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Friday, October 14, 2016, 11:54

Reforming age-old policies

By CARMEN HO

Asia’s provision and financing of medical services, pensions and end-of-life care will have to change dramatically

Reforming age-old policies
Senior citizens work out with wooden dumbbells in the grounds of a temple in Tokyo on Sept 19 to celebrate Japan’s Respect for the Aged Day.  (AFP)
Governments in Asia are scrambling to reform current structures and policies that will soon be ineffective and even detrimental as the population rapidly grows older.

Over half of the world’s elderly population lives in Asia. According to the United Nations, by 2050, this proportion is projected to increase to two-thirds, posing significant risks for sustained economic growth.

Some major concerns regarding this aging trend involve productivity, healthcare costs and other public spending. These concerns are especially urgent in developing nations such as China, India, Thailand, Indonesia and Vietnam, where poverty remains common and essential infrastructure is not yet mature.

The Chinese mainland currently has more than 200 million people over the age of 60.

Japan has the largest proportion of elderly people in its population — more than 30 percent are older than 60. Hong Kong follows with more than 18 percent.

The older population leads to higher public spending. For example, pension spending is set to rise by 10 percent of Asia’s combined GDP by 2070 if no effective reforms take place.

Reforms are needed in almost too many areas to list — including employment practices, healthcare, pensions, education and childcare. The economic implications of this demographic shift are extensive and significant.

“Of course there are huge implications. The extension of human life into the 70s and 80s is the biggest success of humankind — we figured out how people don’t die in their 40s and 50s. If we’ve figured out how to live long lives, then we’re going to have to figure out a lot of things on how to do this,” Nancy Morrow-Howell, director of the Harvey A Friedman Center for Aging at Washington University, St Louis, in the United States, told China Daily Asia Weekly.

“One of the hardest things is healthcare. Healthcare costs so much because we’re living longer with chronic conditions.”

For most countries in Asia, existing healthcare systems account for a considerable proportion of social security spending.

The aging population puts an even greater burden on those systems. In Japan, more than 36 percent of government spending is on healthcare.

In developed countries, the health of older people has greatly improved over the past decades, but expenditure is increasing for chronic diseases such as cancer and cardiovascular disease.

Healthcare demands are also growing quickly in developing countries, leading to a lot of external investment going into those markets.

“The cost to society may rise if the increase in life expectancy is not accompanied by a reduction in chronic diseases and consequent disabilities. Even if the prevalence stays the same, due to the increasing number of older people the burden will rise,” said Jean Woo, professor of medicine and head of the geriatrics division at the Chinese University of Hong Kong (CUHK).

“The worst-case scenario would be an increasing trend in chronic diseases and disabilities together with an increasing number of older people,” said Woo, who is also the director of the CUHK Jockey Club Institute of Ageing. “We need to see what the trends are for future projection of cost burden.”

To ease strains on public services, the way that medical services, pensions, long-term care and end-of-life care are provided and financed will have to change dramatically across Asia.

The low fertility rate also means there are fewer family members able to financially support and take care of aging relatives.

And as more people retire without younger workers taking their place, labor forces will shrink.

According to the UN, China’s working-age population will drop to 61 percent of the total population by 2050. National output is therefore likely to decline unless the country finds different ways to maintain productivity.

Raising the retirement age or abolishing it altogether could be one move toward a feasible solution.

“There is no loss of productivity if the retirement age is adjusted better. For example, in Australia and America there is no retirement age. People retire when they feel they do not want to work anymore,” said Woo.

This also means adapting to the new age profile in the workforce. More and more workers will be older people, and they have different needs, motivations and mindsets compared to younger workers. If this is not handled well, there will be a higher dependency ratio and a smaller workforce supporting those in retirement.

Governments will have to rethink tax systems and pension programs to reduce the tax burden on younger people.

For example, pensions may have to be less generous or they will gradually take up a larger percentage of government budgets. More flexibility could be introduced to combine work and pensions so that older talent can be retained, and incentives could be used to encourage people to postpone retirement.

To further boost labor force participation, women must be encouraged and given more opportunities to join the workforce. In some Asian societies where traditional gender roles are prevalent, much of the potential for productivity in the female population remains untapped.

Young immigrants can also help compensate for low birth rates, and flexible work arrangements can enable workplaces to adapt to the needs of older workers and those who need to take care of children and elderly family members.

All of this requires policymakers to challenge existing policies and actively promote changes in both the public and private spheres.

“Overall, we need the whole of society to cope with and take advantage of this aging trend. Despite some ongoing work to cope with aging, there are many areas for improvement to make Asia more age friendly,” said Christine Kwan, a social scientist and research assistant professor at the University of Hong Kong’s Sau Po Centre on Ageing.

According to the World Bank, policymakers should consider “comprehensive, proactive policies that will increase labor force participation, encourage healthy behaviors, boost productivity, reform social security, and ensure that public services are affordable”.

Structural reforms are especially urgent to counter poverty.

In China, Indonesia and Vietnam, for example, poverty rates are rising with the increasing population of less-educated elderly people. Most countries are aging before becoming wealthy. And even in relatively wealthy developing countries such as China, national prosperity does not necessarily translate to widespread affluence.

This aging trend is one reason why China is swiftly moving toward a services-oriented economy instead of striving to keep its status as the world’s manufacturing hub. The cheap and young workforce that enabled China’s manufacturing industry to boom is quickly shrinking.

According to GK Dragonomics, a Beijing-based research firm, those aged between 15 and 24 are “the cheapest, most mobile and flexible in the Chinese workforce”.

However, since 2005, their numbers have been dropping quickly, leading to substantial increases in wages and unmet demands for young labor.

UN data show that in 2010 there were 225 million people in this age group in China. By 2025, there will only be 164 million — a 30 percent drop. And by 2050, that number is expected to shrink to only 124 million.

Much is at stake as we move into an era populated mainly by older people. The future is uncertain and difficult to foresee for Asian economies. The only certainty is that there will be many changes to come.

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