Economic inactivity data shows that of the 7.96 million people economically inactive but of working age in 2007, 2.3 million gave the reason that they were looking after family/home; 2 million were long-term sick; 206,000 were short-term sick; a record 1.9 million were studying; 624,000 had retired early; 40,000 were 'discouraged workers'; and 823,000 gave other reasons. In October 2005 nearly 2.8 million people were claiming incapacity benefit (since reformed to provide incentives for claimants to return to work), of whom some 38% were claiming on mental health grounds, and expenditure on incapacity benefit was estimated to cost £7 billion a year, rising to £13 billion when other disability benefits were included.

Population growth in the UK exacerbates resource demands and environmental impacts - which may also severely damage the UK economy in future. Improving the quality and productivity of the UK workforce and extending healthy working lives, in OPT's view, is an essential alternative to continuous and unsustainable population growth.

The perceived problems of an ageing population and the real problem of a pensions timebomb appear to have underpinned pro-population growth policies. Demographic misunderstandings need to be corrected if the UK is not to suffer the consequences of continued population growth.

What ageing problem?

Demographically, the term 'ageing population' usually refers to the rising average age of a population, due to increasing numbers of older people (65 and over), increasing longevity and life expectancy and/or lower fertility (a decreasing birth rate). But populations have been ageing for centuries without apparent ill effects: life expectancy has risen from 32 years in 17th century England to more than 80 years for those born in 2006. During the 20th century, while populations in the developed world aged more rapidly than ever before, prosperity also rose faster than ever before. What's the problem? It is not one of supporting growing numbers of older people, but only of supporting those who become very old and infirm: people in the UK aged 65 in 2005 could expect to live on average another 18 years. Solutions can be found, but population growth is not one of them. A variant 2006-based ONS population projection which assumed stable life expectancy, a long-term total fertility rate of 1.84 children per woman, and zero (or zero net effect balanced migration) shows the number of young and old dependants improving from 612 per 1,000 people of working age in 2007 to 608 in 2050.

With higher life expectancy the proportion of dependants would increase. But living a longer, healthier life is a bonus, not a problem. The 'problem' is whether these extra years of healthy life should be financially supported by the person growing older (by working longer or saving more), by the taxpayer (via the state pension) or by business (private sector pension). Both state and private sector pension liabilities have risen sharply in the UK as pensioners live longer.

Life expectancy for people born in 2005, was assumed in the 2006 based Principal population projection to be 88 years for baby boys and 91.3 years for new-born girls. But while the number of older people increases, the number of younger people has been decreasing. From mid-1971 to mid-2006, those aged over 65 grew from 13% to 16% of the population, while those aged under 16 fell from 26% to 19%. During the last three decades, however, a higher proportion of people of working age have joined the labour force - mainly women, and there is no reason why this process should not continue, together with a lengthening of working life, to solve the 'problem' of increasing longevity.

The environmental costs of an ageing population are often attributed to the need for more housing as more older people live longer and live alone. Elderly people, however, may have a lower impact on the environment as their mobility declines. It is also necessary to balance the economic costs of supporting an ageing population, against the costs of overall population growth. These include the billions of pounds in higher taxes needed to build extra schools, hospitals, prisons, power stations, roads, reservoirs, sewerage facilities and other infrastructure, with rising transport and traffic congestion costs and rising greenhouse gas emissions. The deferred costs of consequent ecological damage such as rising greenhouse gas emissions have not yet been properly accounted for.

Much of the recent fear of ageing populations has focused only on small parts of the picture, such as pension costs. The best way to tackle a shrinking support ratio is, in OPT's view, to extend working lives at both ends of the age scale, to offer other economically inactive groups more opportunity to work, to improve health, productivity and skills, and encourage consistent saving for old age, with a safer occupational pension framework as well as proper funding of the state pension. This was broadly the conclusion of the Pensions Commission which reported in 2005.

For most of those who will enjoy the extra decade or more years of longevity gained in their own lifetimes, the prospect of contributing an extra two or three years of work to help finance a pension for their remaining years should be an acceptable answer. For some workers, however, particularly the low-paid and those worn out by years of hard physical labour, later pensions will seem a betrayal of promises. Solutions to the ageing population 'problem' - need to be flexible and humane.

Policies are taking shape, though not fast enough. The state pension age is being raised gradually for those born after 1950, and incapacity benefit has been reformed to encourage those receiving it, if fit enough, to return to suitable work. But with high levels of illiteracy and innumeracy among the economically inactive, education and training also require reform.

Lengthening life expectancy

Life expectancy (expected length of life from birth) and longevity (actual length of life) have increased over several centuries and continue to increase. These are the factors behind a pro-population growth policy based on exaggerated fears about the economic consequences of an ageing population. Life expectancy in the UK increased rapidly throughout the 20th century without apparent ill effects - by 30 years for men (45 in 1901) and 31 years (from 49 in 1901) for women.

Assumptions of continuing improvement are controversial. While some believe that scientific and medical breakthroughs will continue to extend healthy lifespan during the 21st century, others point to factors that will reduce longevity. Worldwide, deaths from cardiovascular disease are expected to increase as the number of overweight people grows from 1 billion to 1.5 billion by 2015. In Britain deaths from diabetes could rise by a quarter in the next 10 years, leading to an additional 8,000 deaths a year by 2015. [Preventing Chronic Disease, World Health Organisation, September 2005]. Deliberately lowering life expectancy - by allowing disease to take hold (HIV AIDs, for example) - is unthinkable.

Health costs for older people

Figures published by the Department of Health [Hospital and community health service expenditure, England: by age of recipient 2001/2] give the following per capita costs: Age 0-4 £1,172; Age 5-15 £259; Age 16-44 £412; Age 45-64 £517; Age 65-84 £1,348; Age 85 and over £3,315; All £646. While the costs of nursing and residential care for older citizens can be high, NHS hospital costs are not significantly higher for older people in our population before the age of 75-80: "In the second half of the 20th century... life expectancy at birth increased by nearly a decade... [but] we may all of us look forward to a better and better old age in which we do not place ever-increasing, unsustainable burdens on the NHS, our supporters and the Treasury." "In a carefully designed study [which examined] the number of days spent in hospital in the last 15 years of their life by people who died at different ages... the total days of in-patient care for people who died at 90 was only about double that of people who died at 45; and there was hardly any difference at all when people who died in their 70s were compared with those who died in their 90s: the extra 20 years of life was not bought at the cost of an extra 20 years in hospital." [Is the ageing population a threat to health care: The good news: we are living longer, Professor Raymond Tallis, Manchester University, at the British Association for the Advancement of Science, September 2003]

This optimistic view is challenged by statistics that show a lengthening of life spent in poor health. Although total life expectancy and healthy life expectancy both increased between 1981 and 2001, life expectancy grew faster than healthy life expectancy. On average, men can expect to remain healthy until the age of 67 (and live to 75.7 years), and women to stay healthy until 68.8 years (and live to 80.4 years). These statistics, however, are based on questions put to older people about their health, and the answers may be affected by rising expectations of what is meant by 'good health'. [Health Expectancy: Living longer, more years in poor health, ONS 23 July 2004.]

Making the best of an ageing population

Ageing is inevitable and healthy old age is to be welcomed. Most 'older' people want to contribute to society and many would like to work. Many are successful innovators and entrepreneurs. Healthy grandparents can also help to look after grandchildren, relieving stress on working parents. A sub-replacement birth rate and a gradually declining population would, in OPT's view, be good news for the UK. Critics of population decrease need to be asked what level of population they think the UK's stressed environment can sustain: 100 million? 200 million? And how it can be done, and whether that is what Britons want. They consistently do not: three out of four people say Britain is [already] overcrowded.

The conventional economic view has been that countries with ageing populations should attempt to maintain a high support ratio by 'breeding for Europe', for example, or importing large numbers of immigrants of working age. OPT's view is that trying to counter population ageing by increasing the birth rate or continuing to import immmigrants (immigration accounted for more than 60 per cent of UK population growth in 2001) simply defers necessary population stabilisation or reduction, and that a perpetually growing population poses much higher risks than an ageing population.

At the global level, the risks posed by further consumption growth, multiplied by current population numbers and by further population growth, include irreversible climate change. At the UK level, the difference in 2050 between a population of 52 million (decrease of about 0.3% a year) and 71 million (continued growth at the current rate of 0.4% a year) is the difference between having to build an extra 6.5 million homes, causing wholesale destruction of the countryside, or being able to contain housebuilding development within a decade and concentrate on improving the UK's existing housing stock. See Countryside. If substitutes for fossil fuels are found, a difference of 20 million in population would, at current rates of ownership, bring 10 million more vehicles on the roads - and total transport gridlock - making transport-related economic activity almost impossible. See Transport. The mass development plans needed to accommodate the last decade of population growth are already apparent and deeply unpopular.

There are clear fallacies in the pro-population growth theory: that such an attempt would be unsuccessful has been shown, for example, in a demographic analysis Replacement Migration by Professor David Coleman, Professor of Demography at Oxford University, and by United Nations and EU demographic studies. Even if immigrants (currently the main cause of population growth) do not consume more resources than they produce by their work, immigrants eventually also grow older, cease work and, if they settle in the UK, require pensions and care. Perpetual net (excess) immigration, alongside natural population increase, leads to perpetual population growth without providing a long-term solution to the perceived support ratio problem. The effect is exacerbated by the rate at which that excess immigration leads to settlement and a consequent increase in the birth rate. See Migration.

The UK could adapt to a potential support ratio of 2.5 people of working age to 1 person of pension age after 2040 by making better use of its employed workforce, its many unemployed and vulnerable workers - such as ex-offenders - and its many fit older citizens (whatever their ethnic background). The present support ratio could effectively be maintained if older people were allowed to continue working, with more frequent career breaks, or if more full-time jobs were converted into part-time jobs which older people were willing to do, or if more of those on incapacity benefit could work part-time. This is made difficult, however, by the ease with which employers can import full-time labour from overseas, relieving them of the need to recruit from the UK's existing hidden unemployed, and by the speed at which this imported labour fills up the supply of affordable housing in high-employment regions to which existing jobseekers might be expected to move. The support ratio could also be improved if more young people entered work earlier instead of studying for low-quality university degrees. Some 40% of 20-year-olds are now in higher education.

A pensions time bomb in the UK?

On 12 October 2004 the independent Pensions Commission, chaired by former head of the Confederation of British Industry Adair Turner, issued its first report, identifying a £57 billion gap between the amount people in the UK are saving and the amount they need to save to secure a comfortable retirement. It confirmed clearly the choices that we have already stated: for people to save more and/or to work longer. It also cited the a third possible ingredient for pensions policy - additional taxes on the workforce - and called for thorough reform and simplification of state, corporate and private pension systems. Solutions might include a raising of the state pension age and the payment of a higher amount at the revised qualifying age. The Pensions Commission, due to report in full in November 2005, confirmed the demographic fact that neither raising the birth rate nor continuous excess immigration and settlement is a solution to the problems posed by an ageing population. As OPT has repeatedly pointed out, babies and settling immigrants also grow old. Increasing the size of younger generations now, unless they are to be forced to leave the country before retirement age, would increase the size of older generations in the future. Population growth would make the long-term problem even worse.

This simple truth, suppressed partly by political correctness, is now widely recognised. Consensus opinion is that pension age should rise in line with life expectancy, with a more generous state pension available at a later age (the Institute for Public Policy Research has suggested raising the state pension age to 67), and that official retirement ages in both the public and private sector will need to be deferred. In December 2004, however, the government decided to allow employers to continue, if they wish, to force employees to retire at 65. Employees will be granted a right to request (not a right to) a later retirement, which can be turned down if there are sound business reasons for doing so. This decision will be reviewed in 2009/2010.

The increase in longevity and life expectancy (expected longevity) over the last few decades should not have been difficult to predict - but many actuarial and pensions experts have consistently failed to take account of it in determining pension contribution needs for state or corporate pension funds. The problem has been exacerbated by a prolonged fall (reversed in 2003) in the value of equity investments and declining interest rates. Pension values have also been reduced by the £5 billion a year removal of pension tax credits by the government, and incentives to save reduced by several aspects of pension taxation.

There is a growing gap between those with private pension provision and those who have to rely mainly on the basic state pension, which (at about £89 a week for a single person, copmared with about £135 for a person on means-tested credit) has fallen in real terms and often has to be boosted by income support. The UK state old age pension is one of the lowest in Europe, and the UK government spends less than half the proportion (5%) of its GDP on pensions than other EU governments. Those who will be hardest hit in the future by poverty in old age include divorced mothers who have not been able to accumulate private pension rights, today's over-50s who are not able to work because of age discrimination, those with chronic ill health who are unable to work and/or need a high level of practical support, and those in failing occupational pension schemes: at mid-2004 the pension schemes of FTSE-100 companies were estimated to be running a collective deficit of nearly £60 billion.

What would the effects of a decline in population be?

A stabilising then gradually reducing population, as indicated in the OPT projections on our Population Policy Projections section, would increase the average age of the population and the ratio of 'older dependants' to the working population. Is this a problem?

Yes, to some extent. Fears of increased costs associated with higher numbers of people in the 75+ age group appear justified, given this group's likely health and welfare needs. This could be be mitigated by improving health from ages 65-75, though there are wide differences in health across both age groups. (See figures in para 5.1 above.)

No, if people stay healthier for longer and are able to extend their working lives. No, if skill shortages are filled from older and other sectors of the existing population, such as ethnic minorities (whose unemployment rate is above average) and women. No, if the costs of supporting a larger older generation are offset by the reducing costs of supporting a smaller younger generation. No, if transfers of capital (financial support) from older to younger generations are improved by distribution to a smaller number of young descendants. Inter-generational financial, moral and practical support is natural within families, and is likely to continue. Young people care about the future, and so do their parents and grandparents, because they care about their children's and grandchildren's future. There should be no reason for inter-generational conflicts during such a demographic transition to a smaller, more sustainable population size. If each generation understands the problem, it can be solved by all.

Possible higher costs to the taxpayer associated with an increasing number of people over 65 need to be balanced against the possible savings from having fewer people up to the age of 18 to support, most of whom are in full-time education (see Table 8.1 below, England only, which does not allow for recent increases in the birth rate). Add these public and private costs together, and the cost of raising a child reaches £10,000 a year. The savings generated as population decreases to a more sustainable level can clearly be seen.

For an OPT population projection that demonstrates that continued population growth will do very little to help the UK's dependency ratios in 2050, see OPT Press Release 8 February 2005.

Factors inhibiting labour flexibility and mobility could be tackled to avoid labour shortages as population gradually decreases to a more sustainable size. A report published by the Equal Opportunities Commission on 5 May 2004 suggested that skills shortages in traditionally male job sectors could be met by encouraging more women to join them permanently or switch from other jobs as demand changes. For example, International Labour Force surveys show that there are only 16,000 women working in the UK construction industry, compared with 1,591,000, and less than 10,000 women plumbers in an occupation with 191,000 men. Childcare, on the other hand, attracted 297,000 women but fewer than 10,000 men.

As already stated, there is hidden unemployment among those on disability benefits who are actually able to work but do not - possibly through no fault of their own. As also already stated, there is a strong body of evidence that in the age band 50-69 there is unnecessarily widespread unemployment due to age discrimination. While all age groups are diverse in their willingness and fitness to work, both older and younger unemployed workers can be brought back into the workforce as population gradually decreases.

There is statistical evidence (ONS & IPPR figures) that the unemployment rate is higher among ethnic minority Britons than among the wider population. Better integration and job opportunities for existing ethnic minorities in the UK workforce would also alleviate labour shortages in the event of population decrease. There is also evidence of a rapid increase in jobs in the public sector which are not usefully productive jobs and are placing extra strain on the private sector, which has to subsidise them by bearing additional tax burdens. These unproductive jobs could be removed from the labour market.

Unemployment and age discrimination law

Anti-age discrimination laws in employment came into force in the UK on 1 October 2006, following new EU laws to prevent discrimination on grounds of age, whether against young or old people. The new amalgamated Commission for Equality and Human rights will oversee all forms of discrimination, including ageism, from 2007. Employers are no longer able to dismiss employees on grounds of age, and Recruiters are barred from specifying age, except in special circumstances, as qualification for a job. The government has estimated that age discrimination costs the country about £16 billion a year, and given that life expectancy for both men and women continues to increase, allowing older people more opportunities to work would both ease the pensions crisis and reduce UK population growth by curbing both calls for parents to have more children and demands for surplus net immigration. The employment of older people, if carried out sensibly, need neither offend the dignity of the older worker, nor block the energetic career potential of younger workers.

More information on ageing