The implications of an ageing population for the UK economy

In this paper the likely development of aggregate living standards in the United Kingdom over the course of this century are considered, and some of the risks to this outlook. It is argued that even under relatively cautious assumptions about technological progress and capital accumulation, aggregate living standards (as measured by GDP per head) are set to double over the next 50 years. While there are clear risks to this aggregate outlook, these would be present even without demographic change. The risks to the living standards of individuals and individual cohorts are also discussed. These risks have changed in three main ways as a result of demographic change. First, ageing has been a factor throughout the world in encouraging a shift from public to private provision for old age, increasing the proportion of retired people exposed to risks to market prices and rates of return. Second, the size of the group exposed to such risks is growing larger as a direct result of ageing. Third, any adverse effects of demographic change are most likely to be felt in old age; one of the effects of people living longer is that they have to spread their lifetime incomes over more years of life, implying a need for more saving when working. If this does not occur, then consumption has to be considerably lower in old age than would have been the case had proper provision been made for retirement.