March 2014

Western governments have developed unfunded social insurance programmes where retiree benefits are paid for from the taxes of the working-age population. This means that an ageing population leads to 
rising expenditures that cannot be covered without increasing taxes on the young. Politicians have known about population ageing for around 50 years but ignored the problems it will create for public finances. In the UK, total spending would have to be cut by more than one quarter or health and social protection expenditure by around one half compared with the level implied by current policy if the UK is to avoid tax increases and all spending is to be met out of tax revenue in the long run. Some measures have been planned in the UK which will address the situation, such as a proposed rise in state pension age, but these measures are being implemented slowly and are inadequate on their own.