Greying Asia: A Case of Increasing the Retirement Age?

By Indu Bhushan

An increase in life expectancy by 40% and decline in fertility by 50% in about half a century -- this is a great achievement!

I just read the following tweets from Hans Rosling —

“Life expectancy at birth in the world: 1960=50 years, 2013=70 years…” 

“Number of births/women in the world: 1960=5.0, 2013=2.5 ...” 

An increase in life expectancy by 40% and decline in fertility by 50% in about half a century -- this is a great achievement! Let us remind ourselves that it took centuries for the developed world to achieve this level of change in health status and fertility. Driven by technological innovations, unprecedented economic growth and supportive public policies, developing countries in Asia have completely changed their demographic structure within a couple of generations.  We need to celebrate this. 

However, this is an emerging problem. While we live longer and have smaller families, we also have no one to take care of us when we grow old. From 1970 to 2000, the total number of persons of age 60 years or older has more than doubled from about 125 million to 321 million. The number increased to 420 million in 2010, and is projected to be 824 million by 2030. 

In Asia, parents have traditionally relied on their families to take care of them in their old age. However, with urbanization, migration, greater participation of women in workforce outside homes, and declining fertility, these traditional links are weakening. A public system to support older people is not in place. Taking care of older people is not cheap. This requires resources and strong social security and health systems. Most developing countries do not have these systems and many cannot even afford them.

The situation could be even more alarming in countries that have been more successful in increasing life expectancy and reducing fertility. Just to put this issue in perspective, one person in Peoples’ Republic of China (PRC) will have to care for at least 6 older people (two parents and two sets of grandparents). In some cases, some great grandparents might even be alive.  

On the other hand, developing countries in Asia have to take action today--they cannot wait till the situation slowly gets out of hand. At the same time, they also do not have enough resources. Developing Asia is greying before getting rich. Developed countries had several decades to prepare for these demographic changes. Their average income levels were much higher when the transition took place. Therefore, they had the luxury of time and resources to build systems for their elderly.  

Many countries have publicly-funded pay-as-you-go pension systems. These systems will face serious challenges—indeed, some are already doing so—as the number of beneficiaries increases and the number of contributors declines.

The retirement age in most countries in Asia is 60 or less, an age at which most people today are still active. While policies to increase the legal retirement age have met with strong social resistance in many Western countries, they seem to be more acceptable in Asian countries. People in their 60s want to remain economically active and usefully employed. While life expectancy has increased by more than 10 years in the last 3 decades, the retirement age has remained almost the same. There is a therefore strong case for revisiting the retirement age.

An increase in the retirement age would have several benefits. It would keep a large part of the economically productive population in the workforce for longer. It would improve the welfare of the elderly. It would also strengthen the public pension system by reducing the volumes of outflow and payout periods while increasing the contributions. 

The challenge of responding to population ageing in Asia is complex and will require a series of equally complex policy actions. However, increasing the retirement age is a low-hanging fruit that should be harvested as soon as possible, in my view.