Will Population Ageing Spell the End of the Welfare State?: A review of evidence and policy options [Internet]

Excerpt

1. Population ageing is raising concerns about how to cope with the expected greater cost of health and long-term care, and over the economic implications of having a comparatively smaller share of younger people at traditional working age.

2. This rhetoric is often inspired by misleading metrics, such as the traditional old-age dependency ratio, which assume that people become dependent on society after reaching some pre-defined age.

3. Yet, upon closer inspection, available evidence suggests that care and consumption of a growing older population may not be so costly to finance and that older people provide significant economic and societal benefits, especially when healthy and active:

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      Population ageing has a modest and very gradual effect on health expenditure forecasts, compared to traditional cost drivers such as price growth and technological innovation.

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      Demand for long-term care is expected to increase substantially due to population ageing but it is coming from a low base currently and is not expected to have a large impact on spending forecasts. However, this does not account for the economic cost of informal long-term care, which is not captured in the international statistics (nor fully understood).

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      Many older people continue to provide paid or unpaid work beyond official retirement age and continue to make a positive economic and societal contribution. The value of unpaid work provided by older people is considerable but difficult to monetize.

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      While in Europe consumption of older people is mainly financed by public transfers, many older people pay for (part of) their consumption from private sources, including from incomes from their own continued work or accumulated assets.

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      Accumulation of asset wealth also benefits the economy indirectly through its contribution to productivity growth and health is a key predictor of asset accumulation.

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      Further, older people, even if not in paid employment, continue to pay consumption and other non-labour taxes, and thus contribute to public-sector revenues.

4. Carefully crafted policies can reduce the costs of health and long-term care of older people, enhance their economic contribution through paid and unpaid work, and support acceptability of funding and income transfers:

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      Policies to promote cost-effective health and long-term care interventions include the use of technology, integration of health and long-term care, as well as other models of care delivery and supporting better treatment and care choices near the end of life.

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      Keeping older people active in paid work is dependent on a number of factors, not least their health, and importantly the roles and incentives regarding employment and pensions. On the unpaid work side, policies may include support of informal carers through training or cash transfers and interventions that enable carers to combine unpaid care with paid employment.

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      Health and long-term care financing systems may need to diversify their sources of revenue in order to continue to generate sufficient resources. Policies that are being explored include increasing reliance on general taxes or private sources in welfare systems that rely heavily on payroll contributions; the use of hypothecation and the introduction of mandatory long-term care insurance. Overall, acceptability of higher taxes and transfers will depend on the transparency of the process and perceived fairness of the rules.

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      Policies to promote healthy and active ageing, which has an intrinsic value in itself, such as those that prevent or delay care dependency, will also indirectly (through enhanced health and functional ability) help achieve all the other policy goals outlined above.

5. The forthcoming briefs in this series will look at the issues outlined above in more detail in an attempt to gauge how big a challenge population ageing actually is for the welfare states as we know them today.