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Aging matters: who carries the burden?
by Nicolette Cassar
In Europe, two of the factors of most significance in the changes
in population in recent years have been the notable decline
in mortality rates among the elderly, and the contribution that
this has made to population aging, and unprecedentedly low fertility
rates. In most of the major western economies the fertility
rate has been below the replacement level for over two decades.
The situation in Malta is similar.
Aging matters to government and to the public sector. Aging
increases the total cost of pensions and health benefit programmes,
thus increasing pressure on public funds which could otherwise
be channelled into sectors that are more productive. Government
must make decisions on how to generate revenue for such funds
and how to allocate them in a way which is least damaging to
the productive sectors of the economy while adhering to its
social responsibility. For any given rate of growth of the economy,
the choice is between reducing real benefits received by pensioners
and raising taxes, or reducing expenditure for infrastructure,
education and other public services.
Population aging matters for businesses. Aging means a greater
number of persons on social welfare, therefore businesses would
have to pay higher taxes to government in order to finance such
welfare. It could mean shrinking consumer markets to business
because the older part of the population has a lower disposable
income and thereby consumes less than the younger segment of
the population. Due to shrinking sales, competition would be
intensified, reducing returns on investment, so entrepreneurs
must concentrate more on producing diversified products and
cutting down costs. An aging population creates opportunities
for business to satisfy new markets where there is an increase
of possible demand from an older population which has lived
more affluently than the aged population of some years ago.
There will be proportionately less people of employable age
so labour markets would be tighter. For business this means
that it will be harder to retain top quality personnel and more
important to create incentives to recruit foreigners or move
production to where labour is available. For the financial services
sector, an aging population creates various opportunities. But
these opportunities can only be addressed if the legal infrastructure
is in place.
For individuals, at a time when the population is aging and
in countries where there is no clear strategy
from government to cater for the financing of social welfare
and where the proper infrastructure is not available for the
financial services sector to provide the required pension products,
retirement is seen as a problem. The individual can visualise
cuts in old-age benefits, and the possibility of a forced delayed
retirement. This would lead to changing work patterns including
retraining and later retirement. The family would have to take
a larger role in long-term care and retirement will increasingly
become an augmented burden to society and a dilemma for the
individual.
The only solution to the problems caused by an aging population
lies in the cooperation among policy makers, entrepreneurs,
financial services providers and the beneficiaries of the future
system. Each party must comprehend and accommodate the others
in the best possible way in order to formulate a comprehensive
strategy, which would give the greatest benefits to all.
This issue is of critical importance in Malta and needs to be
dealt with. Here it is increasingly becoming a matter of urgency
that needs decisive action.
The reform of social welfare provides economic challenges and
financial services opportunities.
The forthcoming conference entitled “There is no such thing
as a free meal!” organised by Economic and Management Consultancy
Services Ltd on 10 November shall provide participants with
the possibility to explore and discuss the challenges and opportunities
posed by such reform. They will be in a position to acquire
information directly from all players and they will also have
an opportunity to contribute towards the discussion regarding
a policy that is significant to individuals, financial services
and insurance operators, bankers, economists, union leaders
and officials, opinion leaders, entrepreneurs, regulators, financial
planners and advisors, public officials, social welfare and
health administrators, medical
professionals, and all interested in the changes in the social
welfare system.
Nicolette Cassar is an economist
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