Text of my column written for Echelon monthly business magazine, Sri Lanka, April 2015 issue. Published online at: http://www.echelon.lk/home/managing-the-demographic-transition-the-silver-dividend/
Managing Demographic Transition: The ‘Silver Dividend’
By Nalaka Gunawardene
Back in December 1993, Wired magazine asked readers to nominate seven modern wonders of the world – extraordinary structures or phenomena that characterise our age. Its editors made the final choices based on hundreds of ideas received.
Predictably enough, the list was dominated by high tech developments like the Human Genome Project, the Internet and micro-manufacturing. With remarkable foresight, they also included senior citizens.
That’s right! The editors said: “Among the greatest feats of bio-social engineering ever executed and yet one that remains strangely overlooked is our abundance of senior citizens.”
There is no historical precedent for this, in any place or any time. Prior to the Second World War, Wired noted, an old person was ‘an oddity’ in Western cultures, with only an insignificant proportion of the population reaching that age. But by end 20th century, old people and their needs “will dominate political and social debate.”
“The dream of an immortal society is the dominant engine powering the bulk of most 20th century research in countless areas including medicine, pharmaceuticals, surgery, and life extension techniques as well as developments in politics and finance — entitlements, pension funds and mutual funds,” added Wired.
Now, into the second decade of the new century, societies worldwide are facing the challenge of ageing populations. To manage this demographic transition well, they need the right attitudes and policies.
Population ageing happens when older people (typically over 60) account for an increasingly large proportion of the total population. It is the result of declining fertility rates, lower infant mortality and increasing survival at older ages – all triumphs of development.
This happened slowly but steadily during the last few decades. Worldwide, older people’s share of population has risen sharply. In 1950, when the world’s population was 2.5 billion, there were 205 million persons over 60. In 2014, there were 868 million such persons – nearly 12% of the total.
Meanwhile, the number of new-borns has been falling. In 2000, for the first time in history, there were more people over 60 globally than children below 5. And within the next decade, the number of older persons will surpass 1 billion.
Proportions matter more than absolute numbers. It is the age structure of a country’s population that directly affects economic productivity and human development.
In South Asia (SAARC region), Sri Lanka has the highest proportion of older people, which was 13% in 2014. This is projected to rise to 20% by 2031, and a quarter by 2041. Parallel to this, the proportion of working age population – which reached its peak in 2006 (65.1%) – will keep falling. This is similar to what is happened in many East Asian countries.
“As Sri Lanka experiences a demographic transition, the country will face several economic and social challenges, especially in handling the social protection and health care needs of a rising elderly population,” cautioned the Institute of Policy Studies (IPS) in its ‘Sri Lanka State of the Economy 2014’ report. “In addition, Sri Lanka will also have to address the implications of a shrinking workforce on the growth of the country.”
How can we prepare for this shift, to avoid being overwhelmed economically and socially?
Philip O’Keefe, the World Bank’s lead economist on social protection and labour, says the risks associated with ageing are real — but can be mitigated with the right policy responses.
“We always look at the costs (of ageing), but the economic and business opportunities are enormous,” he told HelpAge International’s Asia regional conference in Thailand in September 2014.
For example, as people enjoy longer and healthier lives, retirement age and habits need rethinking.
O’Keefe says that many Asian countries’ retirement age has not kept up with rising life expectancy. But rather than embarking on the often contentious revision of retirement age, countries could gradually ‘blur the line’ between working and stopping it – as Japan, Korea and Singapore have done.
In Sri Lanka, mandatory retirement age for public servants is 60 years (with some exceptions). Last year, then health minister (and now President) Maithripala Sirisena proposed that this be raised to 65, with the option of retiring at 60.
The rationale is clear. Lankans have an average life expectancy of over 76 years, with women living a few years longer than men. Also, today’s older people are markedly different compared to those two generations ago. They are healthier and remain more active well into their 70s or 80s. This enhances their value to society: they are a resource to be harnessed.
This is the trend across Asia. To benefit from this, societies must redesign and realign themselves, says Eduardo Klien, regional director of HelpAge International for East Asia and Pacific. Countries need to make far-reaching changes to address population ageing so as to optimise older people’s contributions.
Governments, civil society, private sector, development donors and the research community all have roles to play. The policy window is limited, Klien says. “The time to act is the next few years.”
In formulating policies, it is important to avoid alarmism. The common media portrayal of ageing as a ‘demographic time-bomb’ or ‘silver tsunami’ is not accurate. Nor is this fate inevitable as developed country experience shows.
Better data gathering and analysis can help promote a more balanced approach. For example, censuses need to collect statistics that are more disaggregated by age and gender (lumping together everyone over 60 or 65 is no longer good enough).
The Global AgeWatch Index, which ranks countries by how well their ageing populations are faring, takes stock of how countries are faring. Compiled by HelpAge International, it measures performance in four areas: income, health, employment and education, and existence of an ‘enabling environment’ (based on factors like physical safety, civic freedom and access to public transport).
Global AgeWatch Index 2014 assessed 96 countries which covered nine out of ten people over 60 worldwide. Norway topped the list, followed by Sweden and Switzerland. The only Asian country among the top 10 was Japan (No 9). In South Asia, Sri Lanka was placed higher (No 43) than other SAARC countries – but there is much to be done.
According to the data crunched, an average Lankan of 60 years can expect to live for another 20 years, 16.2 of which are likely to be in good health. But many of our older persons experience problems of psychological wellbeing – and a lack of counseling support.
More worrying is income security. Pension income coverage in Sri Lanka is 17% of older persons, despite there being several public and private schemes. Given that more people work in the informal sectors – such as farming, fishing and trading – enhancing coverage will need a multi-pronged approach.
One option is non-contributory social pension schemes, but this needs to be balanced with long-term viability. Sri Lanka already spends around 1.5% of GDP on public sector pensions. Pension reform with innovation thus becomes a policy priority.
Modern wonders do come with a price!