The age structure of the UK population

The table below provides a summary of the age structure of the UK population using data from the 2001 census and estimates for population change published by the Office for National Statistics.

United Kingdom		Percentages
	1971	2002	2031
0-15	25.5	19.9	17.2
16-64	61.3	64.2	59.3
65 and over	13.2	15.9	23.5
Source: Population Estimates, Office for National Statistics www.statistics.gov.uk

The % of the UK population aged above 65 is likely to rise from 13% in 1971 to 23.5% in 2031.
 

UK Population: by sex and age
									Thousands
	Under 16	16–24	25–34	35–44	45–54	55–64	65–74	75 and over	All ages
Males
1981	6,439	4,114	4,036	3,409	3,121	2,967	2,264	1,063	27,412
2004	5,970	3,533	3,954	4,553	3,780	3,391	2,374	1,717	29,271
2011	5,744	3,768	4,074	4,293	4,301	3,598	2,652	2,008	30,438
2021	5,821	3,436	4,487	4,133	4,201	4,042	3,158	2,664	31,943
Females
1981	6,104	3,966	3,975	3,365	3,148	3,240	2,931	2,218	28,946
2004	5,676	3,408	3,983	4,640	3,859	3,509	2,659	2,830	30,564
2011	5,487	3,563	4,050	4,358	4,412	3,755	2,898	2,931	31,454
2021	5,578	3,257	4,347	4,146	4,295	4,244	3,452	3,465	32,784
Source: Office for National Statistics

The changing age structure of the UK population

1. People 60 and over now form a larger part of the population than children under 16. There has been a big increase in the number aged over 85 – to about 1.1 million (1.9% of the population)
2. In 2001 in the UK there were 12.1 million people over the age of 60. Of which 4.4 million were over 75
3. In 2011 in the UK it is projected that 13.9 million people will be over 60. Of which 4.6 million will be over 75
4. In 2021 in the UK it is projected that 15.9 million people will be over the age of 60. In 2031 the figure is 18.7 million. That’s about 30% of the population. Of which 5.3 million will be over 75. In 2031 the figure is projected to be 6.6 million.
5. The current shape of the UK age structure is shown in the population pyramid diagram below
6. Northern Ireland population has the youngest age structure among the constituent countries of the United Kingdom. Twenty three per cent of the Northern Ireland population are children (aged under 16), compared to 20 per cent in the United Kingdom as a whole

The ageing of the population is a phenomenon common to nearly every developed country and many developing countries. It is throwing up huge economic, social and political challenges for the years ahead. Taking the UK's population statistics first, at the beginning of the 20th century, less than 5 per cent of British people was aged over 65. That figure has already risen to 15 per cent and will continue to edge higher. This is an important point to note at the start of the analysis - the process of an "ageing population" is a gradual one and not something that represents a huge shock to our economic and political systems.

World demographic indicators, 2004
	Population (millions)	Population density (sq km)	Infant mortality rate per 1000 live births	Total Fertility Rate	Life expectancy at birth (years)
					Males	Females
Asia	3,860	121	53.7	2.47	65.4	69.2
Africa	887	29	94.2	4.97	48.2	49.9
Europe	729	32	9.2	1.40	69.6	78.0
Latin America & Caribbean	554	27	26.0	2.55	68.3	74.9
North America	327	15	6.8	1.99	74.8	80.2
Oceania	33	4	28.7	2.32	71.7	76.2
World	6,389	47	57.0	2.65	63.2	67.7
Source: United Nations

What is causing an ageing population?

We are witnessing an increase in the average age of the population. What factors explain it? Principally there are two main forces at work:

1. Lower mortality: A gradual reduction in age-specific mortality leading to a rise in average life expectancy. There are many economic and social factors behind the rise in longevity:
1. Better diet / nutritional standards – despite concerns about the obesity epidemic
2. Improved housing – although there remain inequalities in the quality of the housing stock
3. Better working conditions
4. Significant improvements in healthcare
5. Cleaner air
6. Advances in medical technology: The last twenty- thirty years has seen the eradication of many infectious and contagious diseases. And there have been major advances in the treatment of degenerative diseases
7. Increases in average living standards
2. Lower fertility: Fertility matters because new births rejuvenate populations. Many population experts regard declining fertility as the main contributor to global ageing. Total fertility rates in the EU are the lowest in the world, bar some countries in Eastern Europe and Japan. Fertility levels in developed countries, many of which experienced a “baby boom” during the 1950s and 1960s, have generally declined since 1970. The median reduction in the total fertility of developed countries was 0.8 children per woman between the 1970s and the 1990s.

Fertility rates in almost all high-income countries are now below the replacement rate of 2.1 births per woman (which takes into account the fact that slightly more boys are born than girls). Several factors might help to explain the trend decline in fertility rates. Over the last 35 to 40 years birth rates for women in their 20s have experienced a dramatic fall as maternity has been delayed whereas fertility rates for women aged 30 and above have gradually increased over the last 25 years. So the relative number of women in each age group will have an effect on average fertility rates. Reductions in fertility are the result of a series of inter-related factors:

1. Biological factors: Advances and greater availability of contraceptive methods and low ability to conceive
2. Economic factors:
1. The rising financial costs and time cost of having children
2. The high costs of other goods and services including housing
3. The expansion of higher education and rising female participation in the labour market
4. Declines in job stability in Europe which has prompted an increase in the number of two income families
5. Lack of childcare provision and inflexible working hours
3. Social-Cultural factors
1. The changing role of women in society
2. A rise in divorce and separation rates
3. Growing secularisation of society and rise of individualism
4. Changing social attitudes to marriage and family

Fertility rates in the European Union
The data in the table below is taken from the United Nations World Fertility Report for 2003 and covers a selection of European Union countries.

Country	Year	Rate	Year	Rate
Ireland	1970	3.9	2001	2.0
France	1970	2.5	1999	1.8
Denmark	1970	2.0	2001	1.7
Finland	1970	1.8	2001	1.7
Netherlands	1970	2.6	2001	1.7
United Kingdom	1972	2.2	2000	1.6
Sweden	1970	1.9	2001	1.6
Portugal	1970	3.0	2001	1.5
Germany	1978	2.0	2000	1.4
Greece	1970	2.4	1999	1.3
Italy	1970	2.4	2000	1.2
Spain	1970	2.9	2000	1.2

In 1960, males could expect to live another 12 years beyond this landmark. By 2002 this had risen to 16 years. There has been a similar increase in longevity for females.

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]

Life expectancy rates for the UK

Years	At birth	At birth	At 50	At 50	At 60	At 60
	Males	Females	Males	Females	Males	Females
1981	70.8	76.8	24.1	29.2	16.3	20.8
1986	71.9	77.7	24.9	29.8	16.8	21.2
1991	73.2	78.7	26.0	30.6	17.7	21.9
2001	75.7	80.4	28.3	32.1	19.8	23.2
Source: www.statistics.gov.uk/statbase/

The possible economic effects

How will an ageing population impact on the macroeconomic performance of countries such as the United Kingdom?

According to a recent article by the eminent economist Francis Cairncross, "the rise in the proportion of the world's old will be the century's defining demographic trend". The process will have undeniable economic and social consequences, in particular the increase in the number of retired people likely to emerge in the next decade or so. Together with the decline in fertility, this is likely to lead to a significant decline in the size of the working population. The trend towards early retirement is exaggerating the effects on the labour supply. Less than 5% of men in Western Europe are still in the active workforce when they reach their 65th birthday.

So a declining working population will have to create the income, wealth and tax revenues needed to support the welfare state needs of a rising number of retired people. Will governments in developed countries be able to continue to offer near-universal health care coverage and a generous state-funded pension system?

The likely consequences of an ageing population

• Demand for health care will rise - and there will be increasing pressure on state health care budgets. The likelihood is that in most developed countries there will be a move to encourage people to make more private provision for their own health-care needs and wants. In the UK, the ageing population will undoubtedly be a growing strain on the National Health Service.
• Governments will seek a move away from state funded pension schemes and will encourage people to work longer and retire later than they do now. This will mean reversing the trend towards early retirement. State retirement ages in many countries will rise.
• There will be even greater flexible arrangements in the workplace to attract the workers that they need - be it women with children or providing the right incentives for older workers to remain active in the labour market.
• Companies will seek to move away from employer contribution pension schemes and fewer still will be prepared or able to offer generous in-work health care schemes to their workers. There is already a drift of businesses deciding to close their final-salary pension schemes to their employees.
• There is a rising risk of pensioner poverty for millions of people in the UK especially for those who have been unable to save enough into occupational pension schemes.

Employment rates of older people in the UK
	50–54	55–59	60–64	65 and over	All aged 50 and over
1994	72.6	59.4	34.6	4.9	31.0
2000	76.1	63.2	36.1	5.2	34.6
2004	78.8	67.7	41.3	5.9	37.1
Source: Labour Force Survey and ONS

Ageing population and pressures on government spending

Government spending is affected directly in the long term by demographic change. According to the Department for Work and Pensions, “over half of all benefit spending depends fairly directly on demographic factors.”

The most transparent effect of population ageing is on the demand for health services, which is likely to increase as people live longer. It has been estimated that nearly 60 per cent of a person's health costs occur in the year preceding their death and, as the population ages, so we expect to see a rising number of deaths and much greater pressure on health service providers. Health care can be very expensive for older age groups, not least when intensive health treatments and care is needed for those people suffering from chronic ailments and diseases.

Is there a European pension time bomb?

The ageing population is putting Europe's traditional state-funded pension system under great pressure. Most European countries are reliant on 'pay-as-you-go' systems where people in work fund pension benefits for the retired via a system of social security contributions. But in the absence of pension reform, or effective measures to boost the size of the working population, this system of pension entitlements can only be sustained through raising taxation (which will have negative incentive effects for people in work) and / or reductions in the real or relative value of state pension benefits

The table below comes from research published in 2001 on the projected levels of government pension spending as a share of national income for the leading industrialised countries. At first glance both the UK and the United States face less of a threat than many of the Western European countries. According to a report published in 2003 by the Centre for European Reform. Greece, Spain, France and Austria still face a increase in pension liabilities over the coming years and must urgently reform their systems. The pensions issue is also becoming one of huge significance in Italy.

Projected state pension spending (% of GDP)
Country	2000	2010	2020	2030
France	9.8	9.7	11.6	13.5
Germany	11.5	11.8	12.3	16.5
Italy	12.6	13.2	15.3	20.3
Japan	7.5	9.6	12.4	13.4
UK	4.5	5.2	5.1	5.5
USA	4.2	4.5	5.2	6.6
Source: Disney & Johnson (2001)

Pathways for reforming pensions

Reform of pension arrangements in the UK is likely to be based on three main pillars:

• Capping government funded pension entitlements – whereby the state pension provides something close to a minimum safety net.
• Encouraging people to remain longer in the labour force – i.e. seeking to increase the participation rates of people aged 50 and over. This may eventually require an increase in the statutory retirement age perhaps to 68 or more in future years.
• Providing incentives for companies and individuals to provide for their own retirement.

In May 2006 the UK government unveiled their plans for pension provisions:

• The state pension age will rise to 68 from 2044 
• The government will link the state pension to average earnings probably by 2012
• Compulsory occupational savings will be introduced with a minimum contribution of 3% for employers, 4% for workers, and 1% from the government

More details on the pension issue are available from the BBC news web site. The final report of the Turner Report for the UK Pensions Commission is available here.

The future for pensions - Choosing between the four options - opinion poll
Percentage of individuals who strongly agree or agree.
To solve the pensions issues in the UK:	%
People will have to work longer	56
People will have to save more for their retirement	87
A greater share of our taxes will have to be spent on pensions	80
Pensioners will have to get poorer compared to the rest of society	12
Source: Turner Report on Pensions, 2006

Pension reform in Sweden

The experiences of other countries can often be instructive in giving us ideas as to how to approach the pension problem. Sweden recently undertook a fundamental restructuring of its pension system. Under the new system the new public pension system is made up of three components:

• The Income Pension: This is run along the lines of a "pay-as-you-go" system. 16% of pensionable income goes into a national account and forms the basis of an income pension which is paid beyond the age of 61 for those who choose to take retirement. The pension is paid out of an annuity fund
• The Premium Pension: An extra 2.5% goes into a fully-funded individual account - individuals can choose to manage this fund themselves e.g. in investing in the stock market, or place it into a national fund
• The Guaranteed Pension: This provides a minimum pension to those who have no or small earnings-related pension(s). It is financed through general taxation and it is means-tested (i.e. designed to provide financial help to those who need it most)

The ageing population issue is one that will certainly influence government policy makers for years to come. But what matters most for businesses are the ways in which the changing age structure of the population will impact on both the pattern of demand for goods and services, and also the challenge of finding the workers they need to produce an output that satisfies these changing needs and wants.

Suggestions for further reading and research

Ageing population – facts behind the fiction
Help the Aged (UK)
Pensions Panic – anyway out? (BBC Money Programme 2005)