Are we getting too old to afford social security?

With people living longer, more and more questions are being raised on the possible effects of the ageing of the population on labour markets and social security systems.

GENEVA (ILO News) – As people live longer and birth rates drop – especially in developed economies – there is increasing concern over the long-term sustainability of pension schemes.

The challenge is formidable: more pensioners mean pension schemes need more money to keep running, but, with fewer people joining the labour market, there is less money to fund pension schemes.

One recent example is Germany, which last year recorded the lowest birth rate for 40 years. Another typical case is Japan, which has the oldest population in the world with more than 22 per cent of people aged 65 and over. The working-age population in China is also expected to decline this decade.

Demographic ageing: Key policy responses

• Keep older workers in the labour market, not only to reduce the pension burden, but also to take advantage of their valuable skills and experience.
• Enable and promote longer working lives by providing workers with training and education throughout their careers, also providing older workers with appropriate working environments.
• Promote prevention and enable healthy active living to reduce chronic illness and health-care costs.

According to the International Social Security Association (ISSA), the proportion of those aged 65 and over as a percentage of the working population will double in Europe over the next 40 years and will even triple in Asia.

“This trend has already led to a reform of pension systems, including increases in retirement ages in a number of countries like Poland, Turkey, Côte d’Ivoire, the Republic of Korea and Colombia,” says Simon Brimblecombe, Project Coordinator, Policy Analysis and Research at the ISSA.

However, to be successful, pension reforms should be accompanied by employment and health-care measures – such as the possibility to work part time – targeted at older workers.

Rising health costs

Another focus of attention is the risk that health costs get out of hand. According to the OECD, the over-65 age group accounts for 40-50 per cent of health-care spending. The percentage is likely to rise as the ageing of the population accelerates. OECD countries are already spending almost 10 per cent of their GDP on health care.

Access to medical assistance and adequate social services are an essential part of social security systems. The ageing of the population is a challenge that is clearly mentioned in the ILO Recommendation on social protection floors that was adopted at this year’s International Labour Conference.

“Among other improvements, it will be essential to consider ways in which to improve the social security systems in order to prevent certain illnesses connected with old age or to optimize their treatment, as this could simultaneously improve the well-being of older people and lead to a more rational use of resources,” said ISSA Secretary General Hans-Horst Konkolewsky.

“This should include an increasing focus on proactive and preventive measures, such as safety at work, healthy eating and anti-tobacco campaigns, among others,” he added.