The hidden economics of ageing populations

Countries around the world have continued to develop socially and economically, and with this, lifestyles have changed. More people are entering retirement than entering the workforce, which is increasing pressure on economies. Health services buckling and employment rates suffering have led governments to scramble to tackle this issue.

As population pyramids have become increasingly unbalanced, fewer and fewer people are there to replace the post-war ‘baby booms’ of the previous century. More economically developed countries tend to have top-heavy population pyramids, with those considered highly developed economies such as South Korea being the worst affected.

India, whose population accounts for around one-sixth of the world’s total, is also experiencing a rapid decline in fertility despite its ongoing economic and demographic growth. Its fertility rate has fallen to around 1.9 children per mother, below the replacement rate of 2.1 since 2019. This illustrates that declining birth rates are not confined to wealthy, ageing economies: as countries develop, factors such as rising incomes, greater female participation in education and employment, urbanisation, and changing attitudes towards family size can accelerate demographic transition. Current projections suggest that India’s population could peak at around 1.7 billion in 2064, after which its population is expected to begin declining.

Japan has long been discussed for having one of the largest elderly populations on the planet. In 2022, almost 30% of the country was over the age of 65. With the birth rate reaching lows of 1.2 children per mother in the same year, it is no surprise that it has one of the highest median ages in the world. Factors that have been associated with Japan’s low fertility include: a tough work culture with days ending past 9pm, often without overtime pay; hyper-urbanisation in megacities like Tokyo, with spacious apartments costing a fortune; and little green space once in the city. This limits people’s ability to live a comfortable life, let alone settle down and have children.

The problem isn’t simply that there will be fewer workers: it’s that economies need productivity to rise fast enough to compensate for slower labour-force growth while supporting a larger retired population. Certain sectors have had it worse off than others. The ONS calls typists and bookbinders ‘dying professions’ where workers aged 50 or over made up almost two-thirds of the workforce, as we slowly switch to digitised and automated products.

Other sectors, particularly formal care, face the opposite challenge: demand is increasing as the UK population ages, even as the pool of workers available to provide these services becomes more constrained. The pressure on the NHS is also immense. As people get older, the chances of them going to hospital increase rapidly –there were 93,000 A&E attendances per 100,000 people aged 90 and over in 2023 – three times more than those aged 50. A more frequently ill population is leading to growing waiting lists for medical procedures and rising costs for our health service.

Expanding and maintaining specialist visa routes for workers in high-demand professions, such as healthcare, could therefore help ease pressure on public services

Although unpopular, raising the state pension age has been proposed several times as a way to slow the exit of people from the working population. The state pension age is currently 66, but is being gradually increased to 67 between 2026 and 2028, following the previous increase from 65 to 66 between 2018 and 2020. The policy is partly justified by rising life expectancy, on the basis that people may be able to remain in the workforce for longer. Critics of this say the state pension age should stay put, and they fear this will continue to rise past 70, where people are no longer physically able to get on with their retirement plans. This would save the Treasury £10bn; however, it is an attractive policy for the government to consider.

Immigration policy has become increasingly important as the UK faces a shrinking working-age population. The country relies heavily on migrant workers across sectors experiencing labour shortages, from doctors and nurses in the NHS to workers in agriculture and food processing. Yet tighter immigration rules may make it more difficult for employers to fill these vacancies, particularly as an ageing population increases demand for labour in sectors such as healthcare and social care. While immigration alone cannot resolve the UK’s demographic pressures, targeted migration policies could help alleviate labour shortages and support the working-age population. Expanding and maintaining specialist visa routes for workers in high-demand professions, such as healthcare, could therefore help ease pressure on public services while the UK pursues longer-term solutions to population ageing.

Clearly, the pressure on economies is significant. Without adaptation, demographic ageing could place substantial strain on economic growth, public finances, and essential services. If the government is willing to implement new policies to combat this, however, we may be able to mitigate the effects of an ageing population. At the very least, we have enough time to adapt to our changing demographics and to prepare for a possibly different world of work.