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The Actuary The magazine of the Institute & Faculty of Actuaries

Planning for change

The national projections are produced primarily to provide an estimate of the future population of the UK (and the constituent countries) for use in national planning by the UK government and the devolved administrations of Scotland, Wales, and Northern Ireland. The projections are an important input when determining the future demand for housing and the potential cost of state pensions.
The projections are reviewed every two years and the most recent, based on the population at the middle of 2000, were published in November 2001. Matters of particular interest include a projected rise in the UK population until the late 2030s, and a marked increase in the population of pensionable age, even allowing for the change to state pension age (SPA) for women. Compared with the previous projections, there has been a notable increase in the assumed levels of net inward migration.
This article focuses on the projections for the UK as a whole. Similar results for the constituent countries are available on the GAD website (www.gad.gov.uk).

The population is projected by adding the projected numbers of births and net migrants to the starting population, and deducting projected deaths. These projected figures are based on assumptions of future fertility, mortality, and migration, which assumptions are reviewed and updated for every set of projections. It is expected that these, as with any other long-term projections, will not turn out to be precisely correct. Some of the components may vary more than others for example, migration can be affected by many factors, and therefore the potential for change is large.
The average number of children born per woman has been falling for many years. The oft-quoted average figure of 2.4 children has not been achieved in the UK since women born in the 1930s completed their families. The most recent cohort who have generally completed their childbearing (women born in 1955) had an average of 2.03 children just below the ‘natural replacement level’ figure, which is now 2.075. The 2000 projections suggest a continuing decline from this figure, falling below 1.9 for women born in the mid-1960s and finally levelling off at 1.74 for women born from 1985 onwards.

The method for calculating the mortality assumptions was recently reviewed (this review will be discussed in a future article). Where possible, the 2000-based projections took account of the findings of this review. The 2000-based assumptions show an expectation of life at birth for the UK of 75.5 years for males and 80.3 years for females in 2000, rising steadily to 78.9 years for males and 83.2 years for females by 2025. These figures indicate a very gradual narrowing of the gender disparity in life expectancy from a difference of 4.8 years in 2000 to 4.3 years in 2025.

Figure 1 illustrates the large variations which are typically seen in migration from year to year, which variations make the determination of reliable assumptions particularly difficult.
The past two years have seen record levels of net migration, with net inflows approaching nearly 200,000 per year. Consequently, the assumptions for the future have been revised upwards. While it is premature to assume that such high net migration will persist, the long-term net migration assumption has been raised significantly from 95,000 per year (as used in the 1998-based projections) to 135,000 per year.

The various factors which together create the projected population figures are shown in table 1, and the main features are set out below. The main focus of the projections is on the period to 2021, but longer-term projections are discussed where appropriate. However, projections become increasingly uncertain the further into the future they are carried.

Population size
The overall population of the UK is projected to increase gradually from 59.8m in 2000 to around 64.8m by 2025. A peak of just under 66m is projected to be reached by the late 2030s, after which time the population will start to decline gradually. Natural change (ie births minus deaths) is projected to be negative by the early 2030s, but the net migration gain will keep the total population change positive for a few more years.

Age structure
The average age of the population continues to increase, with the mean age projected to rise from 38.8 years in 2000 to 42.6 in 2025. Factors causing this include a fall in the expected number of children under 16, from a projected 12.1m in 2000 to around 11.1m in 2021 (further very slow decline is expected in the longer term). In contrast, the number of people of pensionable age will rise significantly.
The projected number of people of pensionable age defined as those over state pension age is affected by the increase in women’s SPA to 65, which is to be phased in between 2010 and 2020. Thus, although the total number over pensionable age is projected to rise from 10.8m in 2000 to 12.0m in 2010, it will then rise only a further 0.3m (to 12.3m) over the period to 2021. After this date, however, the rate of increase is projected to rise steeply, with the number of pensionable age projected to peak at about 2040 with 16.1m. The number of pensioners is expected to exceed the number of children under 16 by the year 2007.
When pensioners are subdivided further we can see that the biggest increase is for the very elderly. The population aged 80 and over is projected to rise from 2.4 m in 2000, reaching 5m by 2041, and peaking at just under 6m in the middle of the century.

Dependency ratios
For the purposes of this article, the dependency ratio is defined as the population of children under 16, and the population of pensionable age, per 1,000 persons of working age. Both definitions are somewhat arbitrary, because children do not necessarily start working at 16, and retirement actually takes place at a number of different ages. However, it is a reasonable measure of the proportion of people who have to be supported by the working population.
The dependency ratio for children under 16 is on the decline as the number of births continues to reduce dropping from 327 per 1,000 of the working population in 2000 to 274 per 1,000 in 2015, after which the figures are projected to stay very similar in the long term.
The pensioners’ dependency ratio is affected greatly by the change in women’s state pension age. In 2000 the ratio was 292 per 1,000. Without the change in women’s state pension age, the ratio would start to rise rapidly from around 2007 to 369 per 1,000 in 2021. However, after taking account of the change in pension age, the projected dependency ratio for 2021 is 301 per 1,000. As the change in pension age is complete by 2020, a rapid increase is then forecast as the population of pensionable age increases while that of working age falls.

In summary
The overall population of the UK is gradually increasing, but is expected to peak in the late 2030s when the negative natural change is too large to be counterbalanced by the positive net migration assumed. The population as a whole is aging, with particularly large increases in the very old. Although the change in women’s state pension age has the effect of stabilising the dependency ratio in the shorter term, from 2021 onwards a significant increase is expected.