Ageing population puts pressure on pensions

The head of asset allocation research at Barclays said the slowdown in population growth would “create the most problems” where budget deficits were most challenging, as those of working age could not catch up with the number of people at retirement age.

Mr McCormick, one of the authors of the 130-page Equity Gilt Study 2014, now in its 59th year, said: “In Europe, these changes will have a profound effect, especially in countries such as Spain.”

In Japan and Germany, the study shows the working age population has been falling for roughly 20 years, while China’s one-child policy has seen its birth rate fall significantly since 1990.

Article continues after advert

However the effects will be felt globally, although emerging economies will remain relatively young compared with more economically advanced economies.

This will create a big economic drag on pensions, as there will be more older workers with big pensions pot, while pension funds will have to invest more in gilts and fixed income to provide some sort of guarantee – and in a deflationary environment, this would only create more cost problems for pensions.

According to the report, in advanced economies, spending on public health has risen by about 4 percentage points of GDP since 1970. Figures from the International Monetary Fund suggest this is set to grow by a further 4 per cent of GDP in advanced economies and 3.2 per cent of GDP in emerging markets by 2030.

With pensions already under strain and the dependency ratios – showing the proportion of pensioners to those of working age – rising “significantly” in advanced economies by 2030, it is going to create more problems for investors seeking to save now for their retirement in a few decades’ time.

This comes as figures from health information agency Public Health England found healthier lifestyles are seeing men’s average life expectancy rise in some areas of the UK.

Adviser view

Tina Weeks, founder of London-based Serenity Financial Planning, said: “There is little doubt that the longer retirement savings planning is ignored, the more disastrous the outcome for people’s post-retirement finances, and the tougher those later years are likely to become.”