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12

Governments 'must do more to tackle cost of rising longevity'

Open-access content 10th December 2012

Governments must do more to address the long-term cost to the public purse of ageing populations, according to a report published by the International Longevity Centre – UK today.

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In The cost of our ageing society, the think-tank has called on governments to take a more flexible approach to policy making as they respond to the uncertainties resulting from increases in longevity.

Globally, life expectancy at birth is projected to increase by 13 years during this century from 68 years in 2005/10 to 81 years in 2095/2100. These will increase the ratio of older people relative to working age people, putting more pressure on state systems to fund pensions, benefits, and health and care costs for older people.

Age-related spending in the UK is projected to rise from an annual cost of 21.3% of gross domestic product to 26.3% between 2016/17 and 2061/62, while in the European Union an increase from 25% of GDP to 29.1% of GDP is forecast between 2010 and 2060.

To address this, governments should consider linking retirement ages to life expectancy. 'The European Commission has recommended linking retirement ages to life expectancy as an effective way to ensure the sustainability of public pension system while also protecting pensioners from suffering reductions in public pension (state pension) payments,' the report noted.

Steps should also be taken now to ensure pension systems allow for greater risk-sharing between government, pension providers, insurers and individuals, and are less vulnerable to longevity risk, it added.

As people have to continue working for longer to support themselves until the age they can access their savings or state pension, governments should work hard to ensure the labour market is accessible to older people.

In particular, the report called on administrations to find ways to help people more likely to be unemployed - like women and those at risk of social exclusion - to access the labour market to reduce their dependence on the state.

'Governments might wish to look at ways of helping women with children to be able to remain in the workforce, through development of child-care programmes and work with employers to ensure fathers can contribute more to raising children and women are not penalised for taking career breaks,' it said.

For those who cannot work longer, countries need to ensure there are adequate safety nets in place, as well as taking steps in invest in health care innovation and development now to manage the growing cost of health care in the future.

Baroness Sally Greengross, chief executive of ILC-UK, said: 'Our ageing society will have significant impact on state spending on pensions, health care, long-term care and unemployment benefits. Across the world, people will need to continue to work longer as a result.

'In the UK and across the world we will also have to innovate in health and deliver a sustainable funding settlement for social care.'

Emma McWilliam, a consulting actuary for the report's sponsors Milliman, added: 'Intergenerational collaboration is key, especially given high rates of youth unemployment.  If those at working age are not employed, simple old age dependency ratios do not show the complete picture to Governments on how best to deal with the challenge ahead.

'Additional measures such as Labour Market Adjusted Ratios, as set out by the European Policy Centre, that effectively encourage policies around employment are definitely a step in the right direction to build public policy that reflects the current demographics and needs of all generations in our future society.'

This article appeared in our December 2012 issue of The Actuary.
Click here to view this issue
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