Addressing the Challenge of Global Ageing—Funding Issues

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Addressing the Challenge of Global Ageing—Funding Issues and Insurance Solutions
chapter’s horizons and considers the broader economic and social implications of global
ageing. The final section identifies and discusses six critical policy strategies.
1. The demographic transformation
The world stands on the threshold of a stunning demographic transformation. For most
of history, the elderly—defined throughout this chapter as adults aged 60 and over—
only comprised a tiny fraction of the population, never more than 5 per cent in any
country. That share first began to rise in what we now call the developed world during
the Industrial Revolution of the 19th century. In the developed world today, the elderly
comprise a little over 20 per cent of the population. By 2040, the share will reach 30 per
cent—and this is just the average. In Japan and some faster-ageing European countries, it
could be approaching or even passing 40 per cent1 (see Figure 1).
Most developed countries will not only have ageing populations, but also stagnant or
contracting ones. The working-age population has already begun to contract in several
large developed countries, including Germany, Italy and Japan. By 2030, it will be
contracting in nearly all developed countries, the only major exception being the United
States. In a growing number of countries, the population as a whole will decline as well.
Although it is today’s developed countries that are leading the way into humanity’s graying
future, global ageing, as the name implies, is a global phenomenon. The developing world
as a whole is still much younger, but it too is ageing—with some emerging markets
traversing the entire demographic distance from young and growing to old and stagnant
or declining at a breathtaking pace. By 2040, Brazil and Indonesia will be nearly as old
as the United States and China will be older. Meanwhile, South Korea will be vying with
Germany, Italy and Japan for the title of oldest country on earth.
There are two forces behind the demographic transformation. The first and quantitatively
more important force is falling fertility. People are having fewer babies, and this decreases
the relative number of young in the population. As recently as the mid-1960s, every
developed country was at or above the so-called 2.1 replacement rate needed to maintain a
stable population from one generation to the next. Today, every developed country is at or
below it—and most are far below it. In Germany and Italy, the fertility rate is just 1.4 and
in Japan it is just 1.3. Although the trend toward lower birthrates began in the developed
world, it has now overtaken most of the developing world as well. Fertility has fallen
well beneath the replacement rate in all of East Asia. It is also well beneath replacement
throughout Central and Eastern Europe, and it is near, at or beneath replacement in most
of Latin America’s leading economies. Although higher, fertility rates are also falling
rapidly in South Asia and much of the Muslim world. The only region largely bypassed
by the trend is sub-Saharan Africa.
The second force is rising life expectancy. People are living longer, and this increases
the relative number of elderly in the population. Worldwide, life expectancy at birth
has increased by roughly 20 years since 1950, a larger gain over the past 60 years than
humanity had achieved over the previous six thousand. In the developed world, life
expectancy has now risen into the late seventies or early eighties in every country, and
1 Most of the demographic data cited in this chapter come from the United Nations Population
Division (United Nations, 2011). For countries whose current (2005-2010 average) fertility rate is
2.1 or lower, the projections refer to the UN’s “constant fertility” variant; for countries whose current
fertility rate is above 2.1, they refer to the UN’s “medium variant”.