Everyone wants to age gracefully. But in the case of our planet, the world’s population is ageing anything but gracefully. Indeed, the dangers posed by ageing populations perhaps come second only to climate change as one of the gravest challenges facing humankind. With the World Health Organization predicting that the number of people aged 60 and over will more than double by 2050, the demographic time bomb is ticking ever faster and threatens to unleash economic, political and social damage on a grand scale.

Ageing populations — triggered by a double whammy of rising life expectancy and lower birth rates — present Governments with a toxic mix of lower tax receipts, lower revenues and a growing retiree population necessitating higher welfare costs and care.
The issue of longevity has huge implications for health and long-term care. A larger proportion of elderly people places more pressure on the healthcare and benefits system. Elderly care will be just as important, and demand just as much resources, as childcare in the future. The need to tackle diseases associated with old age will be uppermost. And dementia will need to be prioritised alongside cancer and heart disease.

As such, there is a pressing need for long-term care to come out of the shadows and become more palatable and accessible to a m
ass market of elderly people. Insurers will need to devise new ways to market and distribute products. They will also need to bring forward consumption by developing innovative hybrid offerings linking long-term care with life insurance. And central to this will be changing consumer attitudes and driving home the importance of deferred gratification so that people actually buy into these products.

There is an old adage that life insurance is never bought it is sold. But the realities of an aging population make this adage outdated. Insurers now need to come up with ways of introducing financial products to offset levels of risks posed to individuals and their families.

And advisers will be a key part of the distribution chain. Advisers will need to tailor their offerings in response to ageing populations so that long-term care ranks alongside pensions, life insurance and investment.

Long term care is a political hot potato that needs to be addressed with some urgency. But finding a more manageable solution to the impending demographic time bomb requires a coordinated response combining non-governmental institutional initiatives with individual action.

Meanwhile, the demographic time bomb has profound implications for the pensions sector. US Companies are already struggling to meet the costs of rising pension liabilities, with the likes of Verizon Communications and General Motors implementing major de-risking initiatives through purchasing group annuity contracts.

Such moves could potentially have devastating consequences for retirees because the Pension Benefit Guaranty Corporation (PBGC), which protects pension benefits in the event of employer bankruptcy, no longer applies when pensions are sold for annuities.

But it is not only private corporations that are feeling the heat. In early April, Moody’s said the unfunded liabilities of the various US federal employee pensions systems amount to about $3.5 trillion — or a staggering 20% of US GDP.

Given this challenging set of circumstances, retirees will increasingly need to take responsibility for their own pension provision. Individual retirement savings need to be prioritized. The latest study by CoreData Research shows investors expect just 14% of retirement funding to be provided by Government programs and 25% from employer pension funds. There is a clear need for people to start saving earlier and to save more.

Especially given the fact that what workers are promised today might not be what they actually receive in retirement. Earlier in May, The Treasury Department rejected a proposal by the Teamsters’ Central States Pension Fund to cut retirement payments to hundreds of thousands of workers in a bid to keep it afloat. But with the scheme facing a sizeable funding shortfall, members likely face a rocky road ahead.

With future pension pay-outs becoming more uncertain and increased life expectancy requiring retirement funding to be stretched over a longer timeframe, individuals will need to work later into their lives. Over half (51%) of investors we surveyed say they would turn to employment if unable to support themselves in retirement.

But our study also finds that investors on average expect just 8% of their retirement funding to come from post-retirement work.  This underscores the need for Governments to encourage people to make greater personal contributions. Bigger tax breaks on contributions and investment earnings and greater “catch-up” provisions for those over 50 could play a part.

Across the pond, meanwhile, CoreData’s study found that only 18% of UK advisors think the government is doing enough to address the country’s ageing population. The extent of the problem is laid bare by figures from the Office for National Statistics showing the number of people over the current official retirement age in the UK has doubled over the last 20 years.

Initiatives such as those put in place by the UK Government linking the state pension age to longevity will help alleviate pressure on the public purse to an extent. But in the long-term, a situation where retirees work for longer and get less in return seems inevitable.

But Governments nevertheless need to develop robust strategies to help alleviate the pain for retirees arising from ageing populations. And this will require imaginative and creative thinking.

Important, tough and unpopular decisions will invariably need to be made to defuse the demographic time bomb — or at least soften the impact of its blast.