Pensions in an ageing society – Strains and pains of becoming older together

I focus on three issues central to the economic impacts of changing demographics brought about by trends in life expectancy and in fertility. First, how might people adjust to longer lives when the scope of the state to devote funds to pensions and to health care will come under strain? Second, how great might the strain on the public finances be and how might it be alleviated? Third, how might individuals handle the effects of uncertainty when the ability of the state to offer insurance against risks might be reduced? I focus on the issues for the UK – a country with a set of challenges which is in many ways typical of rich countries. I argue that attempts to offset demographic change and the strains it brings by consistently high immigration or by trying to boost fertility rates of the domestic population are likely to either have undesirable effects in the long run or be ineffective over almost any horizon. Instead, a combination of market forces, and policies which take account of long run fiscal sustainability, will allow ageing populations to adjust.