Essay Sample on Demographic Aging in Long-Term Care Policy in the UK

As a result of the decline in fertility rates and an increase in life expectancy, the proportion of the aging population has been on the rise in the world (Bloom, et al., 2015). According to the World Health Organization (WHO), a time is fast approaching when older people will be more than younger people, for the first time in history (World Health Organization, 2018). It is estimated that the proportion of the world's population above the age of 60 years will rise from 12% to 22% by 2050 (World Health Organization, 2018). Though the population in the United Kingdom (UK) is not aging as fast as in other countries such as Japan and Italy, the 2001 census revealed that the people above 65 years were more than those under 16 years (Irving, 2018). Projections show that by 2040, 15 million will be above 65 years as compared to 8.7 million below the age of 16 (Irving, 2018). In the older age cohort, a rapid rise has been witnessed among those aged above 85 years (Irving, 2018).

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The irreversible global trend will undoubtedly lead to increased pressure on the country's healthcare, housing as welfare services (DiGilio, et al., 2017). The government will also be forced to invest in the prevention of chronic diseases associated with old age, increase access to health care, as well as create environments that are more friendly to this demographic, all of which will burden the economy (Pettinger, 2016). To achieve this, high socio-political and economic costs must be incurred. The pressure on the country's pension system is also bound to rise further. An increase of the pension age from 65 to 67 and later 68 is the primary measure that the government has taken to mitigate the fiscal and macroeconomic effects associated with it (Office for National Statistics, 2019). However, the addition of these years is inadequate to offset the future dependency ratios. This paper seeks to discuss why policymakers must be concerned about demographic aging in regard to pressure on the pension system and propose policies that could adequately address the issue.

Trends in Population Aging

A rise in life expectancy has been one of the greatest achievements of the 20th century (Hansen and Lonstrup, 2015). This has led to an unprecedented rise in the number of people above the age of 65. The population above 65 years is expected to pass the 1.5 billion mark by 2050 (Foster, 2018). The graph below represents the rise in life expectancy in three countries drawn from different continents (Pettinger, 2016). As seen, life expectancy has been on a consistent rise since the 1960s. By 2010, the life expectancy in Japan, UK, and the United States of America stood at 83.10, 81.50, and 78.784 years, respectively (Pettinger, 2016). This, as mentioned in the introduction, has contributed to the rise of the aging population.

A decline in fertility has also played a role in the aging of the population. Besides, it has led to a decline in the working population (Bongaarts, 2015). In the UK, the aging population is expected to grow at almost double the rate of the working population (Foster, 2018).

Effects of an Aging Population

The demographic shifts coupled with the various changes in the ratio of social security recipients to contributors pose a huge problem to the sustainability of the country's pensions (Bloom, et al., 2015). In recent years, the effect of the aging population in the UK has largely been masked by an increase in the levels of net migration. However, with Brexit, net migration is expected to fall and hence more effects will be felt (Esmail, et al., 2017). The effects of an aging population on society and the economy are many. As the aging population rises, the government spends more on healthcare and other welfare services. At the same time, the taxes paid by this demographic, which form the bulk of the population, is lower since they are not working. The working population, therefore, might be forced to pay higher taxes, which might in turn hurt productivity and growth. A shortage of workers might also lead to wage inflation and further dip in productivity (Chiang, 2018).

Pensions, which are the main focus of this paper, are also bound to rise as the aging population rises. According to the statistics presented above, the ratio of the working population to the population over the age of 65 years in the UK could fall from 3.7:1 in 1999 to 2.1:1 by 2040 (Pettinger, 2016). The immediate effect of this shift will be a rise in the dependency ratio. Consequently, the working population, which will have shrunk, will bear a bigger burden, particularly with the current spending commitments. This will be due to the fact that more people will be claiming pension benefits while only a small percentage of the population will be paying taxes (Mirela, et al., 2016). Looking at statistics, the percentage of the gross domestic product (GDP) spent on pensions in the country rose from 2% to 8% between 1950 and 2016 (Pettinger, 2016). It is expected to rise further in 10% by 2062 (Pettinger, 2016). Though recent years have seen an increase in the number of people over the age of 65 who are in employment, the effect has been negligible. The rise in the number of people over the age of 65 is way higher than the number of aged people in the workforce (Pettinger, 2016). The move is further countered by the fact that younger people are staying longer in education hence their entry into the workforce is delayed. Resultantly, pension spending has been on the rise over the years. Presently, pension spending takes the biggest percentage of the welfare budget (Office for National Statistics, 2019). Therefore, this is an issue that should concern policymakers.

Since people are living longer, they should ideally have sufficient pension savings to support a longer retirement. Unfortunately, this is not the case in the UK. Due to the decline in defined benefit pension plans and the effect of the defined contribution savings, people are saving amounts that might be insufficient for their retirement. Though auto-enrolment has led to an increase in the number of people saving, contributions are still low (Boulhol & Geppert, 2018).

Other than straining the country's pension system, the aging population is also more likely to use social care as well as public health services as compared to people of working age (Kingston, et al., 2018). This notwithstanding, the aging and aged contribute les in form of taxes. The burden, therefore, falls on the taxpayers in the working age bracket. To make the matter worse, the number of young workers, who are meant to replace and support the retiring baby boomers, is falling as a result of the decline in fertility. As shown in the figure below, the percentage of the young population in the developed world has been on a decline since World War II (Wigglesworth, 2016).

Formulated Policies and Challenges

In response to this inevitable future, the UK government has developed various measures to ensure that the aging population is well taken care of, and the economy is not adversely affected. The government has also made attempts to engage the private sector more especially in the provision of pensions and healthcare. Immigration has also been used as a tool though it is plagued by various political challenges (Berry, 2016).

Attempts have also been made to increase the retirement age. However, the question of whether policies aimed at increasing the retirement age are sufficient to avert a future lack of labor and also reduce the pressure on the pension systems (Hammond, et al., 2016). The issue of the number of years to be added on the upper boundary of the working life has also been debated. According to statistics, an addition of an average of 3.4 years would have maintained a stable dependency ration between 1980 and 2015 (Pettinger, 2016). However, all this is bound to change in the coming years. An additional of 8.4 years will be required to stabilize the dependency ratios by 2050 (Pettinger, 2016). Interestingly, the measures legislated by the Organization for Economic Cooperation Development (OECD), which the UK is a member of, propose an addition of 1.5 years to the retirement age (Pettinger, 2016). In light of the above discussion, this falls short of the additional years needed to keep dependency ratios stable. The UK on its part proposes to raise the retirement age to 67 and 68 by 2028 and 2046, respectively (Office for National Statistics, 2019). In light of the above discussion, this measure will be inadequate to maintain a stable dependency ration.

Policymakers seeking to preserve retirement income adequacy are also bound to face various financial pressures. The old-age support ratio uses a combination of demographics and the rates of employment across different age groups to arrive at a perfect balance. In a pay-as-you-go pension system that is financially balanced, a 1% fall in the effective old-age support ratio calls for a 1% increase in contribution rate due to the subsequent 1% fall in the average pension relative to the average wage (Boulhol and Geppert, 2018). To avoid a decrease in relative pension levels as a result of aging population, the contribution rates must be increased, employment increased, and financial deficits in pension accounts must be covered by taxation. A drastic drop in the old-age support ration in the UK has been responsible for the rise in spending on public pension. Unfortunately, it is projected that the old-age support ration will fall further in the country, as well as in the other EU countries, due to insufficient legislative measures (Boulhol & Geppert, 2018). In light of this, this paper holds that policymakers need to change tact and develop more sufficient and effective policies to cushion the economy from the effect of the aging population.

Developing Policies to Address the Pension Challenge

As insinuated in the previous sections, most of the existing policies regarding the population and the pension system were formulated when the people were younger, lived much shorter, and generally expected higher returns from investments. However, demographics have greatly changed over time. People live much longer and the population is either aged or aging (Wigglesworth, 2016). Unfortunately, changes in policies have not adequately responded to changes in demographics. This is the primary reason why the pension systems of different countries across the world are increasingly strained. Moreover, as the percentage of the aging population rises, without necessarily a corresponding increase in the working population, economies will struggle to meet the increasing demands of the aging population (Wigglesworth, 2016).