult to meet debtobligations; difficulties in funding public pension systemsAnd for the individual: Unemployment, reductions in wages, orreductions in hours worked, make it more difficult to saveadequately for retirement; Falls in value of pension pots; The valueof a pension annuity has decreased; Price inflation has been high,especially for pensioners who spend the majority of their income onbasic goods and services (eg food and energy) which experiencegreater inflation. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 25. Potential growth rates declineProductivity (+1.5 %) becomes the dominant source ofgrowth 3.0 Potential GDP growth - EU27 2.5 2.0 1.5 1.0 0.5 0.0 4 0 2 6 0 2 8 0 2 1 0 2 1 0 2 4 1 0 2 6 1 0 2 8 1 0 2 0 2 0 2 4 0 2 6 0 2 8 0 2 3 0 2 3 0 2 4 3 0 2 6 3 0 2 8 3 0 2 4 0 2 4 0 2 4 0 2 6 4 0 2 8 4 0 2 5 0 2 5 0 2 4 5 0 2 6 5 0 2 8 5 0 2 6 0 2 2009 AR 2012 ARThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 26. Trends in healthcareAs a result of a growing olderpopulation, increasing longevity and agreater coverage of public health carewithin the EU the pressure on publichealth care funding is likely to continuegrowing. Public health spending in theEU currently accounts for 14.6% of totalgovernment spending, around 7.1% ofGDP.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 27. Working longer – a solution?The longer that people spend in work, the longerthey have to save for retirement and the shorter theirretirement will be, relative to their working life.A later average age of exit can also increase thenumber of people in work, relative to the number whoare retired, making it easier to fund pensions,benefits and health and care costs from currenttaxes.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 28. We are working longer Labour market participation at older ages (ages 55 to 64) is expected to increase within the EU from around 50% to around 67% between 2010 and 2060. The average age of exit is also projected to increase from around 62 to around 64 within the EU and from around 64 to around 65 within the UK between 2010 and 2060.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 29. Ageing or retirement problem ?Adult life spent in retirement EU27 Men Wom en 2010 2060 2010 2060Em ploym ent rate of older w orkers (55-64) 54.5 66.7 38.6 60.3Average entry age 21.6 21.6 23.6 23.6Average exit age 62.5 64.3 61.7 63.8Life expectancy at the tim e of w ithdraw al 18.9 22.7 22.7 26.0% of adult life spent in retirem ent 31.7 34.7 37.4 39.3Requested exit postponem ent in years(to keep % life spent in retirem entconstant) 2.0 1.3 The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 30. Must address worklessness across lifecourse• A low old-age dependency ratio does not necessarily mean that the burden on working people is reduced unless many of the people of working-age are actually in work• Another way of measuring the degree of dependency in a country is by looking at proportion of people who are not in work as a proportion of the total population. (Labour Market Adjusted Ratios)• In the UK 42.6% of the population were not in work in 2010. This is expected to increase to 47.5% by 2050. Within the EU as a whole, the proportion of the population out of work is expected to grow from 47.7% in 2010 to 56.3% in 2050.26The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 31. Can migration help mitigate the cost ofageing? YES Migration affects population size and can reduce dependency ratios (depending on age-structure of migrants) The UK is expected to receive around 8.6m net migrants over the next 50 years The EU is expected to receive around 60.7m net migrants over the next 50 years BUT •The EU would require a far greater level of net migration to maintain the current dependency ratio (an extra 11 million migrants by 2020).The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 32. What else do we need to do?• Governments need to prepare for uncertainty• Governments need to ensure pension systems are sustainable, allow for greater risk-sharing, and are less vulnerable to longevity risk• Linking retirement ages to life expectancy can help protect pension system sustainability• Across the world, people will need to continue to work longer• Policies must focus on enabling active, healthy ageing rather than just tackling the costs of ageingThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 33. What else do we need to do?• Countries need to ensure there are safety nets for those who cannot work longer• Governments across the world should consider how to create better conditions for health care innovation and development• If governments were to introduce legislation restricting the inward flow of migration the dependency ratio could be increased beyond current projection levels• Addressing the needs of ageing populations will require ongoing investment in research and data collectionThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 34. What else do we need to do?• Efforts need to be put in to tackle unemployment amongst those of working age. People in particular groups such as women and people at risk of social exclusion are more likely to be unemployed.• Governments might wish to look at ways of helping women with children to be able to remain in the workforce, through development of child-care programmes and work with employers to ensure fathers can contribute more to raising children and women are not penalised for taking career breaks.The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 35. We must recognise and maximise thecontribution of age• Labour market participation at older ages is on the rise.• Carers of all ages contribute the equivalent of £119 billion every year in the UK)• Older consumers (aged 65 and over) spend on average, around £100bn per year.• Older people volunteerThe International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
    • 36. We can tackle the challenges ofthe cost of ageingBut is there the political andsocial will?The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.

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