In their article “Population Ageing: the timebomb that isn’t?” in the BMJ (2013, 347), Spijker and MacInnes (SM) make a significant contribution to the debate about the challenges of ageing societies. Recognising that the largest share of the (health care) costs associated with ageing fall in the last few years before death, relating the share of population with a life expectancy of less than 15 years to the working population (the REDR, Real Elderly Dependency Ratio) is an important innovation. It takes the work of Scherbov and others on measuring ageing one step further, and highlights the problem of measuring salient features of ageing populations by chronological age only, as exemplified chiefly by the traditional Old Age Dependency Ratio (OADR).
While we agree with the broader point made by SM, we take issue with their sole focus on the REDR versus the OADR. First, we note that the OADR, with a cut-off point at the state pension age, is a good rough indicator of the strain on public finances caused by ageing in a static world, where pension age and labour market behaviour remain the same. This is because state pension is a major part of public transfers. Granted, with increasing longevity, health-care costs are postponed, so one might want to take into account the composition of the 65+ age group.
Using the REDR − or indeed any measure not based on chronological age − carries an implicit assumption about the age at which substantial public transfers (state pension and health care costs) sets in. Therefore, ‘backcasting’ the REDR risks distorting the public finance part of the picture. The fall in the REDR from 1980 up to today largely reflects the fact that in 2013 the age group of 65 to 71 year olds was not considered as ‘elderly dependent’ (65 being the approximate age at which life expectancy was 15 in 1980; 71 was the equivalent in 2013). However, from the point of view of the Chancellor of the Exchequer, this state-pension-drawing age group was very much a dependent group – even if health care costs were somewhat postponed.
Thus, the picture emerging from this ‘backcasting’ exercise gives a misleading impression that elderly dependency is far less problematic today than it was in 1980, because it implies that any future increase in the REDR will not be a big problem.
For the purpose of projecting the impact of ageing on public finances, the REDR is useful only if the implicit assumption is that the state pension age increases one-for-one with longevity and that the REDR is calibrated to this age at the outset (e.g. for a state pension age of 65 in 2013 this would be individuals with an a approximate life expectancy of less than 20 years).
Our second point is related to labour market participation. A longer healthier life enables a longer working life. However, working longer has not been a trend over the past three decades, and inducing a longer working life is clearly part of the challenge of dealing with an ageing society. To put this challenge into perspective, Figure 1 reproduces the REDR of SM based on the Eurostat population projection to 2050 and two REDR measures calibrated to a state pension age of 65 in 2013. The first top uppermost broken curve has unchanged labour market participation (as in SM), whereas the second line assumes that working life (and by implication number of working people) increases one-for-one with longevity.
The effect of ageing is mitigated but it is still very significant. In fact, until 2040 only a little over half of the increase in our preferred REDR will be offset by people working longer. Note, however, that this requires a pension age linked to longevity and an equivalent increase in years worked.
To conclude, while we agree with Spijker and MacInnes on the lack of a time bomb, we do see a fairly severe storm brewing − and one which requires considerable behavioural changes: for individuals, authorities and health-care personnel.
Rapid Response:
In their article “Population Ageing: the timebomb that isn’t?” in the BMJ (2013, 347), Spijker and MacInnes (SM) make a significant contribution to the debate about the challenges of ageing societies. Recognising that the largest share of the (health care) costs associated with ageing fall in the last few years before death, relating the share of population with a life expectancy of less than 15 years to the working population (the REDR, Real Elderly Dependency Ratio) is an important innovation. It takes the work of Scherbov and others on measuring ageing one step further, and highlights the problem of measuring salient features of ageing populations by chronological age only, as exemplified chiefly by the traditional Old Age Dependency Ratio (OADR).
While we agree with the broader point made by SM, we take issue with their sole focus on the REDR versus the OADR. First, we note that the OADR, with a cut-off point at the state pension age, is a good rough indicator of the strain on public finances caused by ageing in a static world, where pension age and labour market behaviour remain the same. This is because state pension is a major part of public transfers. Granted, with increasing longevity, health-care costs are postponed, so one might want to take into account the composition of the 65+ age group.
Using the REDR − or indeed any measure not based on chronological age − carries an implicit assumption about the age at which substantial public transfers (state pension and health care costs) sets in. Therefore, ‘backcasting’ the REDR risks distorting the public finance part of the picture. The fall in the REDR from 1980 up to today largely reflects the fact that in 2013 the age group of 65 to 71 year olds was not considered as ‘elderly dependent’ (65 being the approximate age at which life expectancy was 15 in 1980; 71 was the equivalent in 2013). However, from the point of view of the Chancellor of the Exchequer, this state-pension-drawing age group was very much a dependent group – even if health care costs were somewhat postponed.
Thus, the picture emerging from this ‘backcasting’ exercise gives a misleading impression that elderly dependency is far less problematic today than it was in 1980, because it implies that any future increase in the REDR will not be a big problem.
For the purpose of projecting the impact of ageing on public finances, the REDR is useful only if the implicit assumption is that the state pension age increases one-for-one with longevity and that the REDR is calibrated to this age at the outset (e.g. for a state pension age of 65 in 2013 this would be individuals with an a approximate life expectancy of less than 20 years).
Our second point is related to labour market participation. A longer healthier life enables a longer working life. However, working longer has not been a trend over the past three decades, and inducing a longer working life is clearly part of the challenge of dealing with an ageing society. To put this challenge into perspective, Figure 1 reproduces the REDR of SM based on the Eurostat population projection to 2050 and two REDR measures calibrated to a state pension age of 65 in 2013. The first top uppermost broken curve has unchanged labour market participation (as in SM), whereas the second line assumes that working life (and by implication number of working people) increases one-for-one with longevity.
The effect of ageing is mitigated but it is still very significant. In fact, until 2040 only a little over half of the increase in our preferred REDR will be offset by people working longer. Note, however, that this requires a pension age linked to longevity and an equivalent increase in years worked.
To conclude, while we agree with Spijker and MacInnes on the lack of a time bomb, we do see a fairly severe storm brewing − and one which requires considerable behavioural changes: for individuals, authorities and health-care personnel.
Competing interests: No competing interests