1/1 world economic and social survey 2007 development in an ageing world canadian institute of...

1/1World Economic and Social Survey 2007

Development in an Ageing World

Canadian Institute of ActuariesMontreal 15 April 2008

Rob VosDirector

Department of Economic and Social Affairs

United Nations

http://www.un.org/policy


The world population is ageing at an accelerating rate

Size and distribution of world population aged 60 years or over

39 38 30 25 189 10

25

4

5253

63

70

79

0

500

1,000

1,500

2,000

2,500

1950 1975 2005 2025 2050

(Mil

lio

ns)

Developing countries

Economies in transition

Developed countries

… and by 2050, 80% of older persons will live in developing countries


Ageing reflects human progress:

• Increased longevity and lower mortality• An opportunity through the active participation of the older persons in the society

… but it also poses challenges:

• Smaller labour force may affect economic growth

• Sustainability of old age pension and health care systems may come under pressure

• Adjustments in living arrangements, long-term care systems and participation in society needed to ensure wellbeing of older persons


Dependency ratios will increase, but ...Developed countries

0

10

20

30

40

50

60

70

80

90

100

1950 1975 2000 2025 2050

Year

Perc

enta

ge

Total

Old-age

Child

Estimates Projections

Developing countries

0

10

20

30

40

50

60

70

80

90

100

1950 1975 2000 2025 2050

YearPe

rcen

tage

Total

Old-age

Child

Estimates Projections

... there is an asymmetric transition: Challenges differ for developed and developing countries


Growth of labour force will decelerate or even turn negative. This may potentially affect economic growth and welfare

Possible responses:

1. Population policies: fertility and family planning, migration2. Outsourcing3. Increased female labour participation4. Remove incentives to early retirement5. Improve working environment for older workers

6. Increase labour productivity

Measures 3-6 are most important

Economic challenges for ageing societies


Making people stay longer in the labour force

• Removing incentives for early retirement

Reducing fiscal incentives to early retirement Increasing statutory retirement age Create a closer link between contribution and benefits (e.g., introducing

“notional accounts”) Removing public “pre-retirement” benefits

• Improving working environment

Change the tasks in order to reduce the risk of injuries Improve the medical assistance in job places (e.g., provide adequate

medical supplies) Change the work loads for older workers

• Removing aged-based discriminatory practices

Economic challenges for ageing societies


Productivity growth required to counter balance demographic change

Impact of population ageing on required labour productivity growth, Germany, Italy, United States of America and Japan, 2000-2050

0

1

2

3

Germany Italy United States Japan

Req

uir

ed p

rod

uct

ivit

y g

row

th (

per

cen

tag

e p

er y

ear)

Other labour supply factors Ageing effect

Ageing effect


Labour force is still growing and could provide a window of opportunity for economic growth, but only if …

Policy Actions:

- Boost employment rate

- Improve economy wide productivity

- Increase investment in human and physical capital

Economic opportunities for more slowlyageing societies


Inadequate coverage:

80% of world population lacks social security

coverage currently. Without policy change: 1.2 billion older persons may face income insecurity by 2050!!!There is a clear connection between social security coverage and old age poverty

Unsustainable pension systems:• Weak growth and employment creation• Early retirement practices: short working life• Mismanagement, bad governance, poor design• Demographic pressures

Ensuring old age income security


Contributors to public pension schemes

0

10

20

30

40

50

60

70

80

90

100

2 2.5 3 3.5 4 4.5 5

Income per capita (Log)

Co

ntr

ibu

tors

as p

erc

en

t o

f la

bo

ur

forc

e (

late

st

ob

s.

betw

een

1988

an

d 1

998)

Belarus

Georgia

Kyrgyz Republic

Gabon

Ukraine

Armenia

Close link income per capita and contributions to public pensions


No “one size fits all” but guiding principles should be:

• Universal access • Solidarity• Equity (horizontal, gender)

• Adequacy of benefits to avoid poverty

• Financial sustainability

Ensuring old age income security: Comprehensive reforms are needed


Multi-layered old age income security systems (tailored to country conditions and preferences):

Non-contributory Pillar: universal social pension scheme- Also feasible for developing countries (Figure)

Contributory Pillar: targeting certain wage replacement level- Parametric reforms (raising retirement age!) with labour

reform (increasing participation rates)- Structural reforms (elements of fully funding, assuring

economic security)

Other Pillars: employer-related, private schemes, individual savings and/or asset accumulation

Any system requires growth to be sustainable

Ensuring old age income security: Comprehensive reforms are needed


Population ageing is accompanied by an epidemiological transition

Due to faster transition, developing countries are not experiencing compression of morbidity

Moreover Population ageing implies:- Increased demand for health services

- Change in the type of services needed (long-term care)

Ensuring long-term health care for older persons


Challenge for developed countries: maintaining the level and quality of health services while containing the costs

Challenge for developing countries (double health cost burden): ensuring basic health needs to vast part of population while deal with the increase demand for health services due to ageing

Ensuring long-term health care for older persons


Ageing and health expenditures

Health costs will increase,but ageing is NOT the major cost driver:

• Changes in health seeking behaviour

• Rising wage costs of medical personnel

• Inefficiency in delivery

• New (costly) medical technology

• Pharmaceuticals


Ageing and health expenditures: Australia


Ensuring long-term health care onto old age Adapting health policies

- Combination of private and public insurance to improve risk pooling

- Limit the cost of drugs

- Better training of medical personnel and incentives to attract workers

- Home-based long term care (ageing in place)

- Preventive health care and health education


Population ageing is inevitable..., so what can be done?

• Fertility and migration policies are not enough

• Increase labour productivity and participation rates!

• Extend working life (improving working conditions)

• Reform of pension systems: Multi-Pillar systems with universal social scheme at its basis!

• Reform of health care systems: preventive action, home-based care and limit cost of drugs

All these challenges seem surmountable!

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