Consequences of a graying world

While attention is focused on efforts to make the world go green, the world is also changing dramatically because it is going gray. People over age 65 are starting to outnumber those under 16 in many countries.

By 2040, 1 in 4 Europeans will be more than 65 years old, up from 1 in 8 in 1990. The Chinese population is aging even more rapidly, to the extent that its total population will start to decline in the early 2030s.

Numerous studies have estimated the probable impact of population aging, from the potentially devastating effects on an unprepared welfare state to shortages of blood for transfusions.

Pension provisions will be stretched to the limit. The traditional model of the working young paying for the retired old will not work if the latter group is twice the size of the former.

But a 2006 survey of 20 countries and territories by banking giant HSBC revealed that, while 43 percent of respondents feel they should fund their own retirement, 30 percent expect to be supported by local or national government. Final salary pension plans are already disappearing, and governments will have to search hard for new ways to pay for their aging citizens.

Rising healthcare costs

In addition, as the population ages, healthcare costs will rise. By 2050, half of all age-related social expenditure will be taken up by health and long-term care in countries of the Organization for Economic Cooperation and Development.

There are two driving forces behind population aging. The first should be celebrated – we're living longer. In 1901, life expectancy in Britain for men was 45 years and for women 49. Today most Britons expect to reach their 80s, at least. In Britain in 2004, there were about 9,000 people older than 100.

Better healthcare, nutrition, and sanitation have all contributed to increases in life expectancy, and the trend appears to be accelerating. In the 20 years between 1985 and 2005, life expectancy at birth in Britain increased by 5.1 years for men and by 3.6 years for women.

The second driver of population aging is that we in Europe are having fewer babies. The social revolution brought about by the introduction of the contraceptive pill in the 1960s enabled many women to control their reproductive lives.

Women were able to decide when and how many children to have. The pill gave them the ability to combine career and family aspirations in a way that was previously impossible.

But the advent of choice has brought an unintended consequence. Many women now delay childbirth to the point where it becomes much less likely that they will conceive naturally. Twice as many women remain childless today as did in the 1940s, and family size is shrinking.

The options for mitigating the effects of population aging are limited and complex. The main possibilities are welfare reform, increasing immigration, or raising fertility rates.

All three strategies have massive financial and political implications. Many governments shy away from taking the drastic steps needed in these areas, tending to be more concerned with the next election than with the next generation.

The option least tangled up with political will is to introduce policies aimed at encouraging people to have more children – in other words, reducing the social, economic, and biological barriers to childbirth.

Need for family-friendly policies

Countries that have "family-friendly" policies – particularly those that help mothers to raise children and work – have managed to maintain or even slightly raise their fertility rates. Such policies include tax incentives for families with more than one child, flexible working options, and maternity and paternity leave.

France now has the second-highest fertility rate in Europe, due in part to the introduction of pro-natalist policies at the very earliest indication of population decline.

As a larger percentage of the population falls into the 60-plus category, governments will not be able to ignore the graying of society. On pensions, healthcare, and other issues, retirees will have a louder voice as their numbers increase, and they will use it.

They did in the last British election. More than twice as many over-65s voted as did 18-24 year-olds. Elected officials know that if they ignore these voters, they risk being forced into early retirement themselves at the next election.

• Jonathan Grant is president and Stijn Hoorens is a senior analyst at RAND Europe, an independent nonprofit research organization.