The capacity of social security and health care institutions to adapt to an ageing world

SOCIAL SECURITY AND THE CHALLENGE OFDEMOGRAPHIC CHANGE

The capacity of social securityand health care institutions to

adapt to an ageing worldSarah Harper

University of Oxford, United Kingdom

Abstract Population ageing has been occurring in manycountries within Europe, North America and elsewhere for anumber of decades. However, recently the pace, size and globalreach of such ageing has begun to be recognised, and the widerimplications assessed. Population ageing poses a key policychallenge for social security and health care systems across theglobe. Different governments will come to these considerationscarrying with them contrasting demographic profiles, welfareregimes and institutional structures, and cultural systems. Thefuture success of societies in their efforts to accommodatesuch demographic change will, to a large extent, rest with thecapacity of social security and health care institutions to adaptto an ageing world.issr_1374 177..196

Keywords demographic aspect, life expectancy, socialsecurity scheme, medical care, international

Introduction

As the preceding papers in this special issue have amply confirmed, populationageing is not a new phenomenon. Such demographic shifts have been occurring in

Address for correspondence: Sarah Harper, Professor of Gerontology, Director of OxfordInstitute of Ageing, University of Oxford, Oxford, United Kingdom. Email: [email protected] article was written while the author held the position of first EPF Chair in Old AgeFinancial Security, Faculty of Business, University of Malaya. The author would like to acknowledgethe contribution of Kenneth Howse and George Leeson in developing the ideas behind thisarticle.

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© 2010 The author(s) International Social Security Review, Vol. 63, 3-4/2010

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many countries within Europe, North America and elsewhere for several decades.What is new, however, is the rapidity, size and global reach of such ageing, and therecognition that such changes form part of a major shift in global demography thatwill play out across the world in the coming decades. As Howse succinctly states “wehave reached, or are reaching, a point at which an accumulation of quantitativechanges marks a qualitative change” (2010, p. 6).

Global population ageing is one of the key challenges — or indeedopportunities (Harper, 2006a) — for the twenty-first century. As the demographictransition crosses the globe, shifting populations from high fertility and mortalityrates (large numbers of children and low life expectancies) to low fertility andmortality rates (small numbers of children and long life expectancies) so both thenumber and the proportion of older adults increases, and correspondingly thenumber and proportion of young people decreases. There is considerable debatein the literature as regards the definition of when old age begins. It is measured indifferent data bases and under different scenarios in different ways, with thepercentage of the population aged 50 or older, aged 60, aged 65 or older and morerecently with the emergence of the concept of the “oldest-old” aged 80 or older oreven aged 85 or older. It is now widely accepted that there is little synergy betweenchronological age and biological age, and “old age” is now a highly contestedconcept (Harper, 2006a; 2006b). In relation to the provision of social securitysystems, some connection to pension age is relevant. This article thus takes age 60as the base line for old age as this falls mid way between the historical statepension age in developed countries of age 65 (though currently itself underreform) and of age 55 for pension provision in many emerging and transitionaleconomies (again though with great variation and reach). However, it alsorefers the reader to data bases that use other chronological measures; unlessotherwise stated, the data presented here is sourced from the United NationsPopulation Division (UNPD) World Population Prospects — 2008 revision (ESA,2009).

The latter half of the twentieth century saw the more-developed countries, andin particular Europe, experience population ageing to a degree unprecedented indemographic history. Europe reached maturity at the turn of the millennium, withmore “older” people aged 60 or older than “younger” people aged under 15. In thefirst 50 years of this new century, less-developed and transitional countries arepredicted to go through the same transition with Asia reaching maturity by 2040,and the Americas shortly after. It is predicted that by 2050 the number of the world’solder people will outnumber the young. The challenges of providing comprehensivesocial security and health care systems in an ageing world involve understandingthese different demographies and demographic futures (Goodman and Harper,2006) alongside changing welfare regimes (Jæger, 2006) and cultures (Powell andLeedham, 2009).

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Adapting social security and health care institution to an ageing world

International Social Security Review, Vol. 63, 3-4/2010 © 2010 The author(s)


Demographic ageing

Population ageing may be measured in a number of ways. Structural ageing refers toan upward shift in the percentage of older populations. This is likely to increaserapidly over the first half of the century. In terms of structural ageing, Europedominates the figures. In 1950 just 8 per cent of the world’s population was aged 60or older. This rose by a mere 2 percentage points by 2000, but will double to 22 percent by 2050. By 2030 half the population of Western Europe will be aged 50 or olderwith a life expectancy at that age of a further 40 years. This — a region of theworld with more than half its population aged 50 or older — will be historicallyunprecedented. As a comparative measure, if we look at the proportion of nationalpopulations aged 65 or older at the beginning of the twenty-first century, with theexception of Japan, the top 20 countries all are European. Globally, Italy has thehighest proportion of persons aged 65 or older, primarily a consequence of its lowfertility levels. In the European Union “EU-15” countries,1 Italy has the highestproportion of older people (18.2 per cent) while Ireland has the lowest (11.2 percent). Other developed economies such as Australia, Canada and the United Statesare at the lower end of this scale (between 12 and 13 per cent).

The growth rate of the population aged 80 or older is of equal significance. Thisis the fastest growing age group in the world (3.9 per cent in 2010), with theprojected annual growth rate remaining above 3 per cent until at least 2020. By theyear 2050, 20 per cent of persons aged 60 or older are predicted to be in this group.Currently 40 per cent of those aged 80 or older live in Asia, some 16 per cent livingin the People’s Republic of China (hereafter China) alone, partly a reflection ofChina’s very large proportion of the total world population; 30 per cent of thoseaged 80 or older live in Europe and 13 per cent in the United States. By 2050 nearlyone-third of those older than age 65 will be aged 80 or older. In recognition of thisincrease in the oldest old, the UNPD is now producing population projections witha final age category of 100 or older.

Of major importance for policy-making is the pace at which the ageing of thepopulation is occurring in less-developed and transitional countries. The present-day structural ageing of the population of developed countries is part of a dynamicprocess that began 100-150 years ago. Projections suggest that the structural shiftcurrently in progress in less-developed and transitional countries will have reachedthe same dimensions as that currently found in many developed countries after atransition period of around 50 years. By 2040 Asia will have just over 1 billion adultsaged 60 or older, (20 per cent of its population) and just under 1 billion youngpeople aged under 15 (18.9 per cent of its population). By 2050 the proportion of

1. The EU-15 are Belgium, France, Germany, Italy, Luxembourg, Netherlands, Denmark, Ireland, UnitedKingdom, Greece, Portugal, Spain, Austria, Finland, and Sweden.

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older adults will have grown to 24 per cent, whereas the young will have fallen to lessthan 18 per cent. While the predicted increase in the first quarter of the century(2000-2025) in the proportion of people aged 60 or older for the EU-15 is aroundone third, it will double in many parts of Asia (for example Malaysia, Thailand,and China) and Latin America (for example Mexico and Brazil). It is this rapidityof demographic ageing that will be one of the greatest institutional challengesfor less-developed and transitional economies. Specifically, in countries where socialsecurity and health care institutions remain under-developed and/or poorly-resourced, the challenge is defined by the limited projected available time-spanin which to design and implement appropriate public policy responses, whichnecessarily must be accompanied by adequate and sustainable financing and therequisite administrative capacities and delivery mechanisms.

A society’s median age, that is the age that divides the population intonumerically equal parts of younger and older people, provides another measure ofpopulation ageing. All the countries in the developed world have median ages overage 32. Median ages, however, will increase markedly in some countries over thenext quarter century. Italy, Brazil, China, Mexico and Thailand, for example, will allexperience more than a 10 year increase in median ages. Italy is currently predictedto have the highest median age at 52. Japan will reach 50, with most other developedcountries, and some countries in Asia, attaining median ages over 40. Singapore’spopulation structure, for example, has been changing since the 1980s, with a steadydecline in the proportion of children and an increase in the proportion of olderadults. As a result, the median age of the country’s residents has increased by morethan ten years over the past quarter century from 24.4 in 1980 to over 35.5 today.Both Hong Kong (China) and the Republic of Korea (hereafter South Korea) arenow over 35.

A further way to consider population ageing is the growth in absolute numbersof older dependants. It is predicted that by 2050 the global number of individualsaged 60 or older will triple to reach two billion. The numbers of those aged 80or older will show an even greater increase, rising from 70 million to 395 millionby 2050. Currently two-thirds of those aged 60 or older live in less-developedcountries, with the absolute number of people in this age group in these regionsincreasing nearly three-fold in the first 30 years of the millennium to reach over onebillion by 2030. There are 55 million Africans aged 60 or older (of which 42 millionlive in sub-Saharan Africa), and the numbers will increase to reach 90 million by2025 and 213 million by 2050. There are 59 million individuals aged 60 or olderliving in Latin America and the Caribbean. In turn, the figure for Eastern Asia is 600million. Currently the largest country-based population of older people in thedeveloped world is in the United States, with 58 million people aged 60 or older,followed by Japan with nearly 39 million, and Germany with around 21 million. Itis worthy of note that the Russian Federation and Central Europe have a different

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current and predicted demography from the rest of Europe and Asia (for the case ofthe Russian Federation, see Eberstadt and Groth in this issue). Russia’s elderlypopulation has actually fallen from 27 million in 2000 to 25 million in 2010 and willnot reach 2000 levels again until 2015. Ukraine’s elderly population similarlyfell, from 10 million in 2000 to 9.5 million in 2010 and will not return to above 10million until 2020. Indeed the former Eastern Europe will not return to its 2000total of over 56 million aged 60 or older until near 2015.

The drivers

Global population ageing has been fuelled by a fall in Total Fertility Rates. Alongsidethe widely-recognized low fertility of Western Europe, with all countries below theconventionally-accepted replacement fertility rate of 2.1 births per woman, andsouthern Mediterranean countries in particular at 1.2 and 1.3, we see a similarpattern emerging in Asia. Singapore and South Korea have now fallen to below 1.2,while Hong Kong (China), at below 1, now has the lowest TFR in the world. Even theIslamic countries of Pakistan and Afghanistan with current TFRs of 4.0 and 6.6respectively are predicted to halve their rates to just above replacement (2.2 and3.1) by 2050. The main factor behind this significant fall is female educationprogrammes, both directly in terms of family planning education (Cleland et al.,2006) and indirectly in facilitating female employment (Cruces and Galiani, 2007).However there is also some evidence emerging that indicates falling male fertility asa possible contributor (Kold Jensen et al., 2007).

As a result of the second driver, falling mortality, life expectancies are predictedto rise across the globe. The UN identifies three broad regions — more developed,less developed and less developed excluding the least-developed countries (thelatter being 49 countries, of which 33 are in Africa). Most countries in theless-developed world, excluding the least-developed countries, now have lifeexpectancies at birth of around 70 years or older. In 2010, years of life expectancyat birth stand at 75 (male) and 81 (female) in the more-developed regions, and67 (male) and 71 (female) in the less-developed regions, excluding the least-developed countries. By 2050 these are predicted to reach 80 (male) and 86(female) in the more-developed regions, and 74 (male) and 78 (female) in theless-developed regions, excluding the least-developed countries, thereby reducingthe gap between these regions. However, it is also worth noting that life expectancyin the least-developed countries is projected to rise from its current lows of 53(male) and 55 (female) to 67 (male) and 70 (female) by 2050, reducing the extentof the current differences in male and female life expectancy compared with thatof the less-developed regions.

Of particular interest is the rise in healthy life expectancy, with currentpredictions for Europe and the United States forecasting that both men and women

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in their early 70s can expect to live well into their 80s, enjoying most of those yearsdisability-free (Manton, Gu and Lamb, 2006).

Reconceptualizing population ageing towards theemergence of demographically-mature societies:

Issues for social security systems

By 2050, it is predicted that the population pyramid for the developed world willsettle as parallel lines, with around 10 per cent of the population in each age decadebetween birth and 80; that of transitional and developing countries will straightenconsiderably. Over the next 40 years, however, we shall continue to see a top-heavypyramid, with a large bulge of mature and then older adults moving up as thedominant population. In the developed countries this is the result of the baby boomcohorts of the middle of the last century. In the less-developed and transitionalcountries, this is owing to the “shelf” generation — the current cohort of youngreproductive women who, while themselves typically part of large horizontalfamilies with five to eight siblings, have chosen to bear only two, one, or even nochildren. Key here for policy-making is an understanding not only of populationageing, but of the shift in dependency ratios and the way these will play out indifferent demographic scenarios. We also need to understand the impact of the“demographic dividend”.

Dependency ratios

For the financing of social security, a set of important factors to consider aredependency ratios: the Elderly Dependency Ratio (EDR), i.e. the ratio of those aged65 or older (and thus considered unproductive) to those aged 15-64 (and thusconsidered productive); the Youth Dependency Ratio (YDR), i.e. the ratio of thoseyounger than age 15 to those aged 15-64; and the Total Dependency Ratio, i.e. thesum of EDR and YDR. One can discuss the relevance of these broad age categoriesto productivity/non-productivity, but this article simply take them as a proxy.

For many countries the rise in the EDRs will be significant. The next decade willsee a rapid shift towards increased EDRs in most industrialized countries. Italy willsee its EDR double between now and 2050 to reach 70:100 workers. In contrast theUnited Kingdom will increase only slightly, reaching 67:100. By 2050, the EDR willexceed 70 per cent in Italy, Spain and Japan, while remaining below 40 per cent inDenmark, Iceland, Luxembourg, Mexico, Turkey and the United States.

However there is a need to shift the emphasis away from ageing per se andincreases in EDRs towards the combined impact of falling mortality and fertilitywhereby in some countries the fall in YDRs is such that overall TDRs will actuallyfall. China proves such an example. China will see a fall in its overall TDR, from a

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peak of 80 dependants for every 100 workers in the youth-driven 1960s and 1970sto 60 dependants by 2050. Indeed China is currently at an all-time low of only 40dependants per 100 workers, a situation that stems from its rapidly falling fertilityrate which, in turn, is a result of the “one child policy”.

Hong Kong (China), South Korea, Singapore and urban China will reachsimilarly high EDRs by 2030. South Korea is ageing particularly rapidly with apredicted doubling of its population aged 60 or older and a quadrupling of thoseaged 80 or older by 2030. By 2040 rural China and Thailand will see a rapid increasein EDRs, Malaysia by 2045 and India, Indonesia and the Philippines by 2050. Moststriking is Japan whose TDR will increase from one dependant for every twoworkers in 1950 rising to 1:1 by 2050.

The demographic dividend

Although many Asian and Latin American countries will face a large future EDR,many may take advantage of the opportunities afforded by the “demographicdividend” over the next few decades (Mason and Lee, 2004). This usually occurs latein the demographic transition when a series of large birth cohorts are followed bya set of far smaller ones as birth rates fall. This results in a decrease in youngdependants, and thus a fall in the YDR.

This decline leads to a substantial proportional increase in the potential labourforce and the potential for higher savings rates, particularly as the consumptionneeds of large numbers of dependant children are reduced. In turn, an enhancedlabour force and the potential for higher rates of investment may lead to greater percapita output and higher economic growth, producing the “demographic dividend”.In addition, this process may allow the society to increase its aggregate per capitaincome level before its population becomes mature, and to accumulate assets to bedrawn upon at a later date to help finance the consumption needs of an elderlypopulation (Heller, 2006).

In fact, many argue that the rapid growth of the “East Asian Tigers” — HongKong (China), Singapore, South Korea, and Taiwan (China) — was a consequenceof the demographic dividend (Lee and Ku, 2007). China’s and Thailand’sdemographic dividend period is forecast to last until 2035-40, Malaysia until 2045,while that of India and Indonesia until 2050 (UNFPA, 2002; 2009).

The globalization of population ageing

Global ageing is emerging in the context of globalization itself, a world increasinglydominated by the flow of human and economic capital across national boundaries.Indeed, a key stimulus to such capital flows is the emerging demographicimbalances arising from the differential movement of regions into maturity. Thus

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while an understanding of the dynamics of globalization is essential to address thechallenges and opportunities of ageing societies, so it is also necessary to understandthe dynamics of global ageing as a component of globalization, addressing it at boththe global/institutional and societal/institutional level.

As indicated earlier, the challenges of providing comprehensive social securityin an ageing world involve both recognizing how these will play out under differentdemographies, welfare regimes and cultures, and understanding the capacitysocieties will have to adapt. Some countries will actually see a fall in their TDRs dueto dramatic falls in fertility, while most will see an increase in EDRs by the middleof the century. Some will be able to take advantage of the increased labour force andthe potential for higher savings that will accompany demographic dividends, otherswill fail to take the advantage as a consequence of weak governance or externaleconomic constraints, and for others it is already too late.

In addition, national collective goals will facilitate or restrict the requiredadaptations to population ageing. Regardless, there are key lessons to be learnt ifsocieties are to adjust to the difficult challenges ahead.

The developed world

At the societal level, demographic change will clearly have significant implicationsfor labour supply, family and household structure, health care and social securityprovision, patterns of saving and consumption, the provision of housing andtransport, leisure and community behaviour, and social networks and socialinteraction. However, as governments and policy-makers have awakened to theimplications of population ageing, so the “demographic burden hypothesis” hasspread. National health systems, and even economies, are predicted to collapseunder the strain of health and pension demand, and families will no longer be thereto compensate for failing public provision. Above all, public perception of ageing is,in some quarters, seen as a challenge for the West alone, having little relevance forless-developed and transitional countries, and one that can be compensated for byimmigration from the young South. The reality, however, is far more complex (seeSabates-Wheeler and Koettl in this issue), and highly susceptible to policy changes.Indeed, understanding the reality of demographic issues is vital, both for individualswho need to reassess their life courses in the light of the new longevity probabilities,and for governments charged with planning and developing appropriate policyframeworks to address the forthcoming demographic changes, challenges andopportunities. Indeed, the major concerns — higher public spending on pensions,high dependency ratios between workers and non-workers, increases in health carecosts, the declining availability of family-based care, and a possible slow down inconsumption because of an increase in older people and a decrease in youngerpeople — are dynamics of current cohorts and current behaviours, they are not

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fixed (see Mason, Lee and Lee in this issue). In addition, they are all phenomena thatcan be addressed by policy, allowing for the necessary political will and economicconditions.

Developing and emerging economies

As discussed, within 40 years there will be two billion older people, three-quarters ofwhom will live in less-developed and emerging economies. As a number of thisissue’s articles have discussed in detail, less-developed and emerging economieswill be faced not so much with supporting large numbers of active, healthy retiredpeople, but frail dependant elders in real need. Furthermore, many of thesecountries have yet to establish adequate coverage under social security programmes,and face real challenges.

Currently, older people are among the poorest in every developing country. Theyhave the lowest levels of income, education and literacy, they lack savings, assets andland, have few skills or capital to invest in productive activity, and have only limitedaccess to labour, pensions or other benefits (for an assessment of the case of India,see Bloom et al. in this issue). They are often in poor health, with high levels offrailty, and face inadequate or inaccessible health services. In addition, dependingon their personal circumstances, local cultural norms or specific national factors,a family may have large numbers of dependants or lack family and communitysupport. Although it is often recognized that the highest priority must be given toolder people who are alone and vulnerable, the numbers in such circumstances areconsiderable, and beyond the current limits of available resources and programmes.Areas ravaged by war or civil unrest increase vulnerability, causing isolation,displacement, and family dislocation. Older people very often have no access tobasic needs, let alone pensions or health and welfare services. Despite this increasedvulnerability, in times of environmental crisis or civil strife, post-emergencyprogrammes often focus on younger people and neglect older adults. However,many governments have little capacity to shift scarce resources in their direction,given the huge challenges of mass poverty and deprivation.

Health care provision for this population will thus be a real challenge. Inall regions of the world there is currently a shift (occurring at varying speeds andhaving reached varied levels of completion) from predominantly infectiousand parasitic diseases to chronic and degenerative diseases: the “epidemiologicaltransition”. Contrary to common perceptions, disabilities tend to be more prevalentin less-developed regions. In high-mortality regions of the world almost half thedisease burden is already attributable to non-communicable diseases, the “epidemicof non-communicable disease”, accelerated by population ageing. Less-developedcountries will therefore have to face the double burden of communicable andnon-communicable diseases.

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The 2003 World Health Report portrays well the situation confronting the less-developed world and the challenge to cope with the impact of demographic ageingalongside so many other existing demands on economies and social structures: “Ofthe 45 million deaths among adults aged 15 or older in 2002, 32 million, or almostthree-quarters, were caused by non-communicable diseases, which killed almostfour times as many people as communicable diseases and maternal, perinatal andnutritional conditions combined . . . 3 in 4 adult deaths in Latin America andin the developing countries of Asia and the Western Pacific region are causedby non-communicable disease, reflecting the relatively advanced stage of theepidemiological transition achieved in these populations and the emergence ofthe double burden of disease” (WHO, 2003, p. 13).

Two new major global epidemics are cardio-vascular disease and lung cancer.These are brought on not only by environmental factors, in particular diet andsmoking, but also because individuals are now living long enough to develop thesehealth problems. More deaths now occur from cardiovascular disease in the less-developed than in developed countries. In many of these countries, there is no sparecapacity for developing much-needed preventative and public health programmes,let alone long-term care strategies, while the health systems in these regions struggleto address the still-heavy burden of acute diseases, including HIV/AIDS and tropicaldiseases, and tackle infant, child and maternal mortality. Indeed the capacity foreven middle-income countries to deliver appropriate and effective care for peoplewith chronic disease will be stretched, as these services will have to be developed inthe context of the double disease burden.

Another major concern is economic security. The prospect of a secure andsustainable income in old age is unlikely for most in less-developed countries.Few, for example, have any access to public benefits or, among workers, access tocoverage under any social security programme. The percentage of the populationcovered by an old-age pension programme is less than 20 per cent in somecountries of Latin American and South-East Asia, and around 5 per cent inparts of sub-Saharan Africa (ILO, 2010, pp. 48-49). There are substantial practicalproblems in extending formal social insurance coverage to workers in ruraland informal sectors. In some countries, there is also insufficient politicalimpetus. Despite the existence of some form of old-age pension provision inmost countries, it is not uncommon for large sections of the population to beexcluded from such coverage, especially when such programmes are contributoryand are targeted exclusively upon workers in formal-sector or public-sectoremployment.

In summary, the demographic challenges presented by the rapid acceleration ofageing in developing and emerging economies will confront governments that arealso dealing with many other major problems. European societies addressed thesechallenges over 150 years, allowing time for the development of appropriate

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institutional frameworks and polices. The challenges of the growth in non-communicable disease and the need for long-term care and economic security for agrowing older population will have to be confronted in regions afflicted with acutepoverty, famine, and lack of access to basic sanitation and fresh water, while they arestill grappling with high levels of infant and maternal mortality, and acute infectiousdiseases. The public institutions and welfare regimes in these countries are barelyable to cope with the current demographic profile of predominantly children andyoung adults, yet are now facing the urgent necessity of developing appropriateinstitutions and regimes for the one billion older adults who will be surviving overthe next 25 years.

Societal challenges and the capacity to adapt socialsecurity to population ageing

Population ageing will thus affect all social security provisions from health andlong-term care, pensions, unemployment and disability provision, to maternity andfamily allowances. Regardless of the demand, whether health or financial, the keychallenge will be society’s capacity to adapt to population ageing. This includes:

• The capacity of individuals and households to make the relevant adjustments tosavings behaviour, labour supply, private intergenerational transfers, andinvestment in human capital.

• The capacity of institutions to make the relevant adjustments to enablearrangements for savings, labour supply, public intergenerational transfers, andinvestment in human capital.

The challenge of social goals and population ageing

As societies attempt to successfully adjust to population ageing, a key public policyquestion is how national collective goals will influence these necessary societaladjustments, and how such required adjustments will be facilitated or restricted byexisting social goals.

The goal of increasing general prosperity. This is a primary goal of mostcountries, as general prosperity reduces poverty and increases both standards ofliving and health outcomes of the population, though not necessarily quality oflife. Some policy-makers may fear that population ageing will reduce economicgrowth, and the policy challenge is to minimise this effect. Maximising thebenefits of the “demographic dividend” and adjusting TDRs, through policies thatregulate youth entry into and the exit of older workers from the labour market,(alongside policies that promote higher female participation and the integrationof those with disabilities), is deemed important here.

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The goal of intra- and intergenerational fairness. The goal of maintaining intra-generational fairness might well form an important government objective in manypension policies. Goals around intergenerational fairness are used to frame policiesrelated to intergenerational transfers. This includes a sense of the appropriate ratiobetween average retirement income and average worker income. It also includesrecognition of the potential impact of public policy on the well-being of differentbirth cohorts and whether public policy distributes the burden of population ageingfairly across older and younger cohorts.

An important factor in this regard is the concept of intergenerationalfairness and whether this will change in the light of the current populationageing.

The traditional contract between the generations is based on a system of inter-generational reciprocity whereby adults provide for young dependants (children)and in return when those young dependants become adults they provide for olderdependants. This is maintained in most societies both at the familial level (parentsproviding for young children, children providing for elderly parents) and at thesocietal level with adults within the labour market providing via public transfers forboth older and younger dependants, to provide health care and income support,and health care and education, respectively.

The question for an ageing population that has arisen through both fertility andmortality reduction is whether successful cohorts (in terms of both fertility andmortality reduction), at the time when ceasing to be economically active and/or onreaching “old age”, create a heightened financial burden for the smaller working-agecohorts. The issue is whether intergenerational transfers should be maintained andchannelled on the basis of the “traditional” (Arber and Attias-Donfut, 2000) or an“adapted” (Harper, 2004) intergenerational contract. An adapted contract wouldrequire older cohorts to bear on a continuing basis a greater share of the costs oftheir longer lives through, for example, higher post-retirement contributions totheir own welfare and/or a longer working life.

The goal of maintaining social cohesion. The goal of maintaining socialcohesion will be addressed in very different ways in different societies andcultures. In particular, different governments will place a large emphasis onimmigration as a policy instrument to mitigate the economic impact ofpopulation ageing and this will to an extent reflect their migration history and thepotential social impacts that may arise from the arrival of large numbers of adults.Thus the United Kingdom and the United States, with their long history ofencouraging immigrants from across the globe, have freely used migration tocompensate for their ageing populations. While Japan and South Korea, withoutsuch a history, are beginning to consider the potential social impacts of suchimmigration.

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The provision of financial security

Policy must set the framework of incentives within which individual andinstitutional decisions are made. A number of policy implications arise from thechallenge that population ageing poses. Pay-as-you-go (PAYG) social securityschemes face the challenge of a low or even potentially negative payout capabilitywhen the workforce ceases to grow, as a sustainable growth in the payout equals therate of growth in total wages. Capital reserve funded schemes face the effect ofchange in population age structure on asset prices. Key considerations in the light ofpopulation ageing include:

• the importance of integrating public and private transfers into future systemsincluding understanding the complementary relationship between private andpublic intergenerational transfers, and the relationship between upward anddownward transfers. Research undertaken by the University of Oxford (Leesonand Harper, 2007) for example, reveals that while public transfers reduce privateupward transfers from adult children to older parents, they have far less effecton private downward transfers from older parents to adult children andgrandchildren.

• a consideration of intergenerational fairness through sharing out the proceeds ofgrowth between workers and pensioners. This, for example, may occur throughmaintaining a link between pensions and wages so pensioners receive some share ofa nation’s economic growth. It may be implemented through linking pensions toincreases in prices so pensioners do not see absolute living standards fall as a resultof inflation. It could be ensured through the value of pensions being tied to thecapacity of the system defined by the growth in the total wage bill. Or it may bemaintained by a system which integrates several indices.

• exploring frameworks to support and encourage individual responsibility. Itmay be argued, for example, that population ageing necessitates a divisionbetween government responsibility to keep citizens out of poverty and individualresponsibility to raise personal standards of living. However, there are considerablevariations in the provisions for promoting such responsibility.

• developing a broad, coherent and integrated multi-pillar approach to social security.This should enable and promote longer working lives through life-long training,education and skills updating, and the provision of appropriate working envi-ronments for older workers; ensure that private family/household transfers areintegrated into old-age security systems where possible; promote well-being andenable healthy active living to reduce chronic illness and health care costs andsupport active contributory life for as long as possible; and provide access toeducation across the life course. Together, these elements should better ensure thatall individuals are prepared physically, mentally, socially and financially to cope withincreasing individual responsibility for old age.

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Health and social care

A second set of policy challenges arise though the provision of health and socialcare. A key question is whether the improvement in the health of older people inEuropean countries that are Member States of the Organisation for EconomicCo-operation and Development (OECD) is occurring at a rate fast enough tocompensate for population ageing. This refers to the dramatic increase in the oldestold in particular, which will occur within the next 30 years; the numbers ofthose aged 80 or older are forecast to triple across the EU by 2050 (Harper,2006a).

Howse (2010) clarifies the three main challenges that population ageing holds forthe provision of health and social care: amount of ill health; type of ill health; abilityto care.

• Population ageing will have a large and independent effect on the total amountof ill-health and disability in the population and, as a result, will exert pressure toincrease total health care spending.

• Population ageing will change the kinds of health problem that people bring tothe system, and as a result will exert pressure for a major shift in the allocation ofhealth care resources and the configuration of services.

• Changing dependency ratios will make it harder for ageing societies to providefor the care of their older members. The challenge is likely to be compounded incountries where population ageing is associated with an absolute decline in theworking-age population, since this will have an adverse effect on the resourcesavailable to the health care system.We can consider each of these in turn.

The total amount of ill-health and disability

In order to understand the impact of population ageing on health care systems wemust understand both of the following:

• The relationship between population ageing and the scale of health needs.• The relationship between increasing health care needs and levels of health care

spending.

The relationship between population ageing and the scale of health needs. Thisrelationship arises because each individual who survives into later-and-later old ageis likely to have increasingly more serious health problems than they did in formeryears. Thus as societies improve their population life expectancy, so the proportionof the population with serious health problems will increase, unless there is acountervailing improvement in the health of successive birth cohorts which showsup as a decrease over time in age-specific prevalence rates.

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If, for example, it turns out that people are surviving longer because they are staying

healthier for longer, then it is possible that an increase in life expectancy will have no net

effect on the prevalence of ill-health and disability in the older population. Since the

proportion of the older population with serious health problems would in this case

remain unchanged, any effect of population ageing on the amount of ill-health in the

general population would depend entirely on the increase in the relative size of the older

population (Howse, 2010)

Similarly of course, if a larger proportion of the overall population falls withinthe age categories that are associated with a steep rise in the risk of disease anddisability, then the average person in the general population will have more healthproblems to bring to the attention of the health care system.

However the change in healthy life expectancy is currently contested. In somecountries, notably the United States, healthy life expectancy is improving fastenough to offset the impact of declining mortality at older ages; in others, lifeexpectancy without the bonus of increased health may be increasing to such anextent that we are on the verge of an epidemic of frailty. This has been definedby Robine and Jagger (2005), for example, in relation to an increasing number ofindividuals who are surviving to experience the kind of prolonged and severedependency associated with advanced old age. Even if the improvements in healthylife expectancy keep pace with increasing life expectancy, as Howse highlights, thechange in the age structure of the population that will result from the ageing ofthe baby boom generations will increase the scale of health care needs in thepopulation.

The relationship between increasing health care needs and levels of health carespending. Here, the relationship between the amount of ill-health in the populationand the consumption of health care resources is mediated by a host of non-demographic factors. For example, as Leeson (2004) has pointed out, although anumber of cross-national studies have considered the determinants of health carecosts, only one has found that the proportion of population aged 65 or older is theexplanatory factor. Rather, it is the wider effects of income, lifestyle characteristics,and new technology, alongside the effects of environmental factors, which aredriving up the demand for new advanced medical applications. Indeed, analysis ofOECD data (OECD, 1987) by Seshamani and Gray (2002) reveals that in developedcountries at least, per capita health care costs for those aged 65 or older haveincreased at the same rate as for those younger than age 65.

The second important complication in the relationship between populationageing and the level of health care spending concerns the relative importance ofage and remaining life expectancy (or proximity to death) in determining the ageprofile of health care spending in the population as a whole. As Howse (2010)asks: Why does per capita health spending rise with age? Is it because older

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individuals have more ill-health than younger individuals? Or is it because healthcare spending tends to be heavily concentrated in the last few years of life, andcalendar age is a reasonably good indicator of the proximity of death? On thissecond view, the main reason why more money is spent on the average 75-yearold than the average 50-year old is that the former is more likely to have the kindof life-threatening disease that triggers a large increase in the use of health careresources.

Although it is clear that per capita health spending does increase quite steeplyonce people reach their 60s, repeated analyses of age-related data on healthspending have shown that proximity to death is more important than age per seas a predictor of the consumption of health resources (e.g. Zweifel, Felder andWerblow, 2004; Seshamani and Gray, 2004). In other words, health care spendingis heavily concentrated in the last few years of life, so much so that some analystshave argued that ageing per se has virtually no effect on the way that theconsumption of health care resources increases with age (e.g. Zweifel et al., 1999).Gray even goes so far, for example, to suggest that the relationship betweenage and health expenditure is possibly even inverse, once proximity to death isallowed for (Gray, 2005). The ageing of the population shifts this proximity intoprogressively older ages, rather than significantly increasing total medical careexpenditure (Heller, 2003). In conclusion, we can see that predicted increases inmedical and health care costs are therefore not the result of growing numbers ofolder people per se, but of current frameworks within which these costs willoccur.

Howse (2005) raises an interesting question, however, when he draws on work byJacobzone and colleagues (2000) to ask whether this improvement in the health ofolder people in OECD countries is occurring at a rate fast enough to compensatefor population ageing. This refers to the dramatic increase in the oldest old inparticular, which will occur within the next 30 years. Considering the extent towhich declining age-specific disability rates might offset the effect of populationageing on both the overall prevalence of chronic and severe disability, and also thecost of providing services and care to this disabled population, he concludes thateven the most optimistic scenarios point to a substantial increase in the overallprevalence of disability. For example, the numbers of those aged 80 or older areforecast to triple across the EU by 2050, as noted earlier. Howe’s analysis doesconclude on a more optimistic note, however, when he points out that the Nordiccountries, who have already invested heavily in long-term care, are likely to makesignificant savings as a percentage of their GDP from the improving disability rates.A key contributory factor in predicted increases in health costs has to do with thecost of establishing the appropriate long-term care services. Once this has beenachieved, falls in disability rates, even with dramatic increases in the oldest old, willhave less impact on overall costs.

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Let us turn to the kind of disease the twenty-first century heralds, and the role ofpopulation ageing in mediating this. This concerns the shift from acute infectiousdisease to complex chronic disease and long-term ill-health and disability: thechronic disease burden (Nolte and McKee, 2008). Stuckler (2008) suggests that thecontinuing rise in the prevalence of chronic disease will be driven by two factors: bypopulation ageing, which will probably be the major determinant in EuropeanOECD countries, and by increasing levels of affluence, probably the majordeterminant in many transitional economies. Generally, it is clear that the rise inchronic disease will be driven in all modern societies by elements of both.Furthermore, most European OECD countries are now also experiencing anepidemic of the diseases of advanced old age, in particular dementia. Regardless ofthe causes behind this growth, there will be a future need for a reallocation of healthand social care resources away from infectious and acute medicine, driven by theepidemiological transition of the conquering of infectious disease and by thechanging demographics of falling fertility and mortality at younger ages, towardsthe prevention and management of late-life chronic disease.

A further factor concerns the impact of population ageing on a society’s capacityboth to provide workers to care for the older population and to tax income tofinance this.

(. . .) most rich countries have well-developed mechanisms for distributing thecosts of financing health care in such a way that the healthy support the sick, theyoung support the old, and the rich support the poor (Hurst, 2000)As Howse (2010) concludes, it looks therefore as though changing dependency

ratios will shift the generational distribution of the costs of financing health caresystems. In addition, demographic change will reduce both informal family care(through a reduction in the availability of younger members to provide such care)and formal care (in the first instance, in mature societies as the numbers of overseasmigrant workers providing health care fall as their own societies start to age).Furthermore this will occur at a time when the epidemiological transition is towardslabour-intensive chronic disease care.

Conclusion

It is clear that population ageing poses a key policy challenge for social security andhealth care systems across the globe. Different governments will come to theseconsiderations carrying with them contrasting demographic profiles, welfareregimes and institutional structures, and cultural systems. However, there arecertain relationships common to most scenarios of population ageing: for exampleelderly dependency ratios are likely to increase, but total dependency ratios may staythe same or even decline; chronic diseases are likely to increase both in absolutenumbers and as a proportion of all disease; and population ageing will be but one

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of a series of challenges affecting economies and societies. Looking to the future, thesuccess of societies in their efforts to accommodate such demographic change will,to a large extent, rest with the capacity of social security and health care institutionsto adapt to an ageing world.

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The capacity of social security and health care institutions to adapt to an ageing world