ETHOS Issue 01, Oct 2006
There has been a corresponding increase in longevity, with life expectancy at birth now 77 years for men and 81 years for women.1 Within 25 years, Singapore will be second only to Japan in demographic age, if current trends continue.
Many governments might be alarmed at such statistics. There is a general perception that such a shift would lead to a dramatic decline in the ability of government systems, social structures, and the economy to support an ageing population. The reality, however, is far more complex and susceptible to policy changes.
An ageing population alone does not account for pressure on healthcare services. As Leeson2 has pointed out, although a number of cross-national studies have considered the determinants of healthcare costs, only one has found that the age structure of the population – where the proportion of population aged 65 years and over is taken as the age structure indicator – is the explanatory factor. Instead, it is the wider effects of income, lifestyle characteristics, and new technology, alongside environmental factors, which drive demand for advanced medical applications. Indeed, analysis of OECD data3 by Seshamani and Gray4 reveals that in developed countries at least, per capita healthcare costs for those aged 65 years and over have increased at the same rate as for those aged less than 65 years.
Several studies do suggest that the ageing of industrial populations will add greatly to the burden of public expenditure through an increase in real spending on pensions. However, as Heller5 has pointed out, while this in part may be attributed to the slowing of real economic growth accompanied by a shrinking labour force, the main fiscal pressures originate from the existing framework of social insurance in many countries. Any economic burden is more likely to arise from labour markets, which have used retirement as a regulating mechanism in times of labour oversupply and social discrimination against older workers, than from large numbers of older people who are unable to work due to their age per se.
Indeed, the three major concerns of demographic ageing – public spending on pensions, high dependency ratios between workers and non-workers, and a slow down in consumption due to an increase in older people and a decrease in younger people – are dynamics of the current time period and not fixed. Critically, they are all concerns which can be addressed by policy.
It is thus important for policy makers to take a holistic approach by considering the changing population structure as a whole, and not just the micro picture of elderly dependency ratios and support for the growing numbers of older people. Here is not a simple increase in numbers of older people, but a shift in the population structure of the country, away from a society with many young and few old, to one with a far more balanced ratio of young to old. Indeed, fears over the dependency ratio of the old to those of working age should also take into account a fall in the dependency ratio overall from 48 per 100 in the 1980s to just under 40 by 2003, due to a rapid fall in the number of those aged under 15 years.
In developed countries, per capita healthcare costs for those over 65 have increased at the same rate as for those aged less than 65.
For example, early retirement in Singapore is becoming common. Any economic challenges posed by rapid population ageing in Singapore will thus be compounded by low labour force participation rates among those aged 55 years and over.6 Male labour force participation rates in Singapore fall after age 55 years, and are very low compared to other nations in the region after that age. Among women, labour force attachment rates in Singapore are much lower than those of men. Similarly, female labour participation at older ages is lower than both male and female employment rates in Western nations. These trends raise questions about the kinds of policy options available both to encourage greater labour force participation, and to enhance retirement security for those who retire out of necessity, for example, through ill health.
Given the steadily increasing health profiles of this population, there are clearly policy options toward extending working lives. Compounding the policy challenge, however, is the myth that older people aged 50 years upwards are unproductive and potential burdens on society because they are less able to perform modern economic activities than those younger. Yet evidence with current generations shows that while there is some decline in mental and physical capacity between age 50 and 70, there is little decline that cannot be compensated for by changing the working environment and working practices. In addition, retaining and retraining older workers would halt the haemorrhaging of experience from corporations and industries — a concern associated with increasing early retirement. Older workers can be as energetic as younger ones given the right working environments and are, in almost all cases, more experienced.
With fewer younger people working and consuming, there is a further concern that economic growth may be slow. However, if individuals continue to be economically active, their consumption rates and patterns will change and not necessarily decrease. Currently, those over 50 years spend on leisure activities rather than on consumable goods. If they remain within the labour force throughout their 60s, later life income is more likely to be spent on household consumable goods. For example, consumer goods purchased in their 20s and 30s will need replacing. Already key marketing and consumer organisations are beginning to realise this and are capitalising on new market potentials. Traditional perceptions of older cohorts and their patterns of behaviour will need to change.
How industrial economies address their new demographic structures will also have important consequences for the global economy.
As the recent HSBC Future of Retirement Survey7 shows, Singaporeans, like their other Asian counterparts, look forward to a happy and healthy retirement, and one in which active, economically productive work plays a part. They are also realistic: two-thirds believe they should bear the financial costs of their own retirement. Unlike other populations, who favour increased lifetime savings to fund retirement, Singaporeans wish to work longer in order to finance their own old age. Their potential working environment is promising too. In the HSBC survey, over 90% of Singaporean employers surveyed said their older workers were as loyal and reliable as younger ones, and three-quarters saw them as at least as productive, saying they tried to encourage them to remain in the workplace. Over half felt that early retirement meant a loss to their workplace of valuable skills and knowledge.
The Singapore Government is clearly aware of its impending demographic shift and is ahead of many Asian governments in putting in place early policy initiatives which may address these issues. What is less well understood, however, is how large changes in national age distributions will affect wider economic issues such as national saving patterns, capital requirements and international capital flows, particularly between the developed, and the transitional and less developed economies.
Yet Singapore need not fear its future demography. The population of Singapore seems realistic about its long-term demographic futures; its employers are willing to retain and retrain older workers. It is not so much heading into a world of older people, but into a world where Singaporeans simply live longer — and wish to remain healthy, active individuals throughout their new long lives.
- Leeson, G. W., The Demographics and Economics of UK Health and Social Care for Older Adults (Oxford: Oxford Institute of Ageing, University of Oxford, 2004).
- Financing and Delivering Health Care: A Comparative Analysis of OECD Countries (Paris: Organisation for Economic Co-operation and Development, 1987).
- Seshamani, M and Grey, M, “The Impact of Ageing on Expenditures in the National Health Service”, Age and Ageing 31 (2002):287-94.
- Heller, P. S., Who will Pay?: Coping with Aging Societies, Climate Change, and other Long-term Fiscal Challenges (Washington, D.C.: International Monetary Fund, 2003), pp14.
- Singapore Department of Statistics, 2006.
- HSBC, The Future of Retirement (London: HSBC, 2006) is a global research commissioned by HSBC, in consultation with Oxford Institute of Ageing and Age Wave, and conducted by Harris Interactive. It involved 21,329 adults across 20 countries – UK, USA, Hong Kong, China, Japan, Brazil, India, Canada, Mexico, France, Singapore, Saudi Arabia, Malaysia, Germany, Indonesia, Egypt, Poland, Russia, Turkey and Sweden.