The European Union’s massive 2012 Ageing Report, published on 15 May and promptly endorsed by national governments, warns darkly of the impact of demographic change in driving up age-related public expenditure, and undermining the sustainability of government finances, in the context of the current financial crisis.
Ambitiously presenting a projection for 2010-2060, the 2012 Ageing report suggests that “age-related expenditure” will increase by 4.1% of GDP, counting pensions (+1.5%), health expenditure (+1.5%), and long term care (+1.1%). Altogether, age-related expenditure accounts for 25% of GDP, and about 50% of general government expenditure, so we are talking big stuff, and small adjustments can have big consequences.
The EU seems to focus almost obsessively on demographic projections. The numbers of Europeans over 65 will double by 2060, from 87.5m to 152.6m, and the 85+ will triple from 23.7m to 62.4m. But the report does not acknowledge that the older people of 2060 are children today. When we reach 2060, will they have the same needs as older people today? Will they have the same demands on public expenditure? These are unknowns, so projecting from today’s needs seems inherently flawed.
The age dependency ratio, which the EU solemnly shows as doubling by 2060 (from four working age people to two, to every ‘retired’ person), assumes that those aged 20-64 are active in the labour market and that the 65+ are passive and dependent.
But older people today contribute greatly to their communities as volunteers, to their families as grandparents, and to the economy as consumers. The EC makes no attempt to monetize these contributions so they are not included in their calculations. It is naive and one-sided to talk of the dependency ratio, without understanding these important contributions.
Looking forward, the increasing dependency the EU fears could be mitigated by smarter policies to promote working longer prevent illness and reduce care needs.
Economic growth, the answer to everyone’s prayers, will not flow from its historical engine – an increase in the number of young workers entering employment. Instead we have to invest in the productivity of our existing labour force, and grow the silver economy by designing better products and services for older people. The proposed European Accessibility Act is an opportunity to do this.
The EU’s 2012 Ageing Report is a proper call to action, but it should not drive cuts in health and pensions spending. Other smarter policies can help manage demographic change and give Europeans the opportunity to live longer, more fullfilled lives which our ancestors would never have dreamed possible.