Philip Sadler CBE

Futurist, Author, Speaker

Futurist
Author
Speaker

Can we afford all these old people?

15/07/2010

Pessimism about the affordability of an ageing population invariably relies for substantiation on the old age ‘support ratio’ This statistic measures the relationship between two age groups of the population: the ‘working age’ group, usually measured as the 16 to 64 year olds and the group of 65 year olds and over, who are designated as ‘dependent’. The simplistic conclusion of this ratio is that each person of working age will,in the future, have to support about double the number of elderly dependants compared with today and that this burden is unaffordable..
However, despite the fact that it is so often quoted, this ratio is misleading to the point of being meaningless. The composition of the population is very different from the crude two-sector model implied, with working age people (who are assumed to work) supporting the elderly (who are presumed to be totally financially dependent).
The terms pensioner and taxpayer are not mutually exclusive. All pensioners pay taxes of one kind or another, such as VAT, excise duty or property tax. Even though the average total tax contribution from pensioners will be well below that for people of working age, most commentators ignore the pensioners’ contribution completely. Some 1.3 million retired people pay more in taxes than they receive in benefits. This moves them from the dependent to the supporter category.
The key issue for policy makers, however, is not the growth in the number of pensioners but, as was pointed out by the Economic Policy Committee of the EU in 2001, the balance between economically active and inactive persons. The ‘inactives’ include children and young persons, full time students, the unemployed and those on benefits such as incapacity benefit.
“the key variable is not so much the old-age dependency ratio, but rather the balance between economically active and inactive persons…. Whereas the old age dependency ratio for the EU is projected to double in coming decades, the economic dependency ratio will only increase by one-fifth”
The old age support ratio is predicted to fall by 42% between between 2003 and 2041, (from 4.1 people of working age to every pensioner to 2.36 people of working age to every pensioner.)
Yet the economic dependency ratio is predicted to fall by only 13 per cent over the same period, (from 0.9 of a person working to every dependent person to 0.8 of a person to every dependent.)
The policy implication is clear -to avoid national bankruptcy, get more people of working age into employment.

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