two - Modelling ageing populations to 2030: financing long-term care in England

Summary

Introduction

Countries across the developed world are recognising the need to reconsider and reform their policies for older people, driven in large part by concerns over their future affordability and sustainability in the face of rising demand and decreasing potential support ratios (the number of people in a conventional working age range such as 20 to 64 for each person in a conventional retirement age of 65 and over). In Europe, the number of people aged 65 and over is projected to increase from 107 million in 2000 to 194 million in 2050, while the number of those aged 20 to 64 will decline from 442 million to 370 million over the same period (United Nations, 2015). Trends in countries such as Japan are more startling; there, the proportion of people aged 65 and over is projected to increase from 17% in 2000 to 36% by 2050. Potential support ratios will decline across developed countries. While this fall is likely to be more pronounced in some countries such as Japan than in the UK, even here the ratio is likely to fall by 42% from 3.7 to 2.2 in the period 2000 to 2050, having been essentially constant in earlier decades (Figure 2.1). The next two decades are likely to experience particularly rapid population ageing as the large birth cohorts from the babyboomer generation are making the transition from work to retirement.

Much discussion centres on the need for resources to meet increased pensions, healthcare and social care costs across developed societies and, increasingly, across developing ones as well. A number of solutions to these problems have been advanced. These include some or a combination of the following measures:

• • increasing the age of retirement;

• • increasing immigration;

• • increasing fertility among the native population;

• • raising taxes.

The difficulties in ensuring financial stability in the face of these major demographic trends were highlighted in the long-term fiscal sustainability report of the Office for Budget Responsibility (OBR) (OBR, 2012), which pointed out that costs associated with population ageing were likely to be the main factors that would put substantial pressures on public finances in decades to come. The OBR estimated that in the period between 2017-18 and 2062-63, the share of gross domestic product (GDP) allocated to state-funded health costs would increase from 7% to 8.8%; state pension costs from 5.8% to 8.4%; and long-term social care costs from 1.3% to 2.4%.