Quick take The world is ageing and this has significant implications for the global economy and businesses. A declining proportion of working age people will strain government finances, alter consumption patterns and reduce overall savings. But we believe social systems can be reformed, labour markets made more flexible, and financial pressures managed.

 

For centuries, the global population has grown continuously. But the UN projects a peak in the 2080s for the first time in modern history. With fertility rates falling, the world’s population is set to shrink over the coming centuries. The fertility rate is the average number of children a woman is expected to have over her lifetime.

 

Families are getting much smaller

Fertility rates across major economies have dropped well below historical levels and are expected to remain subdued.

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As longer life expectancies combine with declining birth rates, the global population is ageing at an unprecedented rate. The proportion of people over the age of 65 is projected to increase to 24% by 2100, up from 9% in 2021 and just 6% in 1990.

The growth rate of the global working-age population (15–64) peaked in 1979. In the high-income OECD countries responsible for about half of global GDP, the ratio of working-age adults (20–64) to elderly people (65 and older) plunged from 7.1 in 1950 to 2.9 in 2022. The UN expects it to fall below 2.0 by 2050. Countries such as Japan, Italy and Finland could see particularly low ratios in the future, but many developing countries are also likely to experience the impact.

Long-term projections come with uncertainties. Variables such as migration are difficult to predict. Another factor hard to forecast over decades is the pace of healthcare advances. Even so, current trends reveal a striking global shift towards ageing.

The UN’s World Population Prospects, published in 2024, projects average global life expectancy rising to 82.1 years by 2100. Women are projected to live an average of 84.5 and men 79.7 by then. Today’s averages are 76.2 and 70.9 years respectively.

 

Managing the strain

There are significant macroeconomic implications. A declining ratio of working-age people to the overall population will strain state pensions and healthcare systems. It could reduce overall savings, alter consumption patterns and put enormous pressure on public finances. One obvious effect of an ageing population is likely to be a substantial increase in healthcare spending by both individuals and governments.

Without reform, Japan and various EU member states could see government deficits and debt rise sharply by mid-century. Lower private savings and higher public spending may reduce national savings, put upward pressure on interest rates, and slow investment in new capital. In other words, across the world, national financial imbalances could intensify.

Government policy responses – such as raising retirement ages, boosting female labour participation and managing migration – can help mitigate this.

 

A greying world

The global share of people aged 65 and over is projected to rise steadily through the rest of the century.

 

 

Economic impacts

Ageing populations can slow economic growth. A 2023 study, in a journal from the American Economic Association, showed that a 10% increase in the share of the population aged 60 and over reduces growth in GDP per person by 5.5 percentage points. Two-thirds of this decline stems from slower productivity growth across all age groups, with the remaining one-third due to lower participation in the labour force – the pool of people in work or looking for it.

The productivity slowdown isn’t confined to older workers, who may adopt new technologies more slowly – though we’re talking about averages, not individuals. Older and younger workers are complementary. The retirement of experienced workers, who pass on knowledge and expertise, may reduce productivity among younger workers as well.

 

Fiscal pressures and public debt

Figure 3.3, from the UK’s Office for Budget Responsibility, shows how an individual’s net contribution to government income (taxes paid less the cost of services provided) changes by age.

Unsurprisingly, under-20s receive more from the state than they contribute in taxes, as most are too young to work full-time. People in their 70s and beyond also receive more than they pay in. As more people live well into their 80s and 90s, welfare, social care, and healthcare spending increases accordingly.

 

Contributions across a lifetime

Tax revenues and spending vary significantly by age, with working-age adults funding higher costs in childhood and old age.

 

 

The net effect is that UK public sector net borrowing (PSNB) is projected to rise from 1.2% of GDP in 2028–29 to 20.5% of GDP by 2073–74. This increase is driven by projections of a slight fall in receipts and a significant rise in spending.

This borrowing accelerates over the projection period as the population ages. Rising government debt would then increase interest payments, creating a snowball effect. In practice, governments would almost certainly take corrective action to prevent public finances from entering what would otherwise be an unsustainable debt spiral.

Ageing also affects saving. Older people save less as they draw down accumulated wealth, so national savings rates may decline. Combined with rising public debt, this could put upward pressure on real (inflation- adjusted) interest rates. That would reduce investment in the capital essential for economic growth.

The economic implications of global ageing are significant. The savings and investment imbalances it may create, alongside higher interest rates, could increase financial instability. Coordinated international policy responses will be important in managing these risks.

 

Turning challenge into opportunity

Governments can address many of these challenges through reform. Several OECD countries have begun revising pension and healthcare systems to improve sustainability, including raising retirement ages. Another key strategy is making it easier for mothers to remain in or return to work.

Reforms often face political resistance, especially where retirement expectations are deeply entrenched. Yet the challenges of population ageing, while considerable, are surmountable. With timely and coordinated action, social systems can be reformed, labour markets made more flexible, and financial pressures managed. Countries that adapt effectively to demographic change will be better placed to sustain long-term prosperity.

 

We have a Thematic Working Group, drawn from our Research and Investment Management teams, looking at ageing populations. We’ll produce further articles on this theme in future editions of Investment Insights, exploring the investment implications across different industries.