ISSN: 1391 - 0531
Sunday, June 24, 2007
Vol. 42 - No 04
Columns - The Sunday Times Economic Analysis  

Facing up to the challenges of an ageing population

By the Economist


The burden of the retirement benefits on employers would be heavy in the future.

The latest projections of population confirm that the rate of growth of the population would continue to decline. The population would reach a peak 21.1 million in 2031 and stabilise around that figure. The population changes in the next twenty five years are a contrast to those in the second half of the last century. The issues and problems that would emerge in the next two decades would be very different to those faced by the country before. Although most of the population changes are beneficial, some new concerns are emerging that require different social interventions.

Dr. Indralal de Silva's study Beyond Twenty Million: Projecting the Population of Sri Lanka 2001-2081, published by the Institute of Policy Studies (IPS), updates the author's previous projections also published by the IPS in 1995. The new projections are based on the population statistics available more recently, especially the 2001 Census of Population and later Family Health Surveys. The IPS publication is a population projection based on the best practices in demographic studies and does not attempt to discuss the economic and social implications of the projections. This column on the other hand, interprets the demographic scenario of these projections in terms of its impacts and the emerging issues.

Three aspects relating to these projections require pointing out. First, these are population projections based on current data some of which are not entirely reliable as the country has been unable to have a comprehensive census after the Population Census of 1981. The 2001 Census of Population did not cover certain districts in the North and East and therefore even the country's population figure is an approximation. Second, the country's registration of births and deaths in some regions has also been affected by the ongoing security situation. Third, the study has three projections – high, standard and low estimates. These vary significantly as the assumptions on which these are based differ for the three scenarios. The standard projection, which is the median one, is used in the following discussion of the issues arising from these projections of population.

The population projections indicate a declining population growth of below 1 per cent in the next few decades. The population growth rate would be a negligible 0.06 per cent during 2026-31. By 2031 total population is expected to stabilise at around 21 million, remain so during 2021-2036 and decline somewhat in the next decade. These projections imply an ageing of the population in the foreseeable future. These changes are brought out mainly due to the decline in fertility. The decline in fertility that is measured by the Total Fertility Rate that should be 2.1 for the replacement of the population is only 1.96. The median age of the population that is currently about 31 years will be about 40 years by 2031. Life expectancy at birth is expected to rise to about 76 years by 2031.

There are several aspects of the projected population growth scenario that require to be explained. Although the rate of increase in population is decelerating, the country's population would continue to grow till around 2036 though at a slower rate. The increase in absolute numbers would be significant for sometime. For instance, the population would increase by about half a million in the next five years and by about a million in the next decade. The most significant demographic change is the ageing of the population, the slowing down of the rate of growth of population and the change in age structure of the population.

There would be a significant reversal of the character of the demographic dependency ratio of the past. (The dependency ratio is the population below 15 and above 65 as a percentage of the population between the ages of 15-65). The country has had a high dependency ratio in the past owing to the high proportion of children below 15 years. For instance, in 1991 the total demographic dependency ratio was 65 per cent; consisting of a 52 per cent child dependency and 13 per cent of old age dependency. The total dependency ratio will decline in the immediate future owing to child dependency decreasing quite sharply and rise later owing to the old age dependency increasing. The total dependency would increase to 65 per cent in 2031 owing to the sharp increase in old age dependency to 38 per cent though child dependency would decline to 26.9.

By 2041 old age dependency would be as much as 45 per cent in a total dependency ratio of 72.4 per cent. These changes in age structure have been both favourable and unfavourable on the country's economy and society. Several challenges are posed by the longer life span and ageing of the country's population. The ageing of the population would be somewhat gradual in the next few years, but will gain momentum after 2011.

The ageing of the population means that health care systems would require to be geared to illnesses associated with longevity and senile conditions. The incidence of old age illnesses like Alzheimer's disease, arthritic conditions and osteoporosis, would increase considerably. The longevity of life would require greater attention to such health conditions and an increase in specialised services to cope with these illnesses. Geriatric services are quite insignificant at present. There is therefore a need to re-organise the health services to cope with these needs of the future.

Further, the ageing of the population would increase the need to have methods of caring for the elderly. There is evidence that the traditional system of Sri Lankan society caring for the elderly through the extended family system is breaking down owing to changes in life styles, economic hardships and cultural values. The higher female labour participation, the lesser subsistence nature of family household income, the erosion of incomes through inflation, larger consumer needs, pressures on housing conditions, migration of wives and daughters for overseas employment and changes in social values have all contributed to the weakening of caring for the elderly within the household. This wearing away of the traditional system is likely to gain momentum, particularly in urban areas, at the very time when the aged population reaches a high proportion.

Therefore there is a need to find institutional and community-based systems of caring for the elderly. The availability of such facilities appear to lag behind demand even at present. Most of the elderly population would need a degree of public support for their care. Such institutional systems would require both public funding and voluntary contributions organised by community and religious based voluntary groups. Public health services would require providing effective support to the elderly in these homes.

The ageing of the population has serious implications for retirement benefits. Although the country has several social security systems, such as the EPF and ETF, private pension schemes and a pension scheme for public servants, these do not adequately cover the expenditure needs of the elderly at retirement. This is due to the country's high inflationary trends that erode such savings. The longer span after the employed period compounds the severity of this erosion in real incomes of retirement benefits.

This is particularly so as medicine, drugs and hospital expenditure are high and subject to sharp increases in prices. Therefore there is a need to reconsider the financing of these schemes, the investment of such pension funds so as to generate a better return which can be passed on to the retirees and higher contributions during the period of employment. The other challenge posed by ageing relates to the viability of pension schemes. While there is a general inadequacy of pension benefits after retirement, the pension schemes would have to pay out monthly pensions over a longer period of time.

The burden of the retirement benefits on employers would be heavy. Although the issue of viability of the government pension scheme does not arise, as the payments are paid out from the annual budget, there are serious implications of ageing on the public finances of the country. Government pensions could absorb as much as 20 per cent of expenditure in the future and distort the public expenditure pattern with serious implications for public investment and economic growth.
There is a need to reconsider the retirement age of 55 years for men and 50 years for women in the public service, with a possible extension of another 5 years that was designed at a time when the country's life expectancy was around 55 years. With the current life expectancy of over 70 years and an expected increase in life expectancy of over 75 years, there is little justification for retaining the retirement age of 55 years. The extension of the retirement age may be one means by which the burdens of the pension scheme, as well as an improvement in retirement benefits, could be affected.
The ageing of the population requires public policy actions to develop institutional methods of caring for the elderly, gearing the health system to cope with the illnesses associated with old age, revamping social security systems to generate adequate incomes for old age sustenance and a rethinking on the methods of financing the government's pension scheme. These are serious challenges. The next decade, during which these problems are not particularly serious, should be used to design the needed policies and programmes.

 
Top to the page
E-mail


Copyright 2007 Wijeya Newspapers Ltd.Colombo. Sri Lanka.