Population ageing: what should we worry about?

Adair Turner

Abstract

Approximately half the world's population now has replacement-level fertility or below. The UK experience in accommodating to a changing dependency ratio provides some generalizable insights. A mechanistic approach assuming a fixed retirement age and a need to raise fertility or increase immigration in order to maintain pensions at a fixed proportion of the gross domestic product (GDP) is overstated and wrong. It needs to be replaced by a welfare optimizing model, which takes into account the increasing years of healthy life, a slow rise in the pensionable age, capital inheritance and wider welfare considerations of population density that are not reflected in GDP measures. A combined replacement ratio (CRR) is suggested for developed countries combining the impact of the fertility rate and immigration rate. A CRR above 2 implies continued population growth. The current UK CRR of 2.48 is higher than needed for pension reasons, and it is suggested that it exceeds the welfare maximizing level.

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