I’m acutely aware of this for two reasons.
One is that the International Monetary Fund (IMF) included a special report on
the issue in its latest World Economic Outlook.
The other is that my hip is playing up again.
I won’t bore you with complaints about my creaking joints, but The Rise of the Silver Economy: Global Implications of Population Ageing makes for interesting reading.
It takes a pretty gloomy look at the economic impact of ageing populations on growth.
But it also highlights the good news that we’re staying fitter and healthier for longer.
I’d always been sceptical of those “50 is the new 30” and “70 is the new 50” type headlines, assuming that they were just playing to our sense of hopeless optimism and fashion trends that keep everyone dressing like teenagers.
But apparently there is something to it.
According to the IMF report (drawing on data from a sample of 41 advanced and emerging market economies), on average, a person who was 70 in 2022 had the same cognitive ability as a 53-year-old in 2000.
When it comes to physicality, it says that, on average, the frailty of a 70-year-old in 2022 was equivalent to that of a 56-year-old in 2000.
That’s pretty astonishing.
We’re not just living longer, we’re staying stronger and more mentally alert than previous generations.
That’s just as well – because there are going to be a lot more of us over 65.
“Economies worldwide are ageing rapidly as a result of declining fertility and rising life expectancy,” the IMF says.
It’s worth noting here that when demographers talk about populations ageing, they’re not stating the obvious – that we’re all getting older.
They mean the percentage of the population in the upper age brackets is rising.
The results of the 2023 Census showed that New Zealand’s population is getting older, with the average median age rising from 37.4 years in 2018 to 38.1 years.
According to Stats NZ projections, the percentage of the population aged 65+ is projected to increase from roughly 16-17% in the early 2020s to about 19-20% by 2030. By 2050, around 24-26% of New Zealanders are expected to be 65+.
The old-age dependency ratio (ratio of elderly to working-age population) is expected to nearly double between 2020 and 2050.
Our annual superannuation bill already comes in at more than $20 billion, and Treasury has projected that to rise to about $45b by 2037.
More worryingly, it is rising as a percentage of the Government’s total tax revenue – from about 17% now, it is projected to rise above 21% by 2037.
And those Treasury forecasts, from 2023, are presumably based on what would now look like optimistic projections for GDP and tax revenue growth.
So we know we have a problem.
The IMF report makes it clear that the whole world faces a major headwind to economic growth in the next 50 years.
That’s because older populations mean lower economic growth.
“Under current demographic projections, economies around the world are progressively crossing their ‘demographic turning point’,” the report says.
That’s the year when the share of the working-age population in their total population begins to decline.
It typically marks a transition from a demographic dividend to a demographic drag, the IMF says.
In other words, it’s the point when the demographics of a population start to subtract from GDP growth rather than adding to it.
“By 2035, all advanced economies and the largest emerging markets will have crossed this threshold,” the IMF says.
“By 2070, most low-income countries will have experienced similar shifts.”
The IMF points out that a rising share of the working-age population (those aged 15–64) boosts labour supply and economic growth.
Whereas an increasing old-age dependency ratio (number of individuals ages 65 and older relative to the number in the working-age population) “weighs on growth and strains public finances on account of higher spending on pensions, healthcare and long-term care”.
There might be some mitigation from the fact that we’ll generally be fitter and healthier and should be able to work longer.
But the IMF report rains on that parade by pointing out that the expected length of working lives relative to retirement also influences individuals’ saving behaviour.
If life expectancy increases while the effective retirement age remains unchanged, individuals tend to save more to smooth consumption over their lives, driving up aggregate savings.
At the same time, a shrinking workforce increases capital per worker, reducing investment needs. These forces combine and, on balance, tend to place downward pressure on interest rates, the IMF says.
Lower interest rates and lower inflation sound good until you remember they go hand in hand with lower economic growth.
So we’ll have a more stagnant, less dynamic economy.
“Although healthy ageing will partly offset the negative impact of demographic headwinds, the growth of global output will slow significantly through the 21st century, and many countries will need sizeable efforts to stabilise public-debt-to-GDP ratios,” the IMF warns.
“Uneven demographic trends are also likely to exert widening pressure on external global positions through the end of the century.”
That warning clearly extends to New Zealand.
We might be able to mitigate the demographic change by allowing high levels of net migration, but that comes with big costs around infrastructure investment.
Ultimately, it’s hard to escape the conclusion that the age of eligibility for superannuation in New Zealand will have to rise.
The idea that we can bring the age limit down for specific groups – as was suggested by Te Pāti Māori this week – is unrealistic.
In the 2023 election campaign, the National Party proposed to start lifting the age from 2044, when it will be gradually lifted to 67. This change wouldn’t affect anyone born before 1979.
This would have been a good start, but was opposed by NZ First.
Perhaps the policy will fly again after the next election. It really needs to.
Delaying the inevitable just makes it less likely we’ll be able to afford to manage the change as gradually.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist and also presents and produces videos and podcasts. He joined the Herald in 2003.