Industry the April 2013 issue

The Domino Effect of Aging

Government benefits programs will fail current and future generations around the world.
By Cheryl Arvidson Posted on March 8, 2013

For the first time in history, there will be more people age 65 and over than under age five among the slightly more than 7 billion global inhabitants, triggering a tsunami that will touch virtually every aspect of life and every age group.

This trend, resulting from lower fertility rates and longer life spans, is forecast to continue in coming decades in both the developed and the developing world. Japan, with 22% of its population age 65 or older, is currently the world’s oldest major country. The youngest countries are in sub-Saharan Africa, where high fertility rates and the prevalence of HIV/AIDs keep the life expectancy in some places under 45. But even in that region, the number of older people is on the rise. Global aging is actually occurring faster in the developing world than in the developed world.

“This is significant because most of today’s more developed countries have had decades to adjust to changing age structures,” says Wan He, a demographer with the U.S. Census Bureau and author of a report, An Aging World: 2008. “For example, it took more than a century for France’s population aged 65 and over to increase from 7% to 14% of the total population. Many less developed nations are aging at a more rapid pace, often within a single generation. This compression of aging calls for institutions in less developed countries to adapt quickly to accommodate the new age structure. Many less developed nations may grow old before they grow rich, unlike their more developed counterparts that grew rich before they grew old.”

An aging population has major implications for all countries in terms of government policy, the provision of services, financial support and long-term planning. It will affect transportation, health, housing, family structure, education, work, tourism, enterprise development and participation in society, to say nothing of the threat it poses to the sustainability of public financing of healthcare and pension costs for the aging population.

Those effects are rarely simple. Rather, they resemble a long line of dominoes: knock one over and watch the next fall, and the next and the next. Let’s say, for example, that a city aims to improve traffic flow by reducing the amount of time allowed for pedestrian crossings at major intersections. Red-light crossings are designed to accommodate people who walk at a pace of around four feet a second. However, a recent study by University College London researchers shows that only a small percentage of men and women over age 65 can move that quickly. At first glance, it would seem that city officials considering shorter crossing times would weigh the potential improvement in traffic flow against the greater danger to elderly residents. But that’s not the only concern.

Their fear of not being able to cross the road safely could deter older people from leaving home and carrying out everyday tasks, thereby reducing their ability to live independently. Suddenly, local officials must also take into account impact on housing, healthcare, in-home assistance and transportation, all areas not likely to have been considered before.

And when the discussion turns to care of the elderly, it is not just living arrangements in home settings, assisted living units, nursing care facilities and hospitals that come into play. In Canada, for example, Howard Sapers, the government’s corrections ombudsman, recently called for a comprehensive strategy to deal with the aging prison population. Noting that the number of incarcerated prisoners over age 50 had increased by 50% in the past 10 years, Sapers says older prisoners have expressed fear for their safety and reported that their meals and pharmaceutical drugs were being taken by younger convicts.

At Home and Abroad

“Each country has its own specific set of problems and concerns,” says Richard Suzman, the director of the Division of Behavioral and Social Research at the National Institute on Aging. “The United States is in the middle of a discussion of entitlements. Europe has major issues right now with entitlements, and in some countries such as Italy, Belgium and France, people still retire very early because of the way public pensions are structured. China has the one-child policy, and that has increased the rate of population aging, and they are going to start having labor shortages, believe it or not. By 2050, China will have more people over 65 than the entire U.S. population today.”

“Each country has its own specific set of problems and concerns.”

Also, many nations have a relatively short time to adjust before the demographic time bomb hits. The living standard in many countries is likely to decline unless the labor force is more productive or expanded and governments make the sort of painful financial decisions needed to deal with their pension programs and social support systems. And with lower birth rates, the eventual impact will be fewer individuals in the workforce who can be counted on to pay the bills.

“The workforce is going to look different in 30 to 40 years,” says Ron Gebhardtsbauer, a clinical associate professor of actuarial science at Penn State University. “The population working in the United States will be more minorities than the typical white guy. There will be more Asians, Hispanics and blacks—a majority minority. Will they say, ‘Why increase my taxes to pay for all these old white guys?’ That tension could make financial problems for the government worse.”

Richard Jackson, director and senior fellow at the Center for Strategic and International Studies’ Global Aging Initiative, says, “In the developed world, for most countries, the first big challenge that needs to be addressed is rewriting the social contract on generous retirement and health benefit promises that were made when there were relatively few retirees but which are no longer sustainable. I sometimes say that graying means paying.”

“The first big challenge that needs to be addressed is rewriting the social contract on generous retirement and health benefit promises.”

But trying to find a solution to the growing debt facing governments across the world will not be politically easy or popular. In countries such as Japan, which has a staggering debt but offers both generous healthcare and long-term care to its older residents, it is the large number of elderly who hold the greatest political power and are highly resistant to any change.

“In the United States,” says Jackson, “we have a very low savings rate, an extraordinarily expensive healthcare system and, as anyone who is sentient today can tell, a political system that doesn’t seem capable of making sensible tradeoffs and decisions on questions that require tradeoffs. Whether I am pessimistic or optimistic about the United States depends on which side of the bed I get up on every day, but in terms of long-term fundamentals, for the U.S. they are good. We have a relatively high birth rate, at 2.1, which is the replacement rate, and we have substantial new immigration, which we do a good job assimilating, and flexible labor markets. But Japan and Europe are aging much more rapidly and will have stagnating or declining populations.”

In France, even the government’s relatively modest—and ultimately successful—attempt to raise the retirement age from 60 to 62 met with a workers strike and street demonstrations in 2010. In Greece, thousands protested when the government imposed major changes in the retirement program, including benefit cuts and curbs on early retirement, as part of a bailout loan from the EU. And in Spain, the government and major labor unions averted threatened protests by putting numerous stipulations, including a long phase-in, into a compromise that will raise the retirement age from 65 to 67 by 2027. The Spanish government estimates that even with changes, pensions will account for 14% of Spain’s public expenditures by 2050—by which time Spain will have twice as many people over age 64—compared with 9% in 2010.

In both the United States and around the globe, working longer is being viewed as one step to ease the financial pressure on both governments and individuals nearing traditional retirement age. Many countries that have capped the retirement age at 60 or slightly older are now rethinking that concept.

In the United Kingdom, the government is scrapping the default retirement age of 65 so that older workers can work longer, putting greater focus on ways to maintain older workers as healthy workers to ensure their healthcare costs don’t outweigh the benefits they bring to the workplace. This has led to greater discussion of how to transition the National Health Service to encourage wellness rather than simply treating the sick. In addition, the baby boomer burden on public finances, even though the would-be retirees may have been paying taxes for decades, will be a serious drain.

“We have a smaller system than most of the European countries,” says Gebhardtsbauer. “They get bigger benefits. In the United States, you need Social Security, and you save on your own and you may have a company pension and maybe even some part-time work as a fourth leg of the stool. But in European countries, it is a one-legged stool, and that has caused a problem. People don’t save, and companies don’t have pension plans, and people are retiring even earlier. It is really painful for legislative bodies to increase the retirement age in Europe.”

“When you put all your eggs in one basket and the economy is not doing well,” he continued, “and when those countries cut back on social security programs, people don’t have any other income. That is why the U.S. system is stronger than most other countries. In Europe, people started realizing cradle-to-grave socialism isn’t going to work. Insurance companies are helping companies set up pensions, helping individuals save and buy annuities. That approach also is definitely picking up steam in countries transitioning out of communism.”

In Europe, people started realizing cradle-to-grave socialism isn’t going to work.

Long-Term Living, Long-Term Care

Given the regular advances in medicine, at some point in the future people may routinely live to 100, raising the possibility that without changes in social insurance programs, they could be retired for almost as many years as they worked.

“That seems crazy to me,” Gebhardtsbauer says. “One of the reasons we are living longer is that we are healthier longer. Now we can actually work until later ages, and there are fewer physically demanding jobs—under 15% now. So why should the tail wag the dog? Why are workers paying money for retirees around the golf course who are physically able to work? If they want to retire early and play golf, they should save money to do that on their own.”

Sandra Timmermann, the director of the MetLife Mature Market Institute, says lower birthrates, increased longevity, healthcare advances that keep people living longer, and a reduction in the amount of manual labor have combined to create a situation where those over 85 are actually the fastest-growing segment of the global population. But that, too, has its challenges.

Unfortunately, the longer we live, the more likely we are to have chronic conditions,” Timmermann says. “When you look at what is happening with age, it is likely that one of every two over 85 in the United States will have some form of dementia. We all wish we could live healthy as long as possible and then die, but it doesn’t always happen that way. Alzheimer’s is really an epidemic.”

“Medicare and Medicaid are going to be much more expensive,” says Andrew Achenbaum, chair of the Gerson and Sabina David Professorship of Global Aging in the Graduate College of Social Work at the University of Houston and an advisor to the MetLife Mature Market Institute. “Medicare is geared for acute illness, but chronic illnesses are not covered.”

Alzheimer’s and dementia are global problems even though that aspect of aging does not receive much media attention. A recent report by Access Economics for Alzheimer’s Australia estimates there will be 1.1 million Australians with dementia in 2050, more than four times as many as today. Almost 25% of women and 21% of men age 85 to 89 now have dementia, the report says, and those numbers will rise to nearly 50% women and 37% men at 95.

“You have to be concerned with the very old, the oldest old, who are growing very fast because you are going to have a substantial prevalence of dementia and Alzheimer’s disease. Other countries are beginning to experience this with the rapid growth of age 85 and over populations,” Suzman says. “The solutions are going to lie in finding through research how to prevent or treat physical and cognitive disability. Some of it is going to have to come through changing lifestyles, and some of it will have to come through neuroscience research. It has been a priority for our institute but not worldwide. It is not a huge priority in low-income countries or even middle-income countries.”

Health issues are clearly a problem that the developing and developed world must cope with as the population ages, but in many countries, another major challenge is providing care for the elderly as shifting lifestyles, urbanization, fewer children and greater mobility shake the foundations of the traditional family.

“There also is a broader social challenge,” Jackson says. “How does society as a whole behave as it grows older? In a China, Mexico or India, it is not that that they promised too much to the elderly, it is that they are aging before they put in place the social and income protections of a modern welfare state. Most older workers there don’t get a pension, aren’t earning one and depend on family. But as societies urbanize, and as traditional values are under stress, the extended family is under stress too. And family size is shrinking, so you don’t have that there. In China, they talk about the 1-2-4 problem—one child has to support two parents and four grandparents. So it is not so much the physical aging of a population as the vulnerability of the elderly. Wherever you are looking, the nature of the challenge is different.”

“Family care-giving in the developing countries has been the way that people get their care,” Timmermann says, “but that is because they have a large family where there were more younger people than older people. If you look to the future, they really haven’t thought about a large portion of the older population needing social services or long-term care services because the family has always been the network to provide that. As a country has fewer children and children move away to other places, family is not in the future giving the same kind of reliability.”

In developing countries, this strong sense of obligation toward parents is not just culturally expected but often legally managed. For example, a law in India requires that adult children who neglect their parents, either by refusing to make provisions for their care or by inadequately caring for them in their homes, can be jailed or fined or both. Similar laws exist in Singapore and China.

In the traditional Japanese household, responsibility for care of aged parents historically fell on the eldest son’s wife. The role was regarded as the culmination of her long relationship with her mother-in-law who had trained her when she first entered the household as a bride. However, these days, only an estimated 20% of primary caregivers for frail older people are daughters-in-law. Although the proportion of older people living with any child has decreased substantially, about 40% of the elderly are cared for by their children, and that is still considered the normal mode of caring for older individuals, according to a recent study of Japan’s long-term care insurance appearing in The Lancet, an international general medical journal.

In an effort to ease the burden on caregivers and encourage continued care of elderly in a home setting, Japan’s long-term care insurance, implemented in 2000, provides benefits in the form of services, not cash. The Lancet study says the program is one of the most generous in the world, not linking benefits to income or family situation and allowing recipients to choose their services and providers. Financed half by taxes and half by social insurance, the program’s most popular service is adult daycare. Although costs have soared beyond forecasts due to higher enrollment than anticipated, efforts to tighten eligibility standards and make other reforms in the program are not regarded as politically feasible, The Lancet says, due to the political influence exercised by the elderly.

Both South Korea and Taiwan are starting or planning long-term care programs modeled after the Japanese approach, providing services instead of cash. Germany’s long-term care program has tighter eligibility standards, is less generous and allows elderly recipients to choose cash rather than services with no restrictions on its use. The Lancet study says an estimated 6.5% of people age 65 and older use adult daycare centers in Japan, compared with fewer than 1% in Germany and Sweden.

If families can no longer be counted on to care for the oldest members of their families, where will the elderly live? As the senior population increases, so does the demand for senior housing.
In Canada, the senior population is expected to surge from 14.4% in 2011 to 24% by 2041. A 2011 article in The Globe and Mail reported that experts were predicting the country would need an extra 104,000 long-term care beds and 52,000 retirement beds to accommodate seniors by 2016 alone, at a cost of $17 billion.

“The first wave of the boomers…will trigger what we believe will be a 20-to-30-year runway of demand that will be impossible to keep up with, including everything from government-subsidized long-term care spaces to the private-pay independent living market, and everything in between,” Samir Manji, CEO of Vancouver-based Amica Mature Lifestyles, told The Globe and Mail.

In Hong Kong, the growing number of elderly, the high price of housing and cramped living spaces are creating a crisis for the older population. One recent news report told of a 50-square-foot apartment in an unauthorized, dilapidated building costing the equivalent of about $200 a month. The years-long wait for an opening in a government-run care facility and exorbitant costs of private care are leading a number of elderly Hong Kong residents to cross the border and relocate in Guangdong Province in China, where housing is much cheaper even though medical services and caregivers are scarce. The migration across the border is so significant that the Hong Kong government has recently approved something called “fruit money”—a small pension that can be paid monthly to anyone over 65 who spends at least 60 days a year in Hong Kong.

In Africa, the number of people over 65 is expected to grow to 4.5% of the continent’s population by 2030 and reach almost 10% by 2050. Some African countries, such as Kenya, Botswana, Lesotho, Namibia, the Seychelles, South Africa and Swaziland, have small social pensions. But a November 2011 report by the African Development Bank said governments need better ways to support the old or they will languish in poverty and suffer from chronic diseases.

“Africa’s population is aging, but the governments are ill-equipped to handle the numbers,” the report said. “They have failed to match funding for retirees and the old, meaning more are dying in poverty.”

In addition, in many countries, the rural population is not included in the social pension system, and there is a critical shortage of medical care in rural areas. In Tanzania, there is pressure to provide some sort of pension for people who have not had formal employment but have earned their living as farmers in villages or as self-employed in some urban areas. Those individuals now have no money and no access to services such as medical care, and news reports say they don’t have enough to feed themselves for more than a week and die a few years, if not months, after retirement. Tanzania has the highest population over 60 in East Africa, and experts say even a pension the equivalent of $10 a month would significantly reduce their poverty rate.

Against those conditions, even with the high-profile battles between the White House and Congress over the national debt, Social Security, Medicare and Medicaid, the United States is in far better shape than many developed nations, and there is simply no comparison with the problems facing the developing world.

“It is worth noting that, among the developed countries, the United States in terms of its long-term demographics is actually in very good shape,” Jackson says. “There is a lot of concern about the retirement of the baby boom, and the baby boom does cause a big fiscal shock and labor market shock. But as the last of the troublesome boomers pass on to the Great Woodstock in the Sky, the United States is no older than Italy and Japan are today.”

Cheryl Arvidson

Contributing Writer

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