4  Benchmark results

This section presents the benchmark projections. The essential features are that all social expenditures are assumed to grow at 1.5% per year, the same rate as labour productivity. The results therefore refer to a ‘pure ageing’ assumption. Migration is set at the long-term average of 5,000 net migrants each year, and changes in fertility, mortality and labour force participation are assumed to apply for 10, 20 and 10 years respectively, after which no further change in these rates is projected. The demographic and social expenditure projections are discussed in turn.

4.1  Demographic projections

Starting from the initial age and gender structure of the population in 2001, randomly drawn values from the distributions of fertility, mortality and migration rates were used to project the population by single year of age and gender for each year until 2051. The age and gender structure is depicted in Appendix Figure 5. A summary is given in Table 2. The growth rates of the total population and for those 65 and over are given in Table 3. It can be seen that most of the anticipated change in the structure occurs by 2031. The 95% confidence limits on these estimates are relatively narrow. One explanation of the narrowness of the range, in addition to the relatively low standard deviations for many of the demographic variables, is that the projections assume independence between age groups and time periods. If, for example, changes in mortality rates were positively correlated across age groups, the confidence limits would be expected to be larger. As shown in Appendix Figure 6 there are significant shifts in the population shares. People aged 85 and over for example are projected to rise from 1.3% to 4.8% of the total population by 2051.

Two types of dependency measure are defined. The demographic dependency ratio is the total number of individuals aged from 0-14 and over 65, expressed as a ratio of those aged 15-64. The economic dependency ratio is equal to the number of non-workers divided by the number of workers. The number of workers is the product of the labour force and the employment rate, while the labour force is the product of the total working age population and the labour force participation rate.

Note: ^a The Demographic Dependency Ratio is defined as the population aged 0-14 and 65 over expressed as a ratio of the population aged 15-64

^bThe Economic Dependency Ratio is the number of non-workers divided by the number of workers

The number of workers in each age group between 15 and 64 is given by the product of the population of a given age and gender, and their corresponding rates of labour force participation and employment. Non-workers are the balance of the population. Both measures, together with their 95% confidence bands, are depicted in Figure 2. After an initial decline, the economic dependency ratio is projected to rise markedly from 2011 until 2031. In 2011 one worker is projected to support 1.1 non-workers; this ratio rises by over 20% to 1.33 by 2031. Already workers over age 40 comprise almost half of the workforce and this is projected to rise by five percentage points by 2051. For those aged 50 and over, their share of the workforce rises by over seven percentage points, as shown in Table 4.

Figure 2 - Projected economic and demographic dependency ratios : 2001-2051

An alternative measure is the elderly dependency ratio, defined as those 65 and older as a percentage of the population between 15 and 64. The present projections suggest that this ratio rises from 18% in 2002 to 34% by 2031, which is similar to the OECD average.[28]