4)i) Analyse the impact of an ageing population on both the labour market and the economy as a whole (15) ii) Discuss the extent to which reform of the state pension system is the best solution to the problems caused by an ageing population (20)

Background information – “A demographic timebomb” UK population forecasts (according to The Guardian 20 th July 2009) % of population aged This huge population age demographic shift is according to The Guardian/US census bureau replicated across the world with all investigated nations seeing at least a doubling of the % of population over 65 between the years 1960 and 2040 (projected) and all experiencing an increase between 1960 and The biggest leap in % over 65 projections occurs in Singapore where only 2.4% of the population over 65 in 1960 to 33.2% projected to be over 65 in the nation in 2040.

Reasons for such a rapidly ageing population Reflects societies improving ability to combat disease. Occurs alongside global improving maternal mortality rates. Improved global aid. Past generations greater desire and ability to have a number of children in society against current generation

Impact on the Labour Market

Why do different industries consider an aging population problematic or not? Transportation Age has been linked with a decline in motor skills. As a industry working on unsociable and often nocturnal hours, it is not suited to a settled family lifestyle and less active body clocks. Government Having a older workforce in senior governmental roles would be perceived as a good thing as generally the population are more inclined to trust and take seriously the older generation On the other hand, you need innovative and varied perspectives, that are usually more achievable from a younger demographic. Financial Sector Not as concerned, as the financial sector relies heavily on reputation and a experienced skillset that can only be developed over a long career. The sector also has many senior roles as well as apprenticeship/entrance schemes so the generations are not competing. DECREASE IN MRP MRP COULD GO EITHER WAY INCREASE IN MRP

Impact on the Economy as a Whole Budget position - with an increasingly aging population, and a population that is also willing to work longer, the government should earn more in tax revenue, improving the budget position. However an aging population is also one that is increasingly reliant on state pension and benefit schemes, as well as government funded sectors such as healthcare – e.g. 65% of hospital beds are accounted for by over 65’s and 65% of expenditure goes to those over working age. This expenditure will outweigh the increase in taxes and will result in a budget deficit. Unemployment - unemployment may be higher as a result of an aging population as people are holding on to their jobs longer, limiting progress in the workforce, and creating a higher unemployment rate especially in the age bracket who will find it difficult to get into the labour market.

Positive influence on consumption - it may have a positive effect on consumption as an aging population who have already secured their pensions/have paid off their mortgage/have saved a lot, will then begin to spend their discretionary incomes more readily rather than save. Concerns of future problems regarding productivity gap (mass retirement at the same time) Can create labour shortages in sectors such as healthcare and medicine due to drain on services from the older age demographic.

4)ii) Possible Pension Reforms A gradual increase in the state pension age/expected retirement age Increase in private contribution to pension funds Means tested pension scheme

Benefits Will help tackle poverty levels and control inequality gaps. Means tested system can be regarded as a fairer system – enforce horizontal equity within the economy. Will ensure consumption doesn’t drop off in a certain time period as the ageing population will still have the ability to consume at high levels in the economy. Can restore a level of confidence in the economy to ensure growth, consumption etc is less volatile.

Problems with the pension reform Increase in poverty levels Increase on burden of younger generations to support large family – parents, grandparents etc. Falls in consumption and rise in leakages as peoples MPC fall and MPS rises as they make provisions for longer retirement. Could result in unemployment ensuing if private companies have to contribute to pension schemes which will increase their “costs of labour” and total “supply costs”. May have a detrimental effect on the governments budget position and therefore debt levels if they have to increase pension spending and potentially spending on welfare system. A longer working life could eventually see productivity per head fall as experienced workers may be unwilling to undergo new training after a certain point.

Alternatives Improved NHS system, aimed at improving the productivity and health of the older generation. Decrease in government spending in other areas to divert into pension schemes. Specialising in service industries that are more elderly friendly (IE financial service industries, knitted garments etc.)

To what extent can pension reforms be regarded as the best policy? In the short term we can regard pension reforms to be the best policy to address an ageing population however if the problem continues to grow there is likely to be a point where population growth becomes un-maintainable. New policies to restrict population growth and a more laissez faire approach to retirement support may have to be undergone in favour of a diversion of government spending towards apprentice and training schemes for the younger age demographic (to ensure mass youth unemployment doesn’t ensue), with a reform of the tax system implemented.