Select Committee on Economic Affairs Fourth Report


CHAPTER 2: DEMOGRAPHIC CONTEXT

Introduction

2.1. The ageing of the population is not a new phenomenon. At the beginning of the 20th century barely one in 20 Britons was aged over 65, compared to more than three out of every 20 today. Although population ageing is likely to be slightly faster over the next 50 years, with five out of 20 people aged over 65 by 2051, we should recognise that this represents the continuation of a long-run trend rather than an abrupt break with the past. Our society and economy have adjusted readily to both the opportunities and the challenges offered by the ageing of the population over the past century, and there is little reason to believe that adjustment will be less readily achieved in the future.

2.2. This chapter outlines the basic demographic data that defines the pattern of past and future ageing of the United Kingdom population. Comparisons are drawn with ageing in other developed economies, and consideration is given to the reliability of the underlying demographic estimates.

The causes of population ageing

2.3. The ageing of the population is a process common to almost all developed and most developing countries. An increase in the average age of the population is driven by two separate forces:

  • a reduction in age-specific mortality (longer lives)
  • a reduction in the fertility rate (fewer births)

2.4. In the United Kingdom, life expectancy has risen dramatically over the past 160 years, driven in turn by better sanitation, medical developments, lower infant mortality, and, over the past three generations, by increased longevity.[6] The increase over the past eight decades in average life expectancy for a person aged 65 is illustrated in Table 1. Similar increases in life expectancy have been experienced in other developed countries.[7]

Table 1: Life expectancy at age 65[8]
Men
Women
1928
11.5
13.3
1960
12.1
15.3
2002
16.0
19.0

2.5. Fertility rates in the United Kingdom have been falling for the past 40 years, and are now at an all time low. Demographers estimate that a total fertility rate of 2.08 births per woman of child-bearing age is required to maintain the population in the long run at its current size. The fertility rate in the United Kingdom has been below replacement level since the early 1970s, and long-run projections assume that it will level off at 1.74.[9] If this fertility rate is maintained, and if there is no net immigration, in the long run the population of the United Kingdom will decline. However, fertility has been falling faster in many other countries; the total fertility rate across all European countries averages only 1.4.[10]

2.6. The outcome of these mortality and fertility trends is a population in the United Kingdom that has aged significantly over the past 40 years, and that is projected to age further over the next half-century. The 2001 census showed that for the first time there were more people in the United Kingdom aged over 60 than under 16.[11] However, many other developed economies have experienced and will continue to experience a more rapid rate of population ageing.

2.7. Data reported in Box 1 set the past and projected future course of ageing in the United Kingdom in a comparative context. In 1960, the United Kingdom had the highest proportion of people over 65 among the G7 group of leading industrial economies, but by 2000 Italy, Japan, Germany and France all had a larger share of persons over 65 than the United Kingdom. Over the next 50 years, ageing in the United Kingdom is expected to be slower than in any other major European Union country, and slower also than in Australia, Canada and Japan. Thus, in so far as population ageing may have any direct impact - positive or negative - on economic activity or performance, this impact is likely to be less pronounced in the United Kingdom than in most other developed economies.

Box 1

Past and future trends in population ageing

A number of different indicators can be used to trace the pattern of population ageing. One simple indicator is the proportion of the population aged over 65. Table 2 shows that, by this measure, the United Kingdom has aged more slowly than most other major industrial nations. In 1960, the United Kingdom had the oldest age structure among the G7 countries, but by 2000 it had relinquished this position to Italy, and had been overtaken by Japan, France and Germany. However, this measure takes no account of changes in the relative size of other age groups.

Table 2: Population age structure in G7 countries, 1960-2000[12]
Population 65 or older(%)
1960 2000
Italy 9.0 17.7
Japan 5.7 17.3
Germany10.8 17.2
France11.6 16.1
United Kingdom 11.715.6
US 9.2 12.6
Canada 7.6 12.5

A more informative, and widely used, indicator is the old-age dependency ratio, which represents the population aged 65+ as a percentage of those aged 16-64. Table 3 shows that, by this measure, the United Kingdom is expected to age more slowly over the next 50 years than other major economies, with the exception of the USA.

Table 3: Old-age dependency ratios in G7 countries, 2000-2050[13]
2000 20252050
Italy26.7 40.668.1
Japan25.2 49.071.3
Germany24.1 39.054.7
France24.5 36.246.7
United Kingdom 24.432.8 39.2
Weighted average of EU member states 24.537.1 54.7
United States18.6 29.334.9
Canada18.5 32.640.9

It should be noted, however, that the old-age dependency ratio does not accurately represent trends in economic dependency, for two reasons. First, it excludes the child (0-15) population, which is also economically dependent. Since low fertility rates are leading to a decline in the proportion of children in the population which coincides with the increase in the size of the older population, the total dependency ratio (the population aged 0-15 and 65+ as a percentage of those aged 16-64) is projected to remain stable at about 37.5 over the period 2001-2025, before rising to 40.9 by 2040. Secondly, age ratios of this type take no account of actual economic activity. Many people aged 15-64 are not economically active because of education, caring responsibilities, disability or early retirement. Conversely, some persons above retirement age continue to be active in the labour market.

Table 4: Population changes in Great Britain, 1971-2051[14]

Composition of the ageing population

2.8. Population ageing alters the relative proportions of the child, working age and pensioner age groups, and also affects the age distribution within these groups. Thus the general process of population ageing will have an impact on people of all ages, and not just on older people. Within the working-age population, for example, between 2000 and 2025 the number of people aged 30-39 is projected to decline from 9.5 to 8.7 million, while the number aged 50-59 is projected to increase from 7.3 to 8.6 million. [15]

2.9. It should be recognised that changes in mortality and fertility have a long-run impact on the overall age structure of the population. A short-run increase in fertility, such as happened with the post-war "baby-boom" in the late 1940s, will affect the age structure of the total population over the succeeding century as each birth cohort ages. Because of the very long time period required for a population to reach a stable equilibrium following any change in fertility or mortality, a "snapshot" view of the population at a single point (such as that provided by the census) needs to be set in the context of longer-run trends.

2.10. One notable trend is past and projected ageing within the pensioner population. In 1971, persons aged 65+ comprised 13.2 per cent of the total UK population, and persons aged 80+ comprised 2.3 per cent of this total. By 2000, the 65+ population had grown to 15.6 per cent of the total, but the 80+ population had almost doubled its proportionate share to 4.0 per cent. Over the 50 years to 2050, the Government Actuary's Department projects that the 65+ age group will have expanded to 24.4 per cent of the total UK population, but that the 80+ age group will have more than doubled to reach 9.1 per cent of this total.[16]

2.11. Because of the better survival chances at older ages of women relative to men (see table 1 above), the sex ratio changes with age. The 2001 UK census shows that, while the ratio of women to men in their late 60s is 1.07, this rises to 1.29 in their 70s, 1.91 for people in their 80s, and 3.46 for those in their 90s. As the Women's Budget Group has noted, ageing in the United Kingdom, as elsewhere, is a "progressively gendered experience".[17]

2.12. These age-specific sex ratios have important implications for the living arrangements of older people. Nearly three quarters of men aged 65+ are married, and nearly half of men aged 85+ are married. By comparison, only 42 per cent of women aged 65+, and 10 per cent of women aged 85+ are married. In consequence, women aged 65+ are almost twice as likely to be living alone as are men of the same age.[18]

2.13. Most minority ethnic groups currently display an age profile which is younger than that of the white population, but these groups are likely to experience particularly rapid ageing in coming decades. In the late 1990s, 6 per cent of the black and minority ethnic population of the United Kingdom was aged 60+, compared with 21 per cent of the white population.[19]

2.14. The timing of immigration is a major determinant of the age composition of different minority ethnic groups. The large-scale immigration of young adults from the Caribbean in the early 1960s has led to the black Caribbean group being the first to experience significant numbers reaching retirement age. High rates of immigration from the Indian sub-continent in the early 1970s will in turn lead to significant increases in the number of Indian, Pakistani and Bangladeshi elders over the next two decades.[20]

The future impact of immigration on population ageing

2.15. The difference between the age profiles of the white population and of the various black and minority ethnic populations indicates that past immigration has had some effect on the overall age structure of the United Kingdom. In an increasingly integrated global economy, immigration into the United Kingdom appears to be viewed as an attractive option by many aspirant migrants. Net migration to the United Kingdom of non-British citizens has risen by over 100,000 persons per year since the early 1990s, with the greatest proportionate increase being persons coming from other countries in the European Economic Area.[21] Since most immigrants are young adults, future immigration will tend to increase the size of the working-age population, and thus could reduce the rate at which the old-age dependency ratio rises. The Confederation of British Industry (CBI) is of the clear opinion that immigration of workers at both the low-skill and high-skill ends of the labour market helps ease the current skill shortage, has no perceptible impact on the wages of the indigenous workforce, and helps to sustain economic growth (Q599).

2.16. Professor David Blake (Director of the Pensions Institute, Birkbeck College, University of London) provided us with an analysis of the potential impact of future immigration on the worker-pensioner ratio. He demonstrated (QQ 190-191) that estimates of the number of immigrants required to stabilise the ratio of the economy-wide wage bill to the economy-wide pensions bill are highly sensitive to assumptions about future growth rates of real wages and pensions, but that an annual level of net immigration of around half a million people might be necessary once the baby-boom generation enters retirement from around 2010. This may be compared with average net immigration of under 100,000 per annum from the mid 1980s to the mid 1990s, of just under 200,000 persons in both 2000-01 and 2001-02, and projections of 135,000 per annum for the future.[22]

2.17. We conclude that, although net immigration will tend, in the short run, to increase the relative proportion of younger persons within the population, it is neither appropriate nor feasible to attempt to counter the trend towards a more aged society in the United Kingdom through a manipulation of immigration policy.

The reliability of population projections

2.18. Assessment of the future scale and pace of population ageing in the United Kingdom depends critically on assumptions made about trends in fertility, mortality and immigration. The Government Actuary's Department uses different assumptions to produce a range of projections around a central estimate. For fertility, high and low variant projections assume that the fertility rate will rise to 1.94 or fall to 1.54 by 2012. Any such changes in fertility would have the effect of either reducing or increasing the rate of ageing of the United Kingdom population, but they cannot alter the number of older persons alive at mid-century, since all such persons have already been born. The absolute size of this older population, therefore, depends solely on future mortality trends. Estimates of life expectancy produced by the Government Actuary's Department assume that mortality improvements beyond age 65, which have been significant over the course of the 20th century (see table 1 above) will tail off by the middle of the 21st century. The "principal" estimates (as used, for example, in the 2002 Green Paper on pensions, Simplicity, security and choice) assume that life expectancy at 65 for men will rise by 2.3 years over the period 2002 to 2025, but by only 0.7 years between 2025 and 2050. The corresponding figures for women show a rise of 2.1 years from 2002 to 2025, and 0.6 years from 2025 to 2050.[23]

2.19. The Government Actuary's Department explained that mortality rates are currently improving fastest at older ages up to the mid-80s, especially for men. This is believed to be a consequence, to some degree, of past trends in smoking behaviour, and it is unlikely that future improvements can be sustained at these high levels indefinitely. For this reason it is assumed that improvements in mortality rates will tail off from about 2025. However, variant projections are produced by the Government Actuary's Department on assumptions of both higher and lower life expectancies at birth than the principal projection, and both the projection methodology and the projections themselves are periodically reviewed.[24]

2.20. Witnesses from the Actuarial Profession noted that there is a wide difference of opinion, not only among actuaries but also among demographers, about the likely future development of mortality rates (Q939). Baroness Greengross noted that there is dispute among academic analysts as to whether there is a genetic limit to the length of human life (Q100). It is possible, for example, that a breakthrough in the treatment of one of the main degenerative diseases could have a marked effect on mortality rates. Such a breakthrough could significantly improve mortality rates at older ages, and thus could raise life expectancy at age 65.

2.21. Given the pace of scientific advance in human genetics, we think that significant improvements in mortality rates at older ages are likely to be achieved within the next two decades. Baroness Greengross pointed out that projections of the size of the older population made as recently as 1991 have had to be revised in the light of recent data on the rising life expectancy of older people.[25] We thus view the Government Actuary's assumptions about future trends in life expectancy at age 65 as conservative and unduly pessimistic.

2.22. We recognise that a degree of uncertainty necessarily surrounds population projections, and we believe that due acknowledgement should be made of this uncertainty in any use the Government make of these projections in, for example, forecasting future pension costs.

2.23. We note that an example of good practice in presenting variant projections of future outcomes exists in the inflation projections made by the Bank of England. The central projection is now reported, as a matter of course, in conjunction with high and low variant projections, and the "funnel of doubt" around the principal projection is displayed graphically in a fan chart.

2.24. We recommend that the Government should, when publishing long-range population projections, or pension or other expenditure projections which incorporate population projections, always report the "funnel of doubt" created by the variance between high and low assumptions about mortality and other key demographic variables.


6   International Longevity Centre , volume II, p 449 Back

7   Department for Work and Pension, volume II, p 1 Back

8   Ibid Back

9   GAD, National Population Projections, 2000-based, p 18 Back

10   PAPRI, volume II, p 464 Back

11   International Longevity Centre , volume II, p 449 Back

12   Trades Union Congress, volume II, p. 112.. Data taken from OECD sources Back

13   DWP, volume II, p 2. Data taken from UN and GAD sources Back

14   Actuarial Profession , volume II, p 339 Back

15   GAD, National Population Projections, 2000-based, p 56 Back

16   GAD, National Population Projections, 2000-based, p 2 Back

17   Women's Budget Group/Fawcett Society, volume II, p 131 Back

18   WBG/Fawcett Society, volume II, p 131 Back

19   Policy Research Institute on Ageing and Ethnicity, volume II, p 197 Back

20   Commission for Racial Equality, volume II, p 193 Back

21   GAD, National Population Projections, 2000-based, p 33 Back

22   GAD, National Population Projections, 2000-based, p 31 Back

23   GAD, National Population Projections, 2000-based, pp 40-50 Back

24   GAD, volume II, p 443 Back

25   Baroness Greengross, volume II, p 27  Back


 
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