By: Ben Franklin, Head of Economics of Ageing, ILC-UK & Dr Brian Beach, Senior Research Fellow
Reorienting society and public policy to define “old age” as the last 15 years of life could largely solve the “ageing problem”
Many of us, including yours truly, typically define working age as the years between 16 and 64 and old age as anything over the age of 65.
Population ageing is therefore a concern because of the large anticipated rise in the numbers of people over the age of 65 by comparison to the expected slow growth, or in some countries fall, in numbers of people aged 16-64.
But such definitions of old and working age might overstate the problem of ageing. A recent paper by Sanderson et al. (2017) argues that old age should be viewed as the last 15 years of life rather than any fixed age such as 65. Doing so accounts for the fact that things have been changing over time with respect to longer lives and improvements in health. We should therefore only be worried if we anticipate a large rise in people with 15 or fewer years to live relative to the overall adult population (adult is defined as anyone aged 20 and above). They call this the “prospective old age dependency ratio”.
What effect does this have?
The prospective old age dependency ratio isn’t new but it’s not widely used to measure population ageing – indeed neither the United Nations nor the OECD include it in their range of measures. Arguably however, it is more appropriate than the traditional dependency ratio. Sanderson and colleagues quote Norman Ryder who as long ago as 1975 argued:
“To the extent that our concern with age is what it signifies about the degree of deterioration and dependence, it would seem sensible to consider the measurement of age not in terms of years elapsed since birth but rather in terms of the number of years remaining until death.”
Using the prospective measure of age therefore enables us to take account the substantial gains made in life expectancy over the last century and anticipated progress over the next one. Such an approach makes a profound difference to the overall narrative around ageing. For instance, if we look at the UK using latest UN data, we see that the trajectory of prospective population ageing is much flatter than the traditional 65+ dependency measure (see chart). In fact, the numbers suggest that by 2050, the UK will be in a better position than in the late 1970s and early 1980s. This is a similar conclusion to the one reached by MacInnes and Spijker (2013) who have argued there is no “ageing timebomb” once we see old age as starting in the last 15 years of life.
Source: ILC-UK calculations based on UN Population Projections 2017
So should we ignore warnings of population ageing?
Not just yet. The state of the public finances still depends heavily on the traditional definitions of working age and old age. For instance, average tax revenue is expected to exceed average spending for those aged around 20 to around 65. After age 65 there is a substantial fall in tax revenue and a rise in spending, first due to welfare spending (i.e. pensions) and then due to health and social care costs (see chart).
Representative spending/tax profiles by single year of age
The traditional dependency ratio is therefore highly relevant from a public spending perspective, but it is largely socially constructed – based on people leaving the workforce around an artificially created State Pension Age and a failure of employers to retain and attract older workers. In fact, although increases to SPA are in process, with future rises in legislation, there is still a notable disconnect between people’s preferred age of retirement and when they actually leave work; between 1991 and 2005, an estimated 34.2% of men and 30.7% of women in Great Britain retired earlier than they would have preferred
(Steiber & Kohli 2017). The lost taxation from this early exit underscores the importance of enhancing employment opportunities for older people, particularly where health issues may require a shift in working conditions or circumstances.
If we were able to reorient society and public policy so that the tax revenue profile extends to the point of prospective old age, and welfare, health and social care spending is largely focussed on the last 15 years of life, then we will go a long way to delivering a sustainable older society. We will have effectively solved the “ageing problem” in a UK context. Then and only then will 65 no longer be seen as old age.
Ben Franklin & Dr Brian Beach,
Head of Economics of Ageing, ILC-UK / Senior Research Fellow