The following excerpt is adapted from the International Social Security Association (ISSA).
Population ageing is a reality! In all regions of the world there are greater numbers of elders and falling birth rates. As the international community marks the International Day of Older Persons on October 1, important questions remain concerning the appropriate design, effective administration, and sustainable financing of national social security programmes in ageing societies.
Population ageing, defined as the growth of older age groups (aged 60 or older; aged 80 or older) as shares of the total population, is occurring in all regions of the world. Overall, the number of individuals aged 60 or older is projected to reach 1 billion by 2020 and pass 2 billion by 2050, representing 22 per cent of the world's population.
In the most-developed countries, one-fifth of the population is already aged 60 or older, with the expectation that this share will rise to more than 30 per cent by 2050. In many developing countries, less than 10 per cent of the population is aged 60 or older. For example, by 2050, those aged 60 or older will represent 20 per cent and 30 per cent of the populations of India and the People's Republic of China, respectively.
Three main factors serve to explain past and projected changes in the share of the population aged 60 or older. Declining fertility rates is the first, because this change reduces the proportion of young people in relation to the elderly.
An increase in life expectancy is a second factor, and is seen both in developed and developing countries. On a global scale, this trend prevails despite the negative impact of the HIV and AIDS pandemic in some low- and middle-income countries and also despite a decrease in life expectancy, particularly among males, in some countries of Central and Eastern Europe and the former Soviet Union during the 1990s. The third main factor is past variations in birth and death rates. The impact of the ageing of the post-Second World War "baby boom" generation on high-income country population pyramids is an excellent example in this regard.
Considering, the most predominant mechanism for financing social security worldwide remains social insurance, wherein covered workers and their employers are mandated to pay contributions, demographic change that leads to a decline in the size of the formal labour market is likely to have a negative impact on the financing of social security provision. This is especially so for pay-as-you-go (PAYG) social insurance programmes, where current contribution revenue from the active population (workers and employers) is the main source of income used to finance current benefit expenditure destined for the non-active population.
In the worst-case scenario, if the ratio of active contributors to current beneficiaries declines to a point where the value of expenditures on beneficiaries exceeds the value of income from contributors, then, in the absence of sufficient other income from reserve funds, returns on investments or State allocations, the PAYG programme will be unable to meet its commitment to finance current benefits. However, such a possible eventuality is not restricted to the impact of demographic change alone. As at December 31, 2013 at the ABSSB, the rate was roughly 4 active contributors to a pensioner; regional standard is 10 to 1.
Financial disequilibrium can also result from contribution evasion and underpayment, in particular if this coincides with structural changes to the labour market that lead to high levels of unemployment and/or a serious decline in the size of the covered active population.
Population ageing is now a reality in most societies, and thus it is no longer merely a looming problem on the longer-term political horizon that may be conveniently or easily ignored. For instance, in Antigua & Barbuda at the end of August 2014, there were 7,747 persons in receipt of an Age Pension from the ABSSB. As a consequence of post-2008 public spending cuts and, in some countries, moves towards fiscal austerity, the time may finally have come for sustained and meaningful political action to address the challenge demographic change presents to different national social security programmes and systems.
One thing is sure, however. If politicians do not act at least as quickly as one would hope, it will not be because the trends of demographic projections can be doubted.