1/1 World Economic and Social Survey 2007 Development in an Ageing World Canadian Institute of Actuaries Montreal 15 April 2008 Rob Vos Director Department of Economic and Social Affairs United Nations

2/1 World Economic and Social Survey 2007 The world population is ageing at an accelerating rate … and by 2050, 80% of older persons will live in developing countries

3/1 World Economic and Social Survey 2007 Ageing reflects human progress: Increased longevity and lower mortality An opportunity through the active participation of the older persons in the society … but it also poses challenges: Smaller labour force may affect economic growth Sustainability of old age pension and health care systems may come under pressure Adjustments in living arrangements, long-term care systems and participation in society needed to ensure wellbeing of older persons

4/1 World Economic and Social Survey 2007 Dependency ratios will increase, but there is an asymmetric transition: Challenges differ for developed and developing countries

5/1 World Economic and Social Survey 2007 Growth of labour force will decelerate or even turn negative. This may potentially affect economic growth and welfare Possible responses: 1. Population policies: fertility and family planning, migration 2. Outsourcing 3. Increased female labour participation 4. Remove incentives to early retirement 5. Improve working environment for older workers 6. Increase labour productivity  Measures 3-6 are most important Economic challenges for ageing societies

6/1 World Economic and Social Survey 2007 Making people stay longer in the labour force Removing incentives for early retirement Reducing fiscal incentives to early retirement Increasing statutory retirement age Create a closer link between contribution and benefits (e.g., introducing “notional accounts”) Removing public “pre-retirement” benefits Improving working environment Change the tasks in order to reduce the risk of injuries Improve the medical assistance in job places (e.g., provide adequate medical supplies) Change the work loads for older workers Removing aged-based discriminatory practices Economic challenges for ageing societies

7/1 World Economic and Social Survey 2007 Productivity growth required to counter balance demographic change

8/1 World Economic and Social Survey 2007 Labour force is still growing and could provide a window of opportunity for economic growth, but only if … Policy Actions: - Boost employment rate - Improve economy wide productivity - Increase investment in human and physical capital Economic opportunities for more slowly ageing societies

9/1 World Economic and Social Survey 2007 Inadequate coverage: 80% of world population lacks social security coverage currently.  Without policy change: 1.2 billion older persons may face income insecurity by 2050!!!  There is a clear connection between social security coverage and old age poverty Unsustainable pension systems: Weak growth and employment creation Early retirement practices: short working life Mismanagement, bad governance, poor design Demographic pressures Ensuring old age income security

10/1 World Economic and Social Survey 2007 Close link income per capita and contributions to public pensions

11/1 World Economic and Social Survey 2007 No “one size fits all” but guiding principles should be: Universal access Solidarity Equity (horizontal, gender) Adequacy of benefits to avoid poverty Financial sustainability Ensuring old age income security: Comprehensive reforms are needed

12/1 World Economic and Social Survey 2007 Multi-layered old age income security systems (tailored to country conditions and preferences): Non-contributory Pillar: universal social pension scheme -Also feasible for developing countries (Figure)Figure Contributory Pillar: targeting certain wage replacement level -Parametric reforms (raising retirement age!) with labour reform (increasing participation rates) -Structural reforms (elements of fully funding, assuring economic security) Other Pillars: employer-related, private schemes, individual savings and/or asset accumulation Any system requires growth to be sustainable Ensuring old age income security: Comprehensive reforms are needed

13/1 World Economic and Social Survey 2007 Universal protection: estimated costs Back

14/1 World Economic and Social Survey 2007 Population ageing is accompanied by an epidemiological transition Due to faster transition, developing countries are not experiencing compression of morbidity Moreover Population ageing implies : - Increased demand for health services - Change in the type of services needed (long-term care) Ensuring long-term health care for older persons

15/1 World Economic and Social Survey 2007 Challenge for developed countries: maintaining the level and quality of health services while containing the costs Challenge for developing countries (double health cost burden): ensuring basic health needs to vast part of population while deal with the increase demand for health services due to ageing Ensuring long-term health care for older persons

16/1 World Economic and Social Survey 2007 Ageing and health expenditures Health costs will increase, but ageing is NOT the major cost driver: Changes in health seeking behaviour Rising wage costs of medical personnel Inefficiency in delivery New (costly) medical technology Pharmaceuticals

17/1 World Economic and Social Survey 2007 Ageing and health expenditures: Australia

18/1 World Economic and Social Survey 2007 Ensuring long-term health care onto old age Adapting health policies -Combination of private and public insurance to improve risk pooling -Limit the cost of drugs -Better training of medical personnel and incentives to attract workers -Home-based long term care (ageing in place) -Preventive health care and health education

19/1 World Economic and Social Survey 2007 Population ageing is inevitable..., so what can be done? Fertility and migration policies are not enough Increase labour productivity and participation rates! Extend working life (improving working conditions) Reform of pension systems: Multi-Pillar systems with universal social scheme at its basis! Reform of health care systems: preventive action, home- based care and limit cost of drugs All these challenges seem surmountable!