How Should Policy-makers Think About Ageing Populations?

Old age group people crowd illustration in abstract layered paper cut style. Elderly team silhouette for senior citizen issues or retirement concept. Modern 3D papercut design.

James Banks

The population of Wales is ageing, as are those in the rest of the UK and across the G7. This presents a number of challenges for pensions, productivity and public services. Designing effective policies in the face of an ageing demographic means reducing dependency and promoting good health.

Wales has an ageing population. This demographic trend, which is evident in the rest of the UK too, has a number of potential economic consequences, as highlighted by the recent Welsh Centre for Public Policy (WCPP) evidence review of international approaches to population ageing and decline, and the policy roundtable that accompanied it. The report provides a useful overview of some of the broad policy issues and responses that have been considered in other countries facing similar situations.

The report is essentially about demography. But pure demography – in this case, the age distribution of the resident Welsh population – is not the only, or even the main, reason that the ageing population presents challenges to policy-makers in Wales, at least in the medium run.

From an economic and social policy perspective, what really matters is the level of dependency in the population – and demography is only part of that story. Put in its most stark and simple terms, an economy has productive individuals who can contribute economic value (and if they are in paid work, they will also contribute tax revenue), and economically dependent individuals who require support and services (and who will often receive or require state benefits or other publicly provided social services).

It is the make-up of the population in terms of the relative numbers of these two groups – not the relative size of different age groups per se – that puts pressure on social services, pensions and healthcare. It is also a key part of what drives economic prosperity.

Children will always fall into the dependent category. In this sense, policies to promote fertility will actually exacerbate funding problems in the short term, although they may be beneficial in the medium term when those children grow up to be workers.

Where things have been changing over time is from middle age onwards. The traditional demographic model of ‘old’ people being dependent and ‘working age’ people being productive has, in reality, been too simplistic for many years.

What’s more, this view is becoming increasingly inadequate: inequalities in health, disability and life expectancy are such that while there is still a correlation between working age and productivity, this binary split is no longer helpful as a starting point for policy.

Take disability, for example. A recent report that formed part of the Deaton Review of Inequalities (conducted by the Institute for Fiscal Studies, IFS) shows that inequalities in disability are so large that the rates of disability for people in their thirties with the lowest educational attainment are higher than the rates of disability for people with university degrees when they are in their sixties (Banks et al, 2023).

There are also very large differences within birth cohorts at later working ages (55-70). In terms of limitations in ‘activities of daily living’, or ‘instrumental activities of daily living’, which are the factors that determine care needs, there is twice as much disability among those whose highest educational qualifications are O-levels (GCSEs) or A-levels as among those with degrees, and three times as much among those with no qualifications as among those with degrees.

People with the best education will be in their early or late eighties before they have the level of dependency of people in their mid-fifties with no qualifications. What’s more, these differences are only likely to widen in future cohorts.

The healthy ageing agenda

The relationship between dependency and age needs to be a target for government policy in itself – such that the pure demography of cohort sizes and age groups does not necessarily lead to overwhelming challenges and pressures on social support systems.

This is the healthy ageing agenda. And it’s worth saying that this is quite different from targeting longevity (living longer), which could have the opposite effect on public services and social support unless quality of life and dependency are prioritised before longevity extensions.

The healthy ageing agenda is challenging since the causes of dependency and disability in later life are so broad and complex. As such, policy-makers need joined-up thinking across many areas of government to protect and promote health and functioning through adulthood at all points in the distribution of socio-economic status.

Healthy ageing policy needs to be underpinned by improving the quality and quantity of education across the board, but also by thinking of education as providing a platform of skills on which people can continue to build as they age so that they can remain in work.

The healthy ageing agenda also needs to acknowledge the key role of prevention and lifestyle behaviours in public health policies. It must also address issues surrounding environmental risk factors in disadvantaged areas, such as crime, poor quality housing and environmental pollution, as well as the role of good jobs in protecting against the early onset of poor health and disability.

At the same time, labour markets and employment contracts need to be flexible enough to facilitate work for those who are willing and able, regardless of their age.

Measuring success

Policy analysis in this area needs to be underpinned by good data – the life-course trajectories of our health, economic and social lives are all intricately linked, and we need to be able to document and study these trajectories, and their causes and consequences, for different groups of the population.

This is why we have been designing and collecting the English Longitudinal Study of Ageing for the last 23 years and making the data publicly available for researchers and policy-makers. A similar resource in Wales would provide a valuable platform for future policy analysis on healthy ageing and dependency.

These issues are all particularly important because the stakes are about to get much higher. It is common knowledge that the fraction of the population aged 65 and older has risen rapidly in recent years.

In the UK (including Wales), policy-makers moved late in anticipating this demographic shift, although not nearly as late as many continental European countries, which are still reforming their pension and retirement age policies.

But 2030-45 is the time when the proportion of people aged 80 and older is going to rise rapidly. This means that many of those between 65 and 80, who have been old but not dependent, are about to enter the period of life when dependency is more common.

It may already be too late to change those trajectories for the individuals themselves – that is a policy issue for future generations. But anything we can do to address the social care ‘timebomb’ needs to be a further central pillar of policies on ageing.

What happens next?

In a nutshell, policy-makers looking at ageing – in Wales as well as further afield – should be thinking about dependency alongside demography. This is partly because dependency is the key issue behind the ‘economic’ dependency ratios that reveal the stresses and strains on public services.

But issues of dependency can also provide an additional lens through which to assess different types of demographic policies, since the balance of pro-fertility versus pro-immigration policy will have implications for economic dependency ratios in the short, medium and long run.

Additionally, the consideration of different types of pro-immigration policies, as well as retirement age policies (since these relate to potentially productive older workers), can also be usefully informed by an understanding of the kind of sectors of the economy – health and social care in particular – where labour is needed to support the dependent population.

Finally, to the extent that the reduction of dependency and promotion of healthy ageing creates a society with more opportunity, fairness and greater lifelong wellbeing, one might reasonably expect that this could feed back positively into the future demographic trends themselves, both in terms of fertility and net immigration.

Where can I find out more?

Who are experts on this question?

  • James Banks
  • Amanda Hill-Dixon
  • Andrew Scott
  • Michael Marmot
  • Martin Knapp
  • Jenny Roberts
  • Nigel Rice

This post was reproduced with permission from the Economics Observatory.