The move towards reform of pension saving and long-term healthcare is being driven by one very powerful force – increasing life expectancy.
The rapid improvement in longevity in the western world is bringing about a transformation not only of the way we plan and fund retirement but of the way that people work and go about their daily lives.
According to the Oxford Institute of Ageing, in the next 50 years, most of the world’s countries will see their populations become top-heavy, with more older people than younger ones.
This increase in mortality is more pronounced in the western world. The OIA says that in the next 20 years more than half of Europe’s population will be over the age of 50.
This change to demographics could bring far-reaching changes to society. The OIA says: “We are thus seeing a fundamental shift in the demographic structure of society, which is historically unprecedented and which will require significant changes to many of our institutions. It will affect the way we live, the way we work, public services and healthcare, private and public benefit systems, families, communities, patterns of saving and consumption, provision of housing and transport, our educatiosystems and even the geopolitical order of the 21st century.”
The bare facts for the UK spell out the scale of the change we are currently seeing.
According to the Office of National Statistics, there are currently 61.4 million people living in the UK, of which 11.8 million are 65 or older. By 2033, the population of over-65s will have increased by 32 per cent to 15.6 million while the amount of working-age adults will have increased by just 14 per cent. At this level of change, if state pension were to stay at 65 years, by 2033, there would only be 2.18 workers to every pensioner, down from 3.23 in 2008.
The scale of the improvements in life expectancy are even more stark at the upper end of the demographic scale. By 2033, the ONS predicts the number of people over 90 years old will have tripled and the number of those over 95 years old will have quadrupled.
In 2008, there were 11,000 aged 100 years old or over in the UK. By 2033, that number will have reached 80,000.
An extended period of leisure is no longer sufficient for many. People want to take control of their lives and continue to be active
The further out the predictions go, the more dramatic the figures are. By 2058, the ONS says the population will increase to 78.5 million, with 21.35 million of those being pensioners and 4.27 million of those will be over aged 95.
From a financial planning point of view, this increase in longevity has got to be paid for somehow.
Figures from the Association of British Insurers show that in 2008, life and pension funds held £2.06tn of assets but at an individual level, the average personal pension pot is still fairly modest.
Mean personal pension wealth was £40,600 among men who were contributing compared with £18,600 for women. This is not particularly generous even working on current assumptions of life expectancy for a 65-year-old man or 17.5 years and 20.17 years for a woman of the same age.
The ONS found that just under a quarter of men aged 65 and over had no private pension wealth compared with just over half of women aged 65 and over.
The public cost for pensions is also going to increase as the population gets older.
The cost of state pensions, including basic state pension, S2P, means testing and other pension benefits was £68.9bn in 2006/07 but is predicted to rise to £163.8bn by 2035/36. More older people living to progressively longer ages will also bring corresponding increase in the cost of health and social care for the elderly.
According to the specialist health thinktank the King’s Fund, NHS costs will increase by £1.1bn-£1.4bn a year but this prediction is for the relatively short term up to 2017.
The debate on the future of long-term care is getting a good airing but the King’s Fund figures show the current, less than generous system costs the state £6.8bn a year. Without any reform, this is predicted to rise to £8.1bn by 2015 and to £12.1bn by 2026.
But it is not just the increased financial costs that are being dictated by improved life expectancy. As people live longer and are increasingly healthier into old age, people’s expectations and aspirations for their own lives are also being changed.
The idea of a fixed retirement age is one area where demographic change is dictating policy, with the Government having to address the issue of the default retirement age in the face of a growing need or desire to continue working.
A recent series of reports on the future of retirement from HSBC and the Oxford Institute of Ageing outlines the scale of the change in attitudes that these demographic changes have brought.
The future of retirement, what people want, said: “In the 1940s and 1950s, retirement was seen as a rest, by the 1970s it had become a reward and by the 1980s the idea of a period of funded leisure at the end of one’s working life had become established and was seen as a right.
“Now our ideas about retirement are changing once more. An extended period of leisureis no longer sufficient for many. People want to take control of their lives and continue to be active.
“Active ageing and a new opportunity have become possible in advanced econ-omies because of healthier lifestyles and advances in public health, social benefits and welfare.” An extended period of leisure is no longer sufficient for many. People want to take control of their lives and continue to be active