Sunday 26 January 2020

Stephen Kinsella: We will have to change meaning of 'elderly' to defuse pension time bomb

IMAGINE a pyramid made of lollipop sticks. The longest stick is at the bottom, the shortest at the top. There are ten sticks in all. Each stick represents an age range, from 0 to 10 years for the longest one, 10 to 20 years for the next longest, and so on, all the way up to the top.

That's the population pyramid of Ireland.

In 1950.

Now imagine we take a hatchet (okay, a really small hatchet) to the first and second lollipop sticks. The pyramid looks a bit unbalanced, or bloated in the middle and getting fatter at the top. Imagine a pear, turned upside down.

That's Ireland's population pyramid today. We have more people aged between 30 and 50 than aged between 0 and 30. The recent CSO projections of our population out to 2046 show the pyramid getting smaller at the bottom, and fatter across the 'older' matchsticks.

Can we be confident in this projection? Actually, yes, we can. This is because people tend to live longer these days, and die of (relatively) predictable illnesses and accidents. Infant mortality is also very low. This means that, unless you emigrate, odds are if you are a man you'll live into your late 70s, and if you're a woman, you'll live until your early 80s.

Children born in this decade have a really good chance of seeing the 22nd Century. That fact is truly incredible.

We can see the gains Ireland has made over the last century using these statistics. Male life expectancy has increased from 57 years in 1926 to 78 years in 2010 --a gain of 21 years -- while females have seen a gain of 25 years. Our population is expected to grow to over five million people by 2026 and to six million by 2046.

What does this mean? It means that into the future we'll have more older people, living healthier for longer, and being supported by fewer and fewer younger people. The organs of the Welfare State were created when the ratio of the young to the old was very much in favour of the young, meaning at any moment supporting the old was not that costly. By 2046 the dependency ratio -- which measures the numbers of old people being supported by the numbers of young people -- will be more than double that of 2011. In the coming decades it will simply not be possible to continually pay pensions for those who retire and subsidise health care at the same time.

But politics is about pushing resources towards those who reward the powerful with office. More older people (and I'll be one of them) will vote in political parties that promise increases in health and welfare budgets, or at the very least no decreases in real terms. This means something has to give, and given that we spend most of the government's money on health, education, and welfare, that something to give will be education spending.

We'll see an increase in the retirement age, and a move towards mandatory individual pensions as the costs of caring for the elderly increase. We'll also see different types of work as workers transition through many careers over a much longer lifetime of active work. The notion of 'mini-retirements' throughout the working life begins to make sense in a world where workers leave education at, say, 22, and work into their eighties.

In fact, the definition of 'elderly' may change entirely. It's possible to think carefully about the cultural, economic, and political ramifications of a large class of well-heeled, older people who make up the majority of Irish society. We don't think that way, of course, because the future is such a long way off.

When it comes to thinking clearly about the future, both for households and for governments, we tend to be very myopic, looking perhaps five years forward, unless we are explicitly asked to think about some future event like our deaths or illnesses. Ireland does not have any bodies explicitly charged with thinking about the future other than bodies like the Pensions Board. The structure of our society is driven largely by the age of those within it, and when we think about an older Ireland, the sooner we respond to these challenges, the better.

Stephen Kinsella lectures in economics at the University of Limerick

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