Will countries grow “older” before they get “richer”? Population aging has become a global phenomenon. According to the U.N. Department of Economic and Social Affairs (DESA), since World War II, global life expectancy has risen from about45 to 65. In wealthy countries, life expectancy has risen from mid 60s to high 70s, and in a few countries, including Italy and Japan, it has reached 80. Similarly, United Nations Population Division (UNPD), population projections show that the world median age will rise from 26.4 in 2000 to 36.8 in 2050. While it is good news that the longevity is on the rise due to various achievements in science, public health, and socioeconomic development, can the world handle its growing elderly population?
Shedding light on ways that developed and developing countries are preparing for “old age dependency” of global aging dimension, The Global Aging Preparedness Index (GAP Index) was released at a recent event hosted by Center for Strategic and International Studies. The GAP Index covers 20 countries, projecting (2007- 2040) total public benefit spending and total household income by age on a consistent basis for all countries in the Index. The Index consists of two separate sub indices—the “fiscal sustainability index” and the “income adequacy index.” The fiscal sustainability index tracks the burden that public benefit spending on the elderly costs to the nonelderly. The income adequacy index tracks the living standard of the elderly relative to the living standard of the nonelderly. (Throughout the Index, the “elderly” are defined as adults aged 60 and over.) Click here for more information
The GAP Index reveals that that today’s retirement policies often entail a worrisome trade-off between fiscal sustainability and income adequacy as most countries are doing much better on one dimension of aging preparedness than other. For instance, three of the seven highest-ranking countries on the fiscal sustainability index (Mexico, China and Russia) are among the seven lowest-ranking countries on the income adequacy index. Four of the seven highest-ranking countries on the income adequacy index (the Netherlands, Brazil, Germany and the UK) are among the seven lowest-ranking countries on the fiscal sustainability index. (See Figure above) Australia is a notable exception, primarily because it combines a low-cost, means-tested floor of public old-age poverty protection with a large mandatory, and fully funded private pension system. India, surprisingly takes number one spot in fiscal sustainability index due to the traditional pillar of old-age security and family support networks.
An important consequence of population ageing is increasing fiscal pressure through higher government spending on social security, health care, and other welfare programs for the elderly. With most of the world still reeling from the global economic crisis, the challenge of global aging certainly has a large and enduring impact on the size and shape of government budgets, on the future growth in living standards and on the stability of the global economy. While the developed countries are faced with the choice between reliving the growing fiscal burden on the young and maintaining adequate incomes for the old, developing countries face just the opposite. Nonetheless, for both developing and developed countries the challenge still remains to grow richer while still getting older!