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The demographic issue

The ageing of New Zealand's population is the reason there is a crisis in funding superannuation. Part 6 of our series on the history of super explores the demographic issues.

Monday, April 23rd 2001, 3:48PM

The issues dominating retirement income policy planning in New Zealand are the ageing population and its consequences for the ratio between pensioners and those in workforce age groups.

In common with other developed countries, New Zealand is experiencing a rise in the proportion of older people in the population - the result of a continuing rise in life expectancy and substantially lower birth rates than a generation ago.

Until recently the rise in life expectancy was mainly because of reduced death rates at younger ages. However, a rise in life expectancy at older ages has recently become apparent.

Life expectancy in New Zealand
   
1901-05
(non-Maori) 
1950-52
(all groups) 
1995-97
(all groups)
At birth 
Males
Females 
58.1
60.5
67.2
71.3 
74.3
79.6
At age 65 
Males
Females 
12.2
13.3
12.8
14.8
15.5
19.0
Sources: Yearbook 1928 page 144 and NZ Life Tables 1995-97 page 14.

A more dramatic consequence of lower death rates among the young and middle aged is the increased likelihood of their reaching older ages. At the beginning of the 20th century the Assistant Actuary of the then Government Life Department estimated that only 471 out of every 1,000 males, and 530 of every 1,000 females, born in New Zealand could be expected to survive until age 65 (Yearbook 1902 page 353). By 1995-97 the survival rate to age 65 for males was 804 per 1,000, and for females 873.

The long-term rise in the proportion of the elderly is expected to put increased pressure on retirement income and health systems. The increased costs of providing for the elderly are expected to be much higher than the cost reductions associated with a smaller proportion of children in the population. The major effect is expected in the first few decades of the 21st century, when the large "baby boom" generation will be retiring and there will be smaller numbers of younger and middle aged adults to replace them in the workforce.

Estimates of the speed and scope of this "demographic ageing" vary according to assumptions about future birth rates, life expectancy trends, and migration levels and patterns. The Government Statistician has published a series of population projections that include a range of assumptions such as low, medium and high assumptions for fertility and mortality, and annual net immigration ranging from zero to 20,000 per year. All projections show a substantial rise in the proportion of the elderly in the population.

One measure of demographic ageing is the proportion of the population aged 65-plus expected to be in New Zealand in the future. Here are the highest and lowest of the eight alternative projections of the Government Statistician, published in Key Statistics and on the Statistics New Zealand web site.

Projected share of the population aged 65-plus
year lowest projection highest projection
1996 (actual) 11.6 11.6
2001 11.6 11.7
2011 12.8  13.5 
2021 16.1 17.8
2031 20.0 22.9
2041 22.4 26.7
2051 23.1 28.3

The lowest projection shows the share of the population aged 65-plus approximately doubling by the middle of the 21st century. The highest projection shows the share rising to more than 2.7 times the 1996 proportions by the year 2071. All projections show the same basic pattern of a sharp rise in the proportion of older people and the ratio of the elderly to those in traditional workforce age groups.

The high fertility assumptions produce the smallest (but still very large) long run rise in the percentage of those aged 65-plus, and the low fertility assumptions the most extreme ageing pattern. The level of net immigration has a significant impact in the medium term, but less impact over the longer term because the migrants themselves age.

« Cullen on right track with superannuationAMP & Good Returns launch superannuation website »

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