'New Deal' needed for ageing population

The report, “ Defusing the Demographic Time bomb”, is the fifth future-looking research report published by the Chartered Insurance Institute (CII) to mark its Centenary year.

Experts put forward views about risks relating to future demographic trends, including global ageing, and how they can be addressed. These provide the basis for three possible scenarios – upside, central and downside – and their potential implications for the insurance sector and beyond.

Ben Franklin, policy and research manager at the CII said:

“Understanding how governments, industries and individuals can work together to deliver adequate retirement incomes for the elderly against this demographic backdrop is set to be one of the key political and economic issues of our time.”

In the so-called upside scenario, governments can mitigate the burden of age-related spending through reforms to the state pension age and re-skilling the labour force, while insurers are able to better support clients in retirement through improvements in modelling longevity risk. Consumers become as accustomed to managing their personal finances as doing the “weekly shop” and employers encourage a savings culture among staff.

However, the central scenario predicts mixed success, where the gains achieved by pension age reforms are hindered by lack of progress on re-skilling the population. Subdued savings in occupational pension schemes – caused by industry failure to engage consumers – makes matters worse, leaving pensioners and governments worse off than in the best case scenario.

The least appealing – or downside – scenario has the developed world experiencing increasing government debt as a consequence of failing to address rising longevity. As a result of the insurance industry failing to adequately understand longevity risk, insurers are unable to price this risk appropriately and offer their customers a fair deal.

This seriously damages confidence in the industry and the ability of the private sector to take on some of the burden as the public sector seeks to limit its exposure to some of the risks associated with demographic change. In turn, the developed world’s fiscal predicament coupled with failures to reform international governance to accommodate the growing power of the world’s younger, vibrant economies, results in increasing international tension.

Franklin argues that the key to success is a “New Deal for providing for the elderly, which includes consistent and predictable government and regulatory policy, and increased competence and transparency across the insurance industry.”

“Our reportissues a stark warning that the ageing population presents a dangerous combination of dwindling taxation revenue and burgeoning health and social care costs. If left unchecked, these headwinds could propel us into long term economic stagnation or even depression in the decades ahead”.

In early February the CII published the first in the centenary series– Future Risk: Learning from History. It set the scene for the entire CII Future Risk series by reflecting on some of the most dynamic trends of the past and their potential implications as well as discussing some initial findings from a global survey into the risk perceptions of members of the public from across the globe.