Across the richer countries of the world—and increasingly across low and middle income countries too—there is concern expressed about the consequences of our populations' ageing. It should be a good news story. More people are surviving into older age due to the successes of childhood immunization, better hygiene, food safety, health and safety at work, road safety, advances in treating heart disease and cancer, and so on. Average life expectancy has grown, including life expectancy from age 65 which isn’t skewed by mortality among children or younger adults.
In Ireland, life expectancy at age 65 in the latest figures (2017), is 18.3 years for men and 21 years for women,[1] compared to 12.6 and 16.2 in the late 1980s.[2] Actually, life expectancy for men at age 65 remained pretty consistent from the 1920s to the 1980s, and only began to improve from the 1990s, whereas female life expectancy at age 65 gradually improved from a low point of 13.1 years in the 1930s and 40s.
In simpler terms, most of us will now make it to 65, and when we do, our average life expectancy will be 83.3 for men and 86 for women. As this is an average, there will still be plenty of people dying in their 70s and younger, but there will also be a steady increase in people living into their 90s and 100s. And with advances in medical technology, average life expectancy is still creeping upwards.
As of Census 2022, Ireland had over one million people aged 60 and older. That will more than double by 2050. And Ireland had 181,000 people aged 80 and older in 2022, whereas in 30 years this number will have more than tripled to 595,600 people aged 80 and older.[3]
A population with a higher proportion of older persons has two effects on the economy and public finances. Firstly, it is assumed that older people are not working and are paying less tax. As such, both economic growth and tax revenue will be lower in countries with a higher proportion of older persons. This point can be challenged (see below). Secondly, older people are assumed to draw more from public spending. And it is true that state pensions, healthcare, home care and other supports for older persons make up a large and growing share of public spending, and a disproportionately large share on a per capita basis.
The traditional way of measuring the scale of the demographic challenge is the Age Dependency Ratio. This ratio assumes that everyone aged 15-64 is economically active in support of all children (0-14) and older people (65 or older).
There are variations of the ratio. Sometimes it is specifically an Old Age Dependency Ratio, which compares people age 15-64 with those aged 65+, ignoring children. And sometimes the base is changed, with ‘working age’ defined as 20-64 or even 20-69 to account for our large student population and longer working lives.
For Ireland, the Old Age Dependency Ratio in 2022 was 23.1 older people for every 100 working age people, a ratio of nearly 4 workers for every 1 older person. By 2037, it is projected to be 31.5 (closer to a 3:1 ratio) and, by 2052, it is projected to be 46.5 (coming close to a 2:1 ratio). According to this data, in just 30 years we will double the number of older persons who are economically dependent on working age adults.
The Department of Finance has expressed concern. In the background papers for the National Economic Dialogue 2023, the Department named demography as one of four medium-term challenges facing the state (along with decarbonisation, digitalisation, and the risk to Ireland of deglobalisation). They pointed to the rapid change in the old age dependency ratio and stated that “These trends are fiscally unsustainable without structural reforms”.[4]
But there are three problems with the Age Dependency Ratio:
- It is ageist
- It is inaccurate
- It points to the wrong policy solutions
On the first point, the World Health Organisation’s Global Report on Ageism states that “Ageism also manifests itself in the way statistics and data are collected and compiled. […] The use of the dependency ratio […] is another instance of ageism as, in effect, it assumes that all older people are dependent. Many older people continue to contribute to the economy. Older adults offer in-kind or financial support to their children or grandchildren. They volunteer. Many – especially those in countries with no or limited retirement benefits – continue to work in formal or informal employment as long as they can. The dependency ratio fails to reflect this.”[5]
The ageism implicit in the Age Dependency Ratio also hints at the roots of its inaccuracy. It assumes that everyone aged 15-64 is an economic producer while everyone aged 65 or older is an economic consumer or dependent. Both those assumptions are patently false, as many people aged 15-64 are students, parents, carers, or people with disabilities who cannot work, as well as those who are seeking work at any point in time. Specifically, in Ireland in 2022, only two-thirds (2,236,811) of people aged 15-64 were ‘at work’. Of the remainder, 13.6% (458,663) were students/pupils, 6.3% (210,761) were looking after home/family, 4.8% (160,481) were unable to work due to illness or disability, 6.9% (230,487) were unemployed or outside the labour force, and 1.9% (63,334) were retired before the age of 65.[6]
Many people aged 65 and older are at work, including nearly one in nine of those aged 65 and older in Ireland.[7] Moreover, some older persons have substantial private or occupational pensions, savings or other assets, which make them more self-reliant than dependent. As an example of the lack of accuracy or explanatory power of the Old Age Dependency Ratio in Ireland, the ratio was more than 6:1 in 2002,[8] meaning six people of working age (15-64) for every older person. It fell to nearly 4:1 in 2022 with little discernible impact on the public finances.
The solution is to look at employment rather than age as a better way to measure dependency in the economy. This also includes those aged 15-64 who are not in paid employment as dependents.
In 2002, the population aged 15+ was nearly 3.1 million people, of whom 1.64 million (53%) were working. That gives an Employment Dependency Ratio of 1.13 workers for every 1 non-worker.
In 2022, the population aged 15+ was over 4.1 million, of whom 2.1 million (51%) were working. That gives an Employment Dependency Ratio of 1.04 workers for every 1 non-worker.
Whereas the Age Dependency Ratio went from 6:1 to 4:1 in the period 2002-2022, the Employment Dependency Ratio remained at 1:1, with only a marginal decline in the proportion of workers to non-workers (1.13:1.00 in 2002 to 1.04:1.00 in 2022). This example shows the Employment Dependency Ratio providing higher explanatory power than the Age Dependency Ratio when it comes to explaining the impact of our ageing population on the public finances.
To make a projection of future Employment Dependency Ratios it is necessary to estimate future employment rates for different age cohorts, especially for older people. A projected Employment Dependency Ratio is likely to provide more accurate data on the likely future level of dependency in the economy. Having accurate data obviously should matter for evidence-informed policy making, but an additional reason why the shift from the Age Dependency Ratio to the Employment Dependency Ratio matters is because each ratio points towards different policy levers that might mitigate the fiscal challenge ahead.
Focus on the Age Dependency Ratio has led to the assumption, from the Department of Finance in 2023, that “The optimum response to limit fiscal costs associated with population ageing is to gradually increase the retirement age in line with improvements in life-expectancy.”
This crude policy proposal misses the mark. Firstly, according to the Department of Finance’s own figures, published in Table 11.4 of the Report of the Pensions Commission,[9] the cost saving from raising the state pension age only covers 16% of the additional cost associated with pensions by 2070, with the remaining 84% to be covered by increasing revenue. This is hardly an optimal response. Moreover, the singular focus on retirement age is an simplistic accounting exercise to move people from one side to the other side of a ledger. A more economic approach is required.
What is clearly needed is to increase the number and proportion of people at work, but raising the age at which workers can access pensions is at best an indirect way of achieving this outcome. In reality, many people leave work before the age of 65, not least due to illness or disability, some of which can be the result of work. The rate of people unable to work due to disability doubles from 6.2% at age 50 to 12.5% at age 64.[10] Even if the state pension age was raised, many of the same people would still be drawing an income from the Department of Social Protection at age 66, further reducing any fiscal benefit from raising the state pension age. Moreover, many people continue to work despite being able to draw down a pension. It is not obvious that raising the retirement age would change this very much, except perhaps as a ‘signal’ to society to normalise working longer. However, signals in the absence of supports might not be effective, and certainly aren’t optimal.
Focusing on the Employment Dependency Ratio highlights two areas of policy for greater scrutiny. Firstly, it focuses attention on the push factors that cause people to give up employment, which include mandatory retirement (which is uncommonly prevalent in Ireland)[11], lack of access to training as an older worker, age discrimination in the labour market, loss of experience in firms when older workers leave, and a lack of support for older workers to transition out of employment on their own terms, including via a period of part-time work. None of these points are addressed by a singular focus on the state pension age.
Secondly, the Employment Dependency Ratio highlights the importance of policies to increase the rate and quality of employment for workers of all ages, including childcare, support for family carers, skills training, apprenticeships, higher minimum wages, etc.
The Department can fairly claim that it is also concerned with increasing employment, but its own statement that “The optimum response to limit fiscal costs associated with population ageing is to gradually increase the retirement age” is patently false, and it can’t have it both ways.
The alternative outlined here argues that the optimum response to limit fiscal costs associated with population ageing is to increase the employment rate across workers of all ages, especially among older workers. Some of the tools to achieve this goal have been mentioned above. A crucial tool for planning is to institute the necessary data and analysis so that the Employment Dependency Ratio can be estimated for Ireland’s future population.
[1] https://www.cso.ie/en/statistics/birthsdeathsandmarriages/irishlifetables/
[2] https://www.cso.ie/en/media/csoie/releasespublications/documents/birthsdm/archivedreports/Irish_Life_Tables_No._11_1985-1987_&_12_1990-1992.pdf
[3] https://data.cso.ie/table/PEC23
[4] https://www.gov.ie/pdf/?file=https://assets.gov.ie/260158/50762603-827c-4269-a5cf-995edaa651dd.pdf#page=4
[5] WHO (2021) Global Report on Ageism. https://www.who.int/teams/social-determinants-of-health/demographicchange-and-healthy-ageing/combatting-ageism/global-report-on-ageism
[6] https://data.cso.ie/table/F1054
[7] https://data.cso.ie/table/F1054
[8] https://data.cso.ie/table/BDR02
[9] https://www.gov.ie/pdf/?file=https://assets.gov.ie/200480/564ea175-28b2-417d-aa9b-3f1750225310.pdf#page=133
[10] Census 2016, cited in https://www.ageaction.ie/sites/default/files/published_age_action_spotlight_on_income_in_older_age.pdf
[11] https://www.ageaction.ie/sites/default/files/age_action_paper_abolish_mandatory_retirement.pdf
Dr Nat O'Connor @natpolicy
Nat O’Connor is lecturer in social policy in UCD’s School of Social Policy, Social Work and Social Justice and part-time policy specialist at Age Action Ireland. Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.
He has taught politics and social policy since 1999. He has a PhD in Political Science from Trinity College Dublin and a MA in Political Science and Social Policy from the University of Dundee. He is a Fellow of the Higher Education Academy (UK), a member of the National Economic and Social Council (NESC) and chairperson of the Irish Social Policy Association (ISPA). You can find him on LinkedIn (natoconnor) and TwitterX @natpolicy
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