Much of the focus on the recent population figures from the Office of National Statistics has been on the increase in the overall figure, with the corresponding focus on the birth rates for different sectors of the population. However, it is important to consider the proportions of the population at different ages and, in particular, dependency ratios. The dependency ratio is calculated as the non-working population divided by the working population. This has been falling steadily for many years, from 72.1% in 1988 to 67.2% in 2008.
Dependency Ratio (United Kingdom)
This sounds like encouraging news for the economy, since it implies that each person in work has to support fewer people than in the past. However, it hides two dangerous trends. First, the aged dependency ratio, calculated as the retired population divided by the working population has started to rise sharply in recent years, from a minimum of 31.0% in 2001 to 32.1% in 2008. This reinforces what has been known for some time – that the State Pension is going to become increasingly burdensome for those currently in work.
Aged Dependency Ratio (United Kingdom)
The second trend, though, is more worrying. The reason that the aged dependency ratio is rising whilst the full dependency ratio is falling is that the number young dependants has fallen from 13.5m in 1998 to 12.9m in 2008. This means that the number of people coming into the workforce over the coming years is likely to fall, placing a still higher burden on the working population. In other words, it is not just increasing longevity that is increasing the cost of State Pensions, but also a long period of reduced fertility rates.
Number of Under 20’s (United Kingdom)
Little can be done by way of a policy response to affect birth rates, and even if action could be taken it would be two decades before the effect on the working population was seen. However, action can be taken on retirement ages – and to enable the transition to retirement to be made less abrupt – in order to extend the size of the working population at older ages.
