Demographic timebomb – not as timebomby if we work a bit longer

As I said a couple of years ago, old people ain’t what they used to be. The stooping old women you see in the grainy old films from the 1920s were only in their mid 50s. Nowadays, 55-year-old women look like this, or even this. Well, OK, not all of them but, on the whole, people in their 50s are a lot fitter and healthier than people of the same age were when pensions were first introduced.

A paper in the British Medical Journal this month argues that we need to redefine what we mean by the dependency ratio. If we define it in the traditional way, the number of those over 65 divided by the number between 16 and 64, then the dependency ratio has been rising for some time, as birth rates have fallen and, more importantly, life expectancy has increased. But, say Jeroen Spijker and John MacInnes, not everyone in the 16-64 age group works and not everyone over 65 is retired. The number of over 65s continuing to work has risen steadily over the last decade or so. 

[T]he old age dependency ratio is a poor measure of the burden of an ageing population. It counts neither the number of dependent older people nor the number who sustain them. It merely takes a cut-off point (the state pension age) and assigns adults to the two sides of the ratio accordingly. This might be a useful rule of thumb if the relative size of these two age groups tracked the volume of old age dependency, but it does not.

Instead, because people are now living  for so much longer, they suggest a different definition of dependency.  If, instead of age 65, we use a remaining life expectancy of less than 15 years as the threshold for dependency, the ratios start to look a lot different.

Because so many people are living for so much longer, the proportion of people with a life expectancy of 15 years or less has fallen in recent decades. On this definition, then, the dependency ratio has been going down for some time. Though it will start to rise in 2020, it will still be lower than it was two decades ago for some time to come.

As the authors say, redefining the meaning of working age and dependency in this way has many implications for health and fiscal policies. They suggest that the alarm over rising costs due to ageing may have been over-blown.

I have a slight doubt about this though. We can’t necessarily assume that people don’t become dependent until the last 15 years of life. Although life expectancy has been rising, healthy life expectancy has not been rising at the same rate. So, while a 65-year-old woman can expect to live an extra 10 years than a 65-year-old woman from 100 years ago, not all of those extra 10 years will necessarily be healthy. As life expectancy rises, the age up to which people can continue to work might not rise at the same rate.

Spijker and MacInnes’s calculations also assume that a lot of us will continue to work beyond what we now think of as normal retirement age. As they say, the demographic time bomb may not be as much of a problem as we thought but only if those of us that can continue to work for longer.

Nevertheless, redefining what we mean by working age is a necessary part of the change in society and the workplace that will be needed if the human race is to adapt to the unprecedented demographic changes forecast for the next 40 years. Healthcare policies that help to reduce the gap between life expectancy and healthy life expectancy will be essential too.

I said last month that we will need some innovative thinking to deal with the challenge of global greying. Changing how we think about working and dependency ages is a good start.