What problems might governments face with an ageing population? Discuss what can be done to alleviate these problems?

Nowadays, the issue of ageing population is a subject of much attention in all over the world. Population ageing is a shift in the distribution of a country’s population towards older ages. This is usually reflected in an increase in the population’s mean and median ages, a decline in the proportion of the population composed of children, and a rise in the proportion of the population that is elderly. It is predicted that the trend for an older population will continue during the first half of this century at least. What this means is that we now have more elderly people than ever. The ageing of the population presents a major fiscal challenge for the government. Currently, it is a serious problem for governments in terms of what the effects will be on healthcare, care services, pensions and future labor supply.

One of the major worries about the growing number of elderly people in our society is how the system can afford to support them all. Ageing populations are likely to put significant pressure on public spending programs, such as health care and pensions. Health care is the area that is particularly affected by the changing age structure of the population in favor of older age groups. The health care system through out the world is already overly stretched and the rise in this sector of population can make the health system go further haywire. Cost of health insurance is on hike and if this is the case many people will not be able to afford the costly insurance after a certain point in their lifetime. The pattern of health-care costs at different stages in the average life-cycle has been established in a number of researches, and it implies that as the numbers of elderly increase, total health-care costs are also likely to rise, although the effect of increased life expectancy on per capita health-care costs is more difficult to establish because it depends, in part, on the physical dimensions of the ageing process. In order to isolate and examine the effects of demographics on health-care spending, per capita real public health-care spending on people under 65 year-olds and on those 65-years and older is assumed to grow in line with productivity growth. The per capita expenditures were then applied to the population projections for their corresponding age groups. The scenarios of health-care costs indicate that in the United States and Canada, whose populations are growing as well as ageing, public spending on health care as a per cent of GDP (Gross Domestic Product) would rise significantly. In the United States, the effects of ageing are exacerbated by the particularly high share of public health spending which is spent on those over 65 compared with the under 65 year-olds.

Moreover, The Government has given a lot consideration to adapting the design of new builds to ensure they are suitable for the ageing population. Its national strategy, called Lifetime Homes; Lifetime Neighborhoods sets out the challenge and the governmental plan of response. The plan sets out sixteen design features that should be incorporated into all new homes, such as level access, wide corridors and doorways, ground floor bathroom facilities, and sockets and light switches at a convenient height.

 Besides, ageing population also affect on the demand for these social services, especially for pensions. The underlying reason is that medical advances over the last few decades have greatly prolonged our life span, forcing the pensions industry to support a greater number of pensioners for longer periods. But the problem has been exacerbated in recent years by dwindling stock market returns. Pension funds depend on steady stock market returns to pay policyholders. And when share prices fall – as they have been doing for the last two years – it becomes harder for funds to meet their obligations. Lower returns have forced most of the big company-run pension funds to suspend generous schemes which guarantee employees a fixed proportion of their final salaries on retirement. A large proportion of firms have now set up defined contribution or money purchase schemes, which do not guarantee the final pension sum and are therefore less risky for companies. An additional gripe, as far as employers are concerned, is the 10% tax on dividends earned by pension schemes, which was imposed by the chancellor shortly after the present government was elected in 1997. Dividends play an important part in the long-term health of pension schemes. Any tax on them increases the possibility that the scheme will not have sufficient assets to meet liabilities.

Another problem is that ageing population means fewer youth who is the main labors in almost factories and companies; the decreasing in number of young people may lead to the shortage of labor in near future. In many countries, expected demographic developments will lead to significant declines in the growth of the labor force and aggregate participation rates over the next decades. The overall participation rate could fall by some 4-5 percentages on average between 2000 and 2025. This will be accompanied by an increasing share of older workers in the labor force and a significant increase in old-age dependency ratios.

The ageing also will have a serious affect on the industry, as essential skills will be lost when employees retire (given that there are fewer young professionals coming into the industry to replace those retiring). This is exacerbated by the fact that the number of new recruits is declining and there will be nobody available to replace those retiring. This would also mean that the industry is losing a valuable teaching resource, as older workers often use their expertise and experience to help develop new entrants. This issue is closely related to the industry’s dilemma of skills shortages and its problems in recruiting enough new employees. While the industry’s older members are acknowledged for their significant expertise and experience, it was suggested that a fresher perspective from younger employees is important to drive innovation in the industry. These respondents believe that developing new ideas and innovative ways of working will help to strengthen the industry’s future. Currently, there’s no balance between these different aspects of the industry workforce, causing important skills to be lost and innovation to be constrained.

In order to solve these problems above, the governments should have some solutions to prevent the economy getting worse and improve the living standard for all people. Some of main policy options which are governments should do for adjusting pension systems to future challenges are delaying retirement, lowering pension payments (including replacement rates) and undertaking welfare reform. The combined effects of the falling the numbers of working people and the rising numbers of pensioners mean that even quite major increases in contribution rates or reductions in pension payments would be insufficient to balance those projects that face the greatest problems. Increasing contribution rates can be seen as simply a means of raising overall tax revenues and would need to be assessed against other revenue-raising options but it does focus directly on the problem. Increasing the retirement ages (delaying retirement) to the extent that it does actually lead to people working for longer, also helps to avoid one rather awkward aspect of many of the other changes suggested. Raising retirement ages also provides the decreasing in the number of pensioners. In order to delay retirement, government should ensure all state workplaces are conducive to older workers remaining in employment or encourages retirees to return to the labor force. Besides, government should relax the process for obtaining exemptions under the act for those employers who wish to target specific disadvantaged groups for recruitment.

Those countries with the lowest retirement ages, after current reforms are implemented, France and Italy, also face the largest pension pressures and raising retirement ages significantly would seem to offer the most scope for easing the pressure, especially as experience elsewhere indicates that raising retirement ages is a practical and feasible policy option.

Another solution which the government should do to balance the ratio between the number of old people and young people are reducing the cost of raising children, even the education cost. On the other hand, these days many parents can not be able to pay for raising children. For example, in UK there are two sets of people paying the costs of raising children: their parents and taxpayers. The costs of raising a family are high for parents, even those who send their children to state schools. According to a December 2007 survey by the Liverpool Victoria Friendly Society, parents can expect to spend about £186,000 (up from £180,000 from a year before) on bringing up a child from birth to the age of 21. A typical family spends £50,538 on childcare and £47,310 on education, even assuming a state education through primary and secondary school. The costs for taxpayers are high too. With state education paid for by the taxpayer, those under 18 incur costs to the public sector as well as the older people who receive state pensions and people of all ages who receive other state benefits. Young dependants funded by the taxpayer receive state-supported childcare or nursery education from ages 0-5; primary school education from 5-11; and secondary education from schools from 11-16. Many go on to receive further education from 16-18; with some 43% of those aged 18-21 continuing in full-time higher education at universities and colleges and the government aiming to raise participation to 50%. In 2004-2005 state education cost taxpayers £63.7 billion, of which £4.2 billion was spent on under-fives, £36.5 billion on schools, £7.4 billion on further education and £7.8 billion on higher education. With 9.3 million pupils in 34,600 schools, the average school place cost the taxpayer £3,924 a year. Therefore, there are a lot of people do not want to have children because they can not afford to bring up them. In order to increase the number of young children government should have policies to help young people.

Furthermore, immigration should be another cure for failing birth rates and ageing population. Because, immigrant can get employed to simulate economic growth. However, the proportion of low-skilled immigrants in the total number of immigrants should not be higher than the proportion among natives to prevent unemployment from rising. Thus to stimulate investments and economic growth it is of utmost importance that immigration policy as a means to mitigate the ageing problem should not only focus on the number of immigrants, but also on their employability by keeping the skill structure in line with the skill distribution of domestic labor market entrants.

Overall, older people are a significant and growing part of local communities. This inexorable trend presents both daunting challenges and real opportunities for local government. Older people offer rich life experience, well honed skills, knowledge and wisdom, qualities that significantly contribute to the social fabric of local communities. But our ageing population will also impact on planning and service delivery due to the slowdown in the growth of workforce and the increase in spending on caring old people.