Major new ISSA report on demographic changes and social security
To coincide with the United Nations International Day of Older Persons on 1 October 2017, the ISSA has launched a major new report on demography: Megatrends and social security: Demographic changes. The report focuses on the evolution of global demography and likely impacts on national social security systems. Through highlighting and analysing emerging trends and by identifying possible discontinuities from previous trends, the report highlights three main findings: an increasing inequality in mortality and morbidity outcomes, the necessity to deal with unhealthy ageing, and the emergence of new health challenges such as mental health. In identifying possible responses, one of the key findings is the need to encourage healthy and active ageing – a finding supported fully by the theme of this year’s International Day: “Stepping into the Future: Tapping the Talents, Contributions and Participation of Older Persons in Society”.
The new ISSA Megatrends report on demographic changes pursues specific lines of investigation. It first identifies key future trends affecting mortality and morbidity outcomes, including a summary of recent trends and the identification of important future trends and the factors underlying these. Second, it considers the importance of predicting these trends so that social security institutions can better appreciate their impacts. Such an appreciation is vital if social security institutions are to effectively anticipate and mitigate the impacts.
The report asks how social security institutions can effectively respond to future demographic changes. By anticipating and assessing how trends are likely to develop and what their impacts will be, responses are more likely to be effective and efficient. To partner the tailored services and knowledge provided through the ISSA Centre for Excellence, this report will further assist social security administrations’ role in this objective.
Key ISSA findings
Population ageing is a major global demographic trend. Yet, the extent and nature of ageing is uneven (Figure 1). What is more, the health challenges facing social security systems are changing.
Countries with relatively under-developed social security systems, but which are already ageing quickly will arguably face the greatest challenges. Here the focus will be on covering the population without any or with limited social protection but also ensuring that earlier interventions in the life course are put into place to reduce risks (e.g. healthy eating initiatives). But more developed systems also face challenges as the nature of risks change (e.g. increase in mental health cases).
The ISSA report presents a wealth of practical examples of how social security institutions are already playing a positive role in mitigating the negative impacts of the changes ahead.
Figure 1. Development of life expectancy from birth since 1950
A new appreciation of ageing
The report argues that ageing in itself is not a negative development. Specifically, a more mature population is not a “burden” per se on society because many people are able and willing to work for longer than was the case for previous cohorts, or to contribute in other ways to society. However, the reality is that not all the extra years gained in life expectancy will be lived in good health. Indeed, the expected number of unhealthy years that a person will experience in their lifetime has increased.
Given that the older population plays active roles in both the formal and informal economy (e.g. providing care), the challenge for social security systems is to reflect this reality in putting in place measures to ensure they can participate actively in society. Effective policies targeting better health and less inequality (e.g. minimum pensions, regular health check-ups) not only improve the targeted population’s health but also support other measures to improve the financial sustainability of social security schemes.
Inequality in health outcomes
People are in general living longer and, for many, in overall better health but this global picture hides an increasing variation of experiences. Inequality of outcomes and unhealthy life expectancy are the two elements of the broader picture.
The trend of increasing inequality in mortality – which sees the wealthier living longer and in better health while those in lower socio-economic groups see a stagnation or fall in life expectancy – is expected to continue. If this is to be addressed, more effective strategies on how to remove the causes of such inequality will be needed.
The impact of non-communicable diseases
Underlying trends suggests that future improvements in mortality will not be as great as in the past. Of note, for some groups of the population, life expectancy is actually falling. One of the reasons is a significant shift in the causes of death over recent decades. A growing number of deaths are due to non-communicable diseases (NCDs) such as diabetes and mental health issues. This shift indicates why healthy life expectancy is not increasing at the same rate as life expectancy. NCDs in turn have significant financing implications for long-term care and health care systems. Thus, a greater focus on the morbidity implications of this new reality is essential.
The increased incidence of NCDs – particularly costly for society because of direct (e.g. treatment) and indirect (e.g. lost productivity, informal carer opportunity) costs – and multi-morbidity (a simultaneous occurrence of different health conditions) raise new challenges for society in general and social security systems in particular. These are placing large burdens on health care systems and the economy, which will increase in the coming decades.
Financing social security
These future health developments will have significant financial as well as organizational implications for social security systems. A main driver of total medical and disability costs tends to be the 20 per cent of population with the worst health status.
In addition to improved longevity, the other reason for an ageing population – the fall in birth rates – not only has financing implications but will also impact directly on the policy design of some social security benefits (family allowances, maternity benefits, etc.). Also affected will be labour markets and wages, and education and migration policy responses.
Though falling birth rates and increasing old-age dependency ratios clearly raise financing issues, in some countries high birth rates and expanding populations are also challenging to manage (for example, education needs in the short term and resource sustainability issues in the long term) as well as driving an increasing total population dependency ratio in the short run.
The responses of social security administrations
Social security administrations can use a number of measures to mitigate and adapt to the more challenging impacts of demographic changes that also support the more positive aspects of such changes. Examples featured in the report are of earlier interventions and preventive measures, a multi-sector response, and an economic analysis of the costs and benefits of such ex ante measures. In addition, the report highlights the need to work with employers to develop and reinforce measures to support older workers to remain in employment.
While much of the debate about appropriate responses focuses around parametric reforms of social security programmes, it is likely that we will also witness structural reforms to systems. This will involve changes to programmes’ designs, financing and delivery and an evolution of the roles of different stakeholders. As part of this, a substantial rethink of how to tackle life cycle risk should involve greater coordination between different branches of social security.
Predicting the future
It is an inescapable fact that inequalities in health outcomes have increased. Therefore, though people may be healthier on average, health inequalities are likely to mean that total costs will increase given the concentration of health care costs in treating a small proportion of the population. And all these changes are taking place in the context of changes in other external factors – including changes in family structures, the increasing precarization of labour markets and the impact of climate change and natural resources scarcity on economic growth.
One of the challenges in analysing potential responses to meet future demographic changes is that the past is arguably not a particularly good guide to the future – both in the trends observed and in the measures taken. It is for this reason that this report has opted to “look forward” in the search for innovative solutions.
ISSA. 2017. Demographic changes (Megatrends and social security). Geneva, International Social Security Association.