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Population ageing is very much in the news, as you may have gathered.

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It is, amongst other things, part of the great package of reforms which is being forced upon the unhappy

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people in southern Europe and elsewhere in the eurozone as a consequence of

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trying to contain the costs which population ageing and previous rather overgenerous attempts to compensate for it have generated in their economies.

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And so it's a matter of great topical interest.

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And if you ever bother to turn on your televisions and look at the news or read a newspaper which I know some of your is doing,

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then you will see it is all over. The front page is very much an issue of the present time has been engaging in for

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quite a long time and will continue to do so for quite a long time into the future.

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Important to realise that it is totally unavoidable, some degree of population ageing is absolutely inevitable.

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There's nothing we can do about it short of bombing ourselves back into the Stone Age.

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And it is a consequence of two highly desirable trends, that is to say, the achievement of control over over fertility to a very large extent,

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to bring down birth rates to a manageable level, one where children be brought up in conditions of security and material comfort and and prosperity.

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Also very desirable, effective control to some extent of mortality.

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We haven't quite abolished yet, but mortality is now well into the future.

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As far as you're all concerned. Babies born today have a 97 percent chance of surviving to to age 65.

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Also, babies born today may well have a cohort life expectation only a few short years of 100.

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According to these projections,

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centenarians are going to be commonplace in the future unless something quite unexpected and disagreeable happens to the risks of mortality.

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So two very good things which we hope we will keep for the rest of the history of humanity.

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But they have a consequence the payoff of population ageing, and that is unavoidable.

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Important to realise, though, that to begin with, population ageing is highly beneficial.

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If we are talking about a simple society with a very high proportion of population aged under under age 15 dependent children.

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And as is the case still in some parts of tropical Africa and was the case until quite recently, very widely throughout the world.

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And then, of course, population ageing, which reduces the proportion of dependent children and increases the proportion of adults, is very beneficial.

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Well, what happens is, of course, in the early stages of demographic transition, that the number of babies becomes more modest.

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The number of old people does not expand because they are, of course, born 60, 70, 80 years ago, and therefore the numbers are still quite small.

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So for a while, for some decades, we have this demographic bonus.

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This concentration of population in the nominal working age is between, say,

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50 and 60 or thereabouts, which, if there are institutions appropriate in the economy,

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enable a very considerable improvement in living standards of a generation because

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the workforce becomes a relatively high compared with the rest of the population.

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That is what the industrialised and developing nations of Asia are in the middle of at the moment.

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And many calculations suggest that perhaps perhaps a third of their prosperity increase

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over the last few decades has been due to this demographic bonus in due course.

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It has to be paid for. We've enjoyed our demographic bonus and a much more modest kind in the late 19th and 20th centuries.

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We are paying for it now of the 21st century with population ageing, they will pay for it in turn in the coming decades.

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For the moment they can as well enjoy it and contribute to their prosperity.

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You can only do so, of course. Important to add, if the institutions are present to enable the workforce to be employed,

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that this means stable government, the rule of law, enforceable contracts, workable infrastructure, roads.

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South Sudan has 58 miles of metal road, not a very helpful precursor for enjoying a demographic bonus, a work ethic.

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All these things have to be in place before this enlargement of the working age population can be usefully devoted to increasing national prosperity.

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Otherwise it'll simply turn into disaffected, unemployed and possibly violent young men.

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Also important realise that population ageing doesn't go on forever.

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If we ignore the death rate for the time being, if birth rates stabilise at some low level below replacement or whatever it might be,

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population ageing does not go on getting worse and worse and worse.

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You will call perhaps from previous discussions about these matters that eventually the population age structure will stabilise,

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are determined entirely by the current levels of birth and death.

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And that's all that determines the age structure in the long run.

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So if birth and death rates remain constant, the youth are quite different from what they were in the past.

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Population ageing will proceed until until the New Age structure has become stable

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and then it will remain constant for as long as the birth and death rates remain,

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because it doesn't always get worse and worse, it does come to an end.

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This is just a reminder. They knew about this back in the 1930s.

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This is a diagram from the Population Investigation Committee,

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which publishes population studies back in 1936 just to show what they thought might be happening up to 2055.

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Very adventurously, long range projection here. The change in the proportion of young people in read the changes.

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A portion of people of working age in white and unfortunately, the elderly in black, a very pessimistic projection, but they were aware of it,

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even if then the primary concern in relation to low birth rates related to population decline and not population ageing,

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of which more later, if we wanted to go back to previous patterns,

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if he wanted to abolish population ageing because we thought it was it was too onerous,

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too difficult, too expensive, then this is a kind of a structure we'd have to go back to.

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This is a population age structure, about 70, 100 at that time before the demographic transition, population ageing wasn't a problem.

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There was a certain element of youth dependency. Here we have the proportion of persons aged under 15 is about 60 is about 35 percent.

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Proportion of people aged over 65 is about five percent. So no population ageing, some youth dependency, but that is bought at a cost of expectation,

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of life, of birth, a 37 infant mortality rate of about 200 and a zero growth rate.

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So it's not a very desirable population age structure to go back to.

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Given the cost of being there in terms of low expectation of life at birth and high birth rates which have to be sustained.

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Two processes of population ageing, two causes, up till now,

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the most important cause of population ageing has been relatively low birth rates, so-called ageing from the bottom.

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That is to say that fewer and fewer individuals are added at the bottom of the population

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pyramid and that causes it to become narrower at the bottom than it is in the middle.

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That's that so-called ageing from the bottom. And that always makes populations older, lower mortality also can make populations older because,

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of course, it means more people are living to a longer ages. But to begin with, it always makes populations younger.

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It's very important to grasp this apparently paradoxical fact that in traditional societies that when the when the death rate starts to go down,

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as the death rate is going down generally across the board, then that makes the population younger.

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Because, of course, in traditional societies, the high proportion of deaths are concentrated in the younger age groups, infant mortality,

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maybe 200 or 300 infant deaths per thousand live births per year, survival to age 15,

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maybe nearly 50 percent in the nature of things, even if mortality is improved at all at all ages.

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The great effect is going to be at the younger ages. It will be more children surviving, more young people surviving,

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more young women will survive to complete their families more births and consequently reducing the death rate.

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Making people live longer will make the population younger, not older, until the population reaches an exploding life of about 60.

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Once you go beyond that threshold,

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then and only then will further improvements in mortality actually do what you expected it would do at the beginning,

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that is to say, make populations older and younger. Here is the basic process involved,

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the transition from from these are crude birth and death rates of about 35 back in 1750 to much lower levels at the present time,

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the sort of pattern which has been followed throughout Europe, more or less,

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and which is being followed by the greater part of the of the developing world in all developing countries, the death rates gone down.

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The problem, of course, is that in some of them, birth rate has not gone down.

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So we still have two or three percent population growth, as you know, in some parts of Africa.

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And we have got yet to have the final stages of transition, not we know exactly what the final stages are because it is not yet stable.

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But that's another question for another time.

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Just an example of two contrasting populations, a traditional one here which has experienced some reductions in mortality.

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This is Uganda, 1991, but not yet a reduction in fertility, very youthful population.

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No, no trace of population ageing there because no trace of fertility control.

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And a contrast with Italy, which could be replicated in many other developed developed countries in Spain, Portugal,

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Greece and elsewhere with a very severe population ageing arising from two sorts of processes, primarily as you from the bottom,

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as you see that the birth cohorts being successively smaller than the preceding ones,

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but also the case of Italy, Spain and the other countries in southern Europe,

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ageing from the top, at the same time becoming more and more important as time goes on, because the expectation of life at birth is is so favourable.

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And we're now in a position where further improvements in mortality are mostly concentrated in survival of those regions because survival,

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Ottway, 60, is nearly perfect anyway.

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If you abolished mortality up to age 60, it really wouldn't make much difference to the structure that all the impetus is happening here.

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The patterns of fertility are well known, just rehearsing very briefly,

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because patterns of fertility appear to be stabilising to some extent in a highly differentiated pattern.

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This is generating, unless things change very radically,

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very significant differences in expected patterns of population ageing in the developed world.

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Generally speaking, of course, the higher the birth rate up to the limit to around two, as you can see here is two on the graph.

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Up to about two gives you a reasonably favourable future in population ageing.

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It doesn't stop population ageing, of course,

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but it's less severe here in terms of the burden of old age dependency down here where the birth rate is about,

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the TFR is equal to about one point four.

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That implies a much more substantial levels of population ageing and also by very high levels of immigration.

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Population decline as well, which has already begun, as you'll recall, in Germany,

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in Japan, in Ukraine, in various other countries and in Europe and elsewhere.

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Some are doing better than Europe, Scandinavia, the UK.

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Some are doing less well here in the Far East,

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with rather little improvement in fertility yet apparent and right down at the bottom with with Taiwan, the lowest at about one point nought TFR.

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Important to realise that birth rates can go up. Here are some selected ones approaching the TFR of two point, not nearly replacement rate.

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No one really expects the birth rates in developed countries will go much above to.

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In fact, most of my colleagues feel that they probably won't even reach that and say they

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may be a bit disconcerted by this this this trend to a somewhat higher birthrate,

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partly to do with fertility recuperation, partly to do with immigration.

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Expectation of life at birth, of course, has been increasing impressively as time goes on, rather falteringly to begin with, this is 1850, 1860, 1870.

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Only very modest improvement of the population moved into the high risk urban areas,

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very rapid improvement between the two world wars and then steady change to a more modest kind up to the present time with of particular improvements.

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As I mentioned above, age 65 in recent years, from 1850 to about 1920 or so,

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almost no improvement in survival, at least 65 very, very, very modest changes.

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And then, first of all, amongst the females than amongst males, progressive improvements in in survival.

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This is where all the action is these days, given that mortality really is very modest indeed, up to about age 65.

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And this keeps on going up and up and up. And we don't yet know what the limits are going to be.

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These are the latest projections of expectation of life at birth for the UK of the actual figures from 1985 up to 2010,

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projected figures in 2010 onwards. This is fairly typical of developed countries.

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And as you can see, the pattern is, as always, different between males and females,

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with females having the females in red and in in orange experiencing more favourable survival than males in dark blue and pale blue,

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the pale colours, the orange and the blue at the bottom are period expectations of life at birth.

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This is, as you know, simply the the calculation of the of the expectation of life of birth,

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which you would get if a person experienced the current age specific mortality rates of the particular calendar year in question.

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You imagine, for example, that someone is living through the age specific mortality rates which are obtaining any of the whales at the present time.

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And that's and that's what this period of calculation is. If, however, you build in assumptions about future improvements in survival, survival,

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improving by about two percent per year in the life table, then you can create a projected cohort life table.

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What would be the expectation in life at birth of children born in a particular year?

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Were they to experience age specific mortality rates improving at, say, two percent per year as they have been over the last few decades?

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And if you do that, this is what you get, that if you take babies born about 2010,

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according to the projected cohort expectation of life, which are these two lines for females and four males,

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then then you already have a figure of about 90 for the females and about 80 about 90 for males are projected to 2035,

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which is not that far in the future, to about ninety seven for females and about 94 for males.

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So really approaching the possibility of a normal expectation of life at birth for babies born around now very close to 100.

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This may not come to pass. It's a projection. Projections are always wrong, but nonetheless, I would be very wrong.

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And this opens up all sorts of really interesting possibilities for for for ageing at the top.

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From what? From the reduction of mortality at older ages and therefore for for the questions of old age care, very much dependent,

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of course, upon the extent to which these additional years of life are going to be years of active life.

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If you people continue to work older and older as they live long, longer and longer, or alternatively, if they're going to be confined,

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drooling in wheelchairs for a high proportion of this expectation of life increase, it's got to be the former, not the latter.

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This is just an historical sequence to show the sort of pattern change which we've experienced in many European countries,

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particularly those with low birth rates over the last 100 years or so.

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This is Austria going from 1869 to a two in these three to 1934.

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This is a traditional kind of Christmas tree, a structure before much has happened in the demographic transition.

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This is 1869. This is 1910. By 1934, things have started to happen, first of all, that there's been damage.

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The old structures of European countries in the 20th century are all terribly damaged, with a very few exceptions, but by warfare and by depression.

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You can see here the bite taken out of the male age structure in 1934 arising from military deaths in the First World War from 1914 to 18,

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not paralleled by a reduction on the other side.

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These are the death of births, the reduction in the birthrate occasioned by the First World War, 1914 and 1980.

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These these these big now about 18 in 1934.

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And here is a reduction in the birthrate after the First World War causing causing

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ageing from from the bottom in in the manner that I described earlier on.

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This is the middle of the of the 20th century fighting 1951, we've experienced more damage, his hair, the military casualties, the First World War.

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Here is the birth death of the First World War.

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Here is the birth death of the Second World War and his further reductions in infertility, causing more ageing from the bottom.

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Then we have a partial reversal.

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By 1971, we have the evidence of the baby boom and the baby boom, this one's for all transient increase in the birth rate,

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rising partly out of the greater popularity of marriage, which began in the 1950s and in the 1970s, a one off event.

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Quite impossible to repeat, I think, but creating this bulge of further disruption in the population structure.

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What this bulge does is to work up through the age structure, causing problems wherever it arises,

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problems here for maternity hospitals and for and for overcrowded primary schools.

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And then it moves upward, causing problems for youth unemployment.

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I mean, it could be an advantage if the economy can expand fast enough to absorb the extra workforce was difficult because the bulge was so big.

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One might like this in terms of shape to a fat python swallowing a goat.

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Here's the goat here, moving up the gut, as it were, as it ages and causing difficulties in digestion, as it were.

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The socio economic kind, whatever it goes here is here is the goat approaching retirement age in 2015,

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starting to provoke an accelerated form of population ageing.

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And here it is in 2030, well established in retirement age and adding to the reversal of of the ratio of people to reproductive age,

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to people of consuming age who are retired.

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And eventually, of course, like all goats in pythons, it passes out of the system classes at the pearly gates.

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And we have a more stable a structure of 2050 showing a transition from a Christmas tree of 1890 to a kind of coffee in the shape of 2050,

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while appropriately so because this population is, of course, also declining.

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That's a typical pattern of a low fertility country in in like Australia to about one point five, not like north west Europe.

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This is a different kind of evolution world, not like it's the same kind of evolution, but one which is less dramatic.

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Here's the UK 2006, still sitting in the middle of a of a sort of demographic bonus.

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This bauscher from the baby boom is still in the working ages, although the older working age is in 2006.

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In due course, it'll pass up to retirement age, of course, and reverse the advantage.

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Here it is in 2056, not quite as bad as the Austrian one, partly because the fertility rate is assumed to continue higher than in Austria,

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partly because of migration, which helps to contribute this bulge here in these Middle Ages.

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So not all patterns are the same. Here's a severe case.

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This is an extreme example of population ageing in Japan, very low birthrate, about one point three five TFR,

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very high expectation of life, the highest in the world of any national population,

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both conspiring to make the Japanese population evolve from from here, which is the year 2000,

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still quite favourable to having the demographic bonus to to here where the balance has turned into the illness and a very unfavourable structure.

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This, of course, is a typically pessimistic Japanese projection of the Japanese projections invariably assume that TFR will

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remain fixed in concrete at about one point thirty five for the foreseeable and even unforeseeable future.

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I think it's very unrealistic nonetheless. That's the pessimistic outlook.

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By the way, don't be fooled by this, that there isn't a particular concentration of individuals age 100.

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The top age category of all these pyramids is an open ended one.

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So the whole population, age 100 and above, not not a five year one.

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It's a 15 or even 20 year one. That's why it sticks out in this unrealistic fashion.

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Don't be fooled by it. It's not real. It's it's cumulative. Here's another possibly even worst case population, Korea.

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So it's very rapid evolution from a traditional population age structure in in nineteen sixty,

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very rapidly growing high TFR at that time through recent years.

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The demographic balance again and here it is projected to 2040, just 28 years into the future,

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showing the movement of the boomers into old age again, a pessimistic projection.

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But the TFR in Korea is, if anything, even even lower, considerably lower than it is in Japan.

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What this means, of course, is that in geopolitical terms, neighbouring rival countries, if one can call India and China, are rivals.

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I think in many ways you can because they've had demographic transition at different times, will experience the bonus and the onus.

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If I can use these, these terms are different at different periods and therefore,

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at any given point in time, one will have an advantage over the other. Here is China and India are projected to 2050 with a structure.

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This is like a pyramid half on its side, if you could rotate it by 180 degrees.

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You see here the Chinese population in red. Smaller birth cohorts coming along here.

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A peek of people about to move into into retirement and worsen the dependency ratio already quite bad at 64 in China.

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Here you are in India, dependency ratio, just 49 in blue with with the majority of the population in the working age,

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these smaller numbers of youth dependents coming along,

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because by that time, it's projected the Indian birthrate will have fallen even further at the moment,

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just above replacement the first time so far, not yet.

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Very many people in old age. So an advantage of an economic kind, if it can be exploited in India over China by 2050,

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which may reverse the advantage which those two countries currently have on the world economic and political scene.

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It doesn't take too much imagination to see there are lots of difficulties arising out of population ageing.

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I don't want to exaggerate them.

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An awful lot of writing about population ageing is devoted to gloom and doom and exciting tabloid headlines of economic disaster,

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which I don't believe in because these tend to discount the possibility of any

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kind of adaptation of a human population is not a normally rather good act.

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But more of that in a moment. But this is a list of the sorts of problems which quite logically follow from population ageing.

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The dependency ratio of elderly goes up. There is a relief from a lower level of youth dependency,

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but it's generally reckoned as a very coarse rule of thumb that an elderly dependent is about three times as expensive as a youth dependent.

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This is a controversial estimate, but that's a very frequently used rule of thumb.

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And so there isn't a perfect compensation. The reduction of youth dependency doesn't compensate for the increase in old dependency.

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For this reason, this is generally thought to affect the economy because the productive part of the population,

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which is in work, generating money, paying taxes,

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is relatively diminishing compared to that part of the population,

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which is spending money and receiving welfare to various different degrees that goes hand in hand with with a relative labour shortage,

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either an absolute one or relative one increased need for care, arrangements for the elderly, adequacy of pension provisions,

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particularly as we will see if they're based on the pay as you go system where money

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is taken out of the pockets of workers and put into the pockets of pensioners.

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If the numbers of workers is going down the number of pensioners, then of course pension systems on a pay as you go system start to become insolvent.

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You've either got to increase the contributions of workers, reduce the pension entitlement to pensioners or both of these.

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Not neither of these things are ever popular, as we will see in a little while.

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Just a brief reminder of the dependency ratios, how they are calculated, perhaps an unnecessary reminder,

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the total dependency ratio is merely the population of notionally dependent age nought to 14 and 65 and over,

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divided by the population of notionally working age 50 to 64 times 100.

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These are traditional boundaries that are no longer realistic.

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Many people don't enter the workforce until their 20s. Until recently, many have retired before age 60.

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The Eurostat, for example, uses the boundaries 20 to 59 as working age population.

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And also remember, these are nominal demographic calculation is not an economic one.

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One way to remember this, you making an economic calculation that quite a lot of the people of nominal working age are not in fact working.

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Quite a lot of them are retired. And also, to some extent, quite a lot of people have normal retirement age, aren't retired like me, for example.

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More interesting, I think, is the the number at the bottom here, the aged potential support ratio,

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these just very different age structures from from Yemen, U.K., Italy and 2025, 2050.

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The problem of dependency in the government, of course, is a youth dependency because almost half the populations age not aged under age 15.

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The problem in Italy is an elderly and elderly population dependency because in 2025 reconvert 26 percent by 2050, projected to be 36 percent.

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I think the more intuitively useful way of looking at penalty is to reverse

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that if you turn it upside down and look at the number of people of normal,

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productive age that are per pensioner.

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And so you get a figure like this in Yemen, it's astronomical, 21 people of normal working age for every pensioner,

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God knows how many are working and God knows how many are getting a pension. That's a different matter in the UK.

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It's about for the present time for people, a normal working age for every person of nominal pensionable age.

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And that's par for the course for European countries at the present time,

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going down in the case of Italy to two and a half by 2025 to one point four by 2050.

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So an example of the projected severity of population, ageing, low fertility country.

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I've dealt with that already. What's going to happen to this potential support ratio?

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Well, of course, it depends upon the future pattern of fertility, mortality and migration.

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Here are some projections made by the government actuaries department based upon slightly old demographic policies in 1998,

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not not current, but illustrates the point.

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The fat black line is the essential projection of the potential support ratio going down from the just over four, which I mentioned earlier on,

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down to a stable level of about 2.5 to 2.5 knows, as I said before, that the population ageing doesn't go on forever.

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It goes on for about 40 or 50 years and then will stabilise other things being equal.

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These current lines on on each side of the the the black,

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fat black line indicate what will happen given the application of the government actually departments assumptions about different levels of fertility,

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migration and mortality. This one here in red is high fertility and high migration, for example,

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improving the support ratio because of course, it means that there are more people of working age.

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Here is low fertility, a low migration arrival, a rather less favourable support ratio arising for the reverse reasons.

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Naturally, different levels of fertility generate different levels of future support ratio.

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These two bars here show the support ratio, the year 2000 in pale blue,

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the support ratio in the year 2050 in a dark maroon colour for UK, France, Germany, Spain and Italy.

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These data aren't quite up to date, but they they give some basic picture of the of the change,

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which is likely as a consequence of the different birth rates in these different countries, primarily the different birth rates will in due course.

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Of course, as birth rates have stabilised, improvements in survival will become more and more important.

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As you see, with the exception, they all start off at about four on this projection, going down to six in the UK,

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two point one in the case of France, two in Germany, one point five in Spain, one point four or five in Italy.

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These are quite current anymore, but they give you a picture of the sort of level of difference which one can expect.

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And generally speaking, lower birth rates bring more severe ageing.

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Here is a graph showing the projected support ratio in 2060, according to the United Nations, compared with the total fertility rate in 2010.

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At the present time, as you see, generally speaking, the higher the TFR, more favourable to support ratio.

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Belgium, the Netherlands, USA, Norway, France, U.K., down here we've got South Korea, Japan, Italy, Poland, Germany, the usual suspects, in fact.

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We can forget that. Can we solve population ageing, the reforms we know we can't,

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for reasons expressed right at the beginning, only by going back to to a traditional population,

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these structures involving quite disagreeable levels of mortality and fertility, can we solve population ageing?

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That would not be desirable. We can manage it. We can moderate it.

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We can't solve it. I think is quite important to keep that firmly in mind. First of all, what about immigration?

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It's clear that migration does moderate population ageing as long as most migrants are moving into that part of the population,

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which is of working age. Typically speaking, this this is correct.

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In most countries receiving migrants, most migrants are on average about age about 35 or so or 30.

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They are younger than the average age of the population into which they are moving. There are a few exceptions.

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The movement of retired people from Germany and England into the cost of geriatric care in Spain, of course, makes that population older.

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But that's rather an unusual kind of circumstance. Not not more so.

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Migration can moderate a population. Ageing can't solve it. Well, unfortunately, it can't.

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Despite some excitement generated by a very famous United Nations publication in 2000, which we set the world ablaze with,

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with stories of Europe meeting 40 million new migrants to in order to save itself from population ageing.

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The problem is, of course, that migrants themselves age. What it can do is to without too much of its stock population declining.

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Here are projections by Eurostat showing various different European countries their population change between 2008 and 2025,

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over half a century or so, with migration and without migration.

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Again, please remember, these are only projections, but these are the the implications of what would happen if the assumptions turn out to be correct.

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The blue bars are the percent of projected population change, either increase above the line, decrease below the line with migration.

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The dark bars are the percent projected population change, increase above the line, decrease below the line without migration.

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As you can see with migration, Norway, UK, Sweden, Spain, France, Denmark, Finland, Netherlands and even Italy increase somewhat, but not very much.

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Germany declines even how much migration you get. It seems Germany will decline even with migration.

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And it lives on on the on the cusp. Without migration, Norway increases.

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UK increases a bit as we not much of France increases.

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All the others decline because their birthrates are assumed to remain low and so migration can stop population decline at an appropriate level.

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Of course, it does mean the population coming in is different, the population which is there,

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and it will mean eventually replacing that population in the very long run.

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If the birthrate doesn't increase, that's a different story. This is the the reason why migration typically helps the moderate population ageing.

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This these hollow bars are the age structure of migrants into Europe around about 2008.

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This is the population age structure of the overall EU population.

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Please note, these are percentages. These are not absolute numbers.

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The number of migrants coming into Europe is not colossal compared with the population of working age in Europe.

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This is just a percentage distribution show, the way in which migration, generally speaking, has this favourable effect upon population ageing.

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But as I mentioned, migrants age.

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You can see this ageing happening in the in the Indian population structure here from 2001 in the UK,

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not yet in the Pakistani population where the birthrate remains, remains higher.

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The previous home secretary said he saw no further limits to immigration because this was at a time when immigration was being encouraged.

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This is the effect based on some calculations by the government actuaries department about the effect upon the UK population sorry,

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potential support ratio of migration at different levels.

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Here is the black line that I showed you before going down from for the present time, roughly speaking, to about two and a half.

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That was on the assumption of ninety five thousand migrants per year. If you jack that up 10 times per million migrants per year.

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And in net terms, that indeed you you boost the support ratio for a bit after five, if not much.

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If you assume that it goes down inexorably and starts converging with the original projection,

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even a million migrants a year, it doesn't solve the problem.

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This is the annual immigration,

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which you would require to keep the UK population support ratio at four point one in millions for the rest of the century,

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as you see, it is highly variable because of fluctuations in the age structure.

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It averages just over one million per year by mid century.

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And then it comes with much higher levels, five million per year by the end of the century with very considerable consequences of population size.

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The red line here shows the consequence of population size of that level of migration, which will keep the PSR at about four point one.

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As you can see, it would take the population from about 63 million in time to this is about 120 million by mid century.

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This is three hundred and six million by the end of the century. And as you can see, it is increasing exponentially at two very, very high levels.

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Indeed, it has already almost overtaken the population of the US and will enable us.

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Of course, with that many will do all sorts of things we can't do by ourselves.

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With three hundred and six million people, we could invade Iraq all by ourselves, for example.

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But it might not be very nice to have a population where the population density was six times the present level.

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The reductio ad absurdum of this was calculated by the United Nations in that 2000 publication.

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What they calculated was what would be the consequences of migration sufficient

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to keep the support ratio in the Republic of Korea at the then high level.

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And the answer would be that we'd all have to pack our bags and go there because it would take more

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than six billion people to move to Korea by mid century in order to preserve the support ratio.

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And that probably isn't going to happen. Likewise, can fertility solve population ageing once again?

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It can moderate it, as in the case of immigration, but can't solve it.

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If the replacement total fertility, which I think is about the most you can expect given modern levels of mortality,

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would raise the PSR to about three years, not not not unfavourable.

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And without without migration, there'd be a population growth,

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which I think would be a bonus if you wanted to preserve the PSR for you have to increase the TFR

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to three and a half ladies in England and France and the US has had three and a half babies each,

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which I think is probably not regarded as being very desirable.

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And of course, it would generate almost two percent population growth of a bit like the migration assumption.

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So neither of those options is is is possible.

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It seems to me that there are aspects of the fertility increase are easier to manage than the migration increase,

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but neither of them will actually solve the problem. We can probably avoid that.

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I think I've made these points already. I regret to say give my profession that the Morphy in this matter is not everything.

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There are many, many other highly important aspects of the social and economic structure of countries and their politics,

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as well as the demography which affects population ageing and the impact of population ageing.

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This is an impact of an estimate, rather,

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of the vulnerability to population ageing of various different countries estimated by Jackson and how from the CSIS think tank in Washington,

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DC, as you see published in 2003. What they did was to.

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Look at the demography at the current and projected level of population ageing

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arising out of assumptions about birth and death rates as we dealt with already,

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and then they also looked at the various other aspects of of the population,

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the extent to which the elderly had savings, the extent to which the retirement age was high or low,

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the extent to which the solvency of the of the the the country's pension schemes were high or low.

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The extent to which. To which the pension schemes required required support from general taxation, as in Italy,

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which of course makes the country more vulnerable as we've seen in the euro crisis, and they created this pattern here,

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which we should rather gratifyingly the English speaking world being at the top in

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terms of low levels of vulnerability and various other countries at different levels,

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levels below these in the danger area. And while curiously, when you take into consideration these these aspects of the retirement age,

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of fiscal solvency, of the form of pension, of the extent which people save for old age and so on,

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then countries which you might have thought would have done well because of their demography do badly like France,

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for example, very favourable demography, very unfavourable. A system of high pay as you go pension costs.

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Japan, which has got very unfavourable geography,

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does much better than you would expect because of its high propensity to save late retirement and other aspects of Japanese culture and social habits.

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What this leads to, of course, is the realisation that population ageing can be managed as long as birthrates aren't too disastrously

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low by all kinds of changes to workforce participation and retirement age and productivity.

387
00:42:08,180 --> 00:42:12,020
And the idea that these will not happen seems to be highly unrealistic.

388
00:42:12,020 --> 00:42:20,360
One sometimes thinks when presented with disaster scenarios in the papers about population ageing,

389
00:42:20,360 --> 00:42:29,810
that it's assumed that no further rational decision making is possible on the part of the human species or its individuals or as governments.

390
00:42:29,810 --> 00:42:35,300
It's as though it's as though a person should be driving a car in broad daylight,

391
00:42:35,300 --> 00:42:42,360
along along a clear road and season in front of a big sign saying danger a cliff ahead, turn right.

392
00:42:42,360 --> 00:42:46,730
Instead of taking the steering wheel and doing the obvious thing, which is turn right,

393
00:42:46,730 --> 00:42:50,330
he carries straight on to the billboard and goes over the cliff.

394
00:42:50,330 --> 00:42:54,830
That's the kind of assumption on which disaster scenarios and population ageing are based.

395
00:42:54,830 --> 00:42:59,000
There will be no increase in retirement age, no increase in workforce participation,

396
00:42:59,000 --> 00:43:05,690
no increase in labour productivity, no possibility of adjustment through market forces, rational decision making,

397
00:43:05,690 --> 00:43:10,160
the price mechanism and all the rest will occur, will occur, which of course it will occur,

398
00:43:10,160 --> 00:43:19,320
although sometimes with considerable pain of these possibilities, the most efficient one is increasing the average age of retirement.

399
00:43:19,320 --> 00:43:23,840
Because what that does, of course, if people cease working later,

400
00:43:23,840 --> 00:43:30,310
is to reduce the dependent part of the equation and at the same time increase the productive part of the equation.

401
00:43:30,310 --> 00:43:33,020
So you've got a double double effect.

402
00:43:33,020 --> 00:43:44,890
And one can see that that the retirement age has really quite an impressive effect upon calculated levels of population dependency.

403
00:43:44,890 --> 00:43:51,490
Productivity is going to be an important change as well and may well follow naturally, if workers become scarce,

404
00:43:51,490 --> 00:44:00,430
then the rational response by employers and capitalists ought to be to improve the ratio of capital labour, to increase increased productivity.

405
00:44:00,430 --> 00:44:04,180
In other words, which will be a beneficial thing to happen anyway,

406
00:44:04,180 --> 00:44:10,900
because Europe has got rather low productivity compared to other parts of the industrial modern world.

407
00:44:10,900 --> 00:44:16,930
The increase in productivity required to compensate for population ageing is nonetheless quite high at the moment.

408
00:44:16,930 --> 00:44:21,130
Productivity increases by something like two or two and a half percent per year.

409
00:44:21,130 --> 00:44:26,080
The European Commission calculated that an annual increase of productivity of an additional

410
00:44:26,080 --> 00:44:31,180
nought point six percent will be required to compensate for the costs of population ageing.

411
00:44:31,180 --> 00:44:35,950
That may seem like a small number is nought point six percent compared with, say, two point five percent,

412
00:44:35,950 --> 00:44:41,820
which is in percentage terms of the increase of the total is is really rather a lot.

413
00:44:41,820 --> 00:44:44,730
I think I've discussed all of this,

414
00:44:44,730 --> 00:44:54,300
if we could increase the labour force of the EU 15 by applying Danish participation rates to the whole of the E.U. 15,

415
00:44:54,300 --> 00:44:59,130
a traditional European Union, then you would add 32 million people to the workforce,

416
00:44:59,130 --> 00:45:04,930
which is calculated to be the deficit, which which is likely to arise by 2050.

417
00:45:04,930 --> 00:45:09,360
You do that once. Of course, you can't get more than 85 percent workforce participation rate,

418
00:45:09,360 --> 00:45:18,510
but that is another approach to moderating the effect of ageing now where you can get the whole of the European Union in the south of Spain,

419
00:45:18,510 --> 00:45:26,760
in the Algarve or even in parts of the UK, to work like Danes and retire like Danes is a different matter.

420
00:45:26,760 --> 00:45:35,370
Nonetheless, that's what would happen if it were possible. This is what happens to the UK potential support ratio with higher retirement ages.

421
00:45:35,370 --> 00:45:41,700
The fat black line is the one we saw before the population gain from what, four point one two point.

422
00:45:41,700 --> 00:45:50,430
If retirement is increased to 68, which is this purple line here, then the PSR is is improved to just over three.

423
00:45:50,430 --> 00:45:57,300
It can't go back to four point one, but three is a good deal better than two and a half if retirement is at seventy two,

424
00:45:57,300 --> 00:45:59,560
which of course is a lot more than that.

425
00:45:59,560 --> 00:46:09,360
The first time is ten years older than the current actual retirement age, then indeed remains at at four point one.

426
00:46:09,360 --> 00:46:15,110
That's a long way off. And we're not most people some people do work 72 and beyond.

427
00:46:15,110 --> 00:46:22,700
But most people would not want to do so, it's no longer beyond the calculus of conscious choice, as it were just recently,

428
00:46:22,700 --> 00:46:26,450
the Swedish Labour minister was cited as saying that that retirement age will have to

429
00:46:26,450 --> 00:46:31,220
go to 70 in due course in order to compensate for population ageing to some extent.

430
00:46:31,220 --> 00:46:38,290
And so what was previously fantasy may well not be in due course.

431
00:46:38,290 --> 00:46:42,700
No, yes, the actual age of retirement at the moment is worthwhile,

432
00:46:42,700 --> 00:46:51,850
keeping in mind these blue bars show the age of retirement in the middle of the last decade is now somewhat higher.

433
00:46:51,850 --> 00:46:55,960
This is this is 55, 60, 65 and 70. And you see this is Mexico.

434
00:46:55,960 --> 00:47:02,320
Korea, either Iceland, Japan, New Zealand, Israel and Portugal have quite high retirement ages.

435
00:47:02,320 --> 00:47:08,920
In reality, the blue dot is the official pension entitlement, age four for the federal state pension.

436
00:47:08,920 --> 00:47:16,210
And you can see that in some cases, people work longer than the official retirement age, particularly in Japan and Korea and Iceland.

437
00:47:16,210 --> 00:47:18,880
In other cases, they they still retire early.

438
00:47:18,880 --> 00:47:26,200
And over here we have the potential casualties where the official retirement age is about 65 or in some cases lower.

439
00:47:26,200 --> 00:47:31,960
It's lower here in France. It was 60 at the time this graph was produced.

440
00:47:31,960 --> 00:47:37,090
And all these countries here are people who are retiring early retirement age.

441
00:47:37,090 --> 00:47:48,070
And so here this is this is this is Greece, Finland, Germany, Spain, Italy, Hungary, Belgium, France, Austria and Luxembourg.

442
00:47:48,070 --> 00:47:55,820
So you can see where the vulnerability lies. Important to have a brief word about pensions.

443
00:47:55,820 --> 00:47:58,610
I've been speaking mostly so far about pay as you go pension.

444
00:47:58,610 --> 00:48:06,530
This is a normal system of pension applying on the continent where the state, not only the state, can run pay as you go.

445
00:48:06,530 --> 00:48:10,580
Pension schemes confiscates money. It takes money by taxation.

446
00:48:10,580 --> 00:48:18,980
In our case, it's called national insurance out of the pockets of workers and transfer transfers via bureaucrats into the pockets of pensioners.

447
00:48:18,980 --> 00:48:24,560
Very simple, achievable the a system which is perfectly fine as long as the age structure isn't changing.

448
00:48:24,560 --> 00:48:29,480
And when the systems work were invented, of course, many decades ago, the structure was quite favourable.

449
00:48:29,480 --> 00:48:32,690
And pay as you go. Pension schemes work fine. Two problems.

450
00:48:32,690 --> 00:48:39,320
One is the highly vulnerable to changes in the age structure arising out of population ageing for reasons which are entirely obvious.

451
00:48:39,320 --> 00:48:46,850
Secondly, because that government control, there's a powerful moral hazard in the sense that governments are strongly inclined when it

452
00:48:46,850 --> 00:48:51,740
comes to election time to start promising about increasing pensions because the pensions are,

453
00:48:51,740 --> 00:48:53,000
as it were, in their gift.

454
00:48:53,000 --> 00:48:59,930
And what they have tended to do quite often is to say we will we will increase the pension by X without saying to the workers,

455
00:48:59,930 --> 00:49:05,380
we will increase your contributions by Y because the former gets the votes and the latter will lose them votes.

456
00:49:05,380 --> 00:49:12,260
And that's one of the several reasons why pension systems of this kind of nominally insolvent because of

457
00:49:12,260 --> 00:49:18,650
the liabilities are considerably greater than the current and projected payments coming into the scheme.

458
00:49:18,650 --> 00:49:21,440
That means they've got to be funded from general taxation.

459
00:49:21,440 --> 00:49:25,760
That reduces the amount of tax money for other purposes, and it means of borrowing has to go up.

460
00:49:25,760 --> 00:49:35,170
And that's part of the problem of the eurozone crisis. On the other side of it is occupational or other kinds of funding schemes whereby money

461
00:49:35,170 --> 00:49:41,290
is contributed either by a self-employed person entirely by themselves to a pension pot,

462
00:49:41,290 --> 00:49:46,540
or in the case of occupational pensions, contributed both by the employee and by the employer.

463
00:49:46,540 --> 00:49:55,060
That used to be the normal deal in the Anglo-Saxon countries, where the pay as you go system, the state pension is in your kind of top up.

464
00:49:55,060 --> 00:49:58,330
That's generally regarded as much more favourable, despite the fact that, of course,

465
00:49:58,330 --> 00:50:03,160
it does include management charges and does mean that the investments into which the Mr Pot

466
00:50:03,160 --> 00:50:08,020
is based are naturally vulnerable to economic change because they are in the stock exchange,

467
00:50:08,020 --> 00:50:14,710
in shares, in government debt, various things of that type.

468
00:50:14,710 --> 00:50:22,720
Those have fallen on even days in the last decade or so, partly because of turmoil in stock exchanges,

469
00:50:22,720 --> 00:50:30,070
partly because in this country of tax raids by the previous government on the tax relief available to pensions,

470
00:50:30,070 --> 00:50:37,380
and partly because actuaries consistently underestimated the extent of survival in older age, that's had a bad effect on page.

471
00:50:37,380 --> 00:50:43,480
Obviously, it's also had a bad effect on funding schemes. So what was in the case of the UK, a highly enviable,

472
00:50:43,480 --> 00:50:51,430
very favourable system of of a pension system from funding schemes is now very much less desirable.

473
00:50:51,430 --> 00:50:57,820
And if you read the papers on the matter, you'll see there's very considerable disquiet about the level which people are no longer saving.

474
00:50:57,820 --> 00:51:01,990
In a way, it may be adequate to pay for their their retirement.

475
00:51:01,990 --> 00:51:07,990
So there's a problem there. And reform is certainly needed, but difficult.

476
00:51:07,990 --> 00:51:13,930
And in particular, whatever happens at retirement age is really got to go up and keep pace to a considerable

477
00:51:13,930 --> 00:51:18,850
extent with the increase in expectation of life at birth that is being tried in many,

478
00:51:18,850 --> 00:51:24,400
many European countries is invariably encounters serious opposition, an understandable kind.

479
00:51:24,400 --> 00:51:29,620
But in the end of the day, a short sighted cut.

480
00:51:29,620 --> 00:51:41,080
This is just an illustration of the way in which funded pensions assets have fallen below their liabilities in the in recent years.

481
00:51:41,080 --> 00:51:45,110
They were fined up to about 10 years ago. And now the liabilities,

482
00:51:45,110 --> 00:51:55,650
the projected costs of paying out pensions to existing contributors has gone up and the value of the assets has gone down and therefore,

483
00:51:55,650 --> 00:52:02,170
in many cases no longer technically solvent. Well, this is what happens when you try and put up pension age.

484
00:52:02,170 --> 00:52:10,990
This is 2008. You will have seen more excitement on your telly last night where as part of a reform package, protest against reform package,

485
00:52:10,990 --> 00:52:18,170
50 buildings were burnt in the centre of Athens, although that was not just a question of pension and welfare.

486
00:52:18,170 --> 00:52:23,590
Are some here some more, more more recent ones protest against austerity.

487
00:52:23,590 --> 00:52:27,130
Here is Italy protesting against pension and retirement reform.

488
00:52:27,130 --> 00:52:33,400
Back in 2004, a general strike here is France.

489
00:52:33,400 --> 00:52:37,540
Of course, protesting against government decisions is a normal part of politics.

490
00:52:37,540 --> 00:52:42,080
And you can see what's going on here. The people here aren't actually dead.

491
00:52:42,080 --> 00:52:47,050
There are people waiting in the departure lounge of Charles de Gaulle Airport for the airline pilots and traffic

492
00:52:47,050 --> 00:52:52,600
control people graciously to return to work in one of the more recent strikes against pension entitlement.

493
00:52:52,600 --> 00:52:58,540
And this is in a country where the pension age is 60, not 65, which it ought to be.

494
00:52:58,540 --> 00:53:02,680
And this is a protest of last year.

495
00:53:02,680 --> 00:53:11,530
So two years ago, arising out of President Sarkozy's attempt to increase the pension age from a very, very low sixty to a very low 62.

496
00:53:11,530 --> 00:53:15,790
And still, the nation grinds to a halt, as usual in protest.

497
00:53:15,790 --> 00:53:17,020
Germany, likewise,

498
00:53:17,020 --> 00:53:27,130
slightly more decorous if grumpy protests going on against the socialist government's attempts to reform pension in their so-called agenda 2010.

499
00:53:27,130 --> 00:53:35,080
And eventually, of course, people may forget all these things as population ageing really takes a grip, but that's perhaps a little way off.

500
00:53:35,080 --> 00:53:39,250
So in conclusion, just remind you that there's no solution.

501
00:53:39,250 --> 00:53:40,180
It can be managed.

502
00:53:40,180 --> 00:53:48,100
It's not, I think, going to be a disaster as long as birthrates remain reasonably high or can be encouraged to become reasonably high,

503
00:53:48,100 --> 00:53:57,670
and as long as rationals systems of improvement in pension or increase in pension age will expose those fossilisation,

504
00:53:57,670 --> 00:54:00,160
pension reform and so on are implemented,

505
00:54:00,160 --> 00:54:09,250
this seems to mean something which will follow naturally from the rational behaviour of governments which are somewhat rational and also individuals.

506
00:54:09,250 --> 00:54:14,230
Some parts of Europe much more affected by population ageing than others because of a

507
00:54:14,230 --> 00:54:21,670
very unfavourable combination in Southern Europe and in East Asia of very low fertility,

508
00:54:21,670 --> 00:54:28,670
very long, long life, particularly Italy and Japan, in the case of southern Europe, also traditional high level.

509
00:54:28,670 --> 00:54:37,310
Those of early retirement, low levels of official pension age until recently and very high levels of compensation

510
00:54:37,310 --> 00:54:41,810
raised whereby the official pension was up to 80 percent of average wage,

511
00:54:41,810 --> 00:54:47,120
which is not an affordable level and has to come down. Hence the pain of adjustment.

512
00:54:47,120 --> 00:54:55,950
That pain will pass. And I'm reasonably optimistic about about the future, given rational changes of the kind that I've outlined here.

513
00:54:55,950 --> 00:54:59,370
Thank you.