Increased longevity and declining birthrates are societal trends that can be experienced in insidious ways. It’s harder to get a doctor’s appointment or a diagnostic healthcare test. Schools are downsizing and closing.
In the same way, some communities experienced rising birthrates negatively in the 2000s as the effects of the ‘baby bump’ were felt. Schools and primary healthcare providers were in some areas unprepared for bigger class sizes and greater demand for paediatric medical services.
Longevity and birthrate trends are starting to play a greater role in public debate. There is a strong case that they should continue to do so and that they should also play a more prominent role in policy formation. At the same time, populist political parties, in various guises in various countries, often appeal to sections of the population by framing simplistic answers to intractable issues like an ageing society.
There is also a risk that such superficially attractive, populist policies usually aimed at specific voter groups, including delaying or overriding measures to delay retirement or opposing auto-enrolment, could prove very expensive and counter-productive in the long run.
According to WRR, the Netherlands Scientific Council for Government Policy, in a recent paper: “Challenges in the fields of pensions and ageing could fuel political, economic and social tensions within the EU and the euro area.”
If not countered, an ageing society can lead to higher national debt and tax burdens; diverging European economies; deterioration of public services; poorer older folk and upward pressure on inflation as a result of a shrinking work-age population.
Europe’s economies are most certainly diverging – a sickly core of France and Germany and a relatively dynamic periphery.
The core risks getting sicker as societies age – with the resulting diseases of stagnation, high government debt, inflation and socio-political tensions.
Countries with a low old-age dependency ratio and a high stock of pension assets are most resilient to the pressures of ageing societies. But as they are often open and smaller, highly integrated economies, they are also vulnerable to the malaise of others.
WRR believes pensions and ageing should be a more prominent policy item on the European political agenda. This would imply greater action to promote long-term savings and pensions and a political stance against European populists.
As the Draghi report and others have highlighted recently, greater workplace and individual pension savings not only relieve pressure on social security systems but can also serve to build a stock of long-term capital for investment in growth, innovation and energy transition.
For WRR, the objective is policies that facilitate longer working lives and strengthen independent European institutions in the area of budgets, ageing and pensions. Strengthening trade and market relationships with countries that enjoy a ‘demographic dividend’ will also help foster deep relationships in part to counter the negative economic effects of the spread of populism.
WRR also advocates greater workforce participation by older people. Labour market participation by older cohorts has been increasing in Europe and other parts of the world and is infinitely preferable from the perspective of pensions and social security to the alternatives – lower pensions or higher contributions over an individual’s working life, with the associated cost to business of the employer’s part.
The 2025 Edelman Trust Barometer, published in January, once again shows that respondents trust their own employer the most – ahead of government, business in general, NGOs and the media – despite a marked decline in the level of trust of employers this year.
Workplace pension funds play a part in this as investors and social institutions. As long-term investors, together they are responsible for the collective retirement security of many millions.
Employers and workplace pension funds should play a greater role in communicating not just the specifics of an individual’s retirement finances, but also broader questions like work and retraining, health and wellbeing, and the combination of part-time work and retirement. Knowledge and education about the realities of ageing societies is the best antidote to the voodoo economics and promises of populist politicians.
As pension systems continue the transition from guarantees and defined benefits to defined contribution and greater individual saving, there is also an acute need for a new generation of financial products that will help build confidence among individuals in their retirement – deferred annuities, better drawdown, care insurance and more accessible, personalised retirement planning are among the tricky needs that the industry cannot ignore.
Liam Kennedy, Editor, IPE
+liam.kennedy@ipe.com
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