We enjoyed a demographic dividend that is coming to an endby Norma Cohen / October 30, 2020 / Leave a comment
Britain has had a culture of retirement—a workless period with a guaranteed income in old age—since at least the middle ages; the poet Geoffrey Chaucer in the late 14th century was granted several pensions for his contributions to culture. Henry VIII granted them to monks and abbesses who did not resist as their monasteries were confiscated during the Reformation. Servants, soldiers and sailors could get them, too.
But the idea of mass retirement for all, roughly in the seventh decade of life and financed in large part by public funds, is a very modern idea. It stretches back not much further than a century, not only in Britain, but in the United States and indeed, in much of the industrialised world.
Now, however, that idea of mass retirement in early old age is under threat. The threat comes not from a public less enamoured with pensions in retirement. If anything, despite rising workforce participation rates at older ages in Britain and elsewhere, the demand is for more generous retirement benefits.
The threat is from two demographic forces; the first of these is longer lives, an otherwise welcome development. The second is falling fertility rates in much of the industrialised world. That leaves a smaller percentage of each nation’s citizens to produce the output that makes up GDP and to pay the taxes that support older adults.
Indeed, we may one day look back and conclude that mass retirement at around age 65—currently a fairly healthy age for most—was a brief, 20th-century phenomenon that is unlikely to be repeated.
Britain’s pension system was created at a time when the industrialised world enjoyed what economists call a “demographic dividend”: a pick-up in a nation’s economic growth when its fertility rate slows down, so that a greater percentage of its population is of working age. This happens before a nation becomes wealthy enough to see a large percentage live into advanced old age.
But now, that dividend is unravelling in Britain and elsewhere. The population pyramid is now an obelisk, with many elderlies to support while the percentage at working age declines. The fall in fertility is so steep that the UN estimates population growth in industrialised economies will not only stop, but begin reversing by 2100. Other estimates suggest the decline will begin even earlier. The overall economic picture…