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Live long and prosper? Demographic trends and their implications for living standards

People are living longer. A century ago new-borns were expected to live to 63 on average, whereas for the generation born in the last 15 years life expectancy
at birth is 93, with over a third of the generation after expected to reach age 100. This is good news of course. A longer life is in and of itself a boost to living standards for individuals and reflects a more prosperous society. But it raises challenges too. For the individual, living longer creates a need for greater lifetime income to sustain a given standard of living. For the state, a growing older population raises questions on the allocation of resources across generations.

The debate on living standards tends to concentrate on a snapshot of household resources today or over the near term. However, this narrow focus ignores the impact of demographic change, which plays out over decades with seemingly little immediate impact – migration perhaps being the exception. Yet these very long-term shifts in the make-up of the population are arguably as important to living standards debates as the slow, almost decade-long recovery in incomes to pre-2008 levels.

This year marks the start of an important demographic transition. For decades the ratio of workers to non-workers (‘dependants’) has been improving due to the relative size of the baby boomer generation (born between 1946 and 1965) and increased labour market participation of both women and older people. But as the baby boomers enter retirement this is reversing, with the ratio of workers to dependants starting to fall.

At face value this appears problematic: fewer people ‘contributing’ and more people – often with greater health and care needs – reliant on the resources of others in their families, and on the state. However, an often assumed worsening in living standards due to this shift in the population is not inevitable. Promoting ways to live healthier for longer, further increasing workforce participation for older workers, preventing pay penalties when taking time out of the labour market to care for children or people in ill-health and taking account of the greater private resources of the baby boomer generation itself all represent ways to offset the greater costs of an ageing society in the short and longer term.

This report for the Intergenerational Commission explores how the UK population changed over the last century and is set to change in this one. It provides an initial take on the implications for living standards across the lifetime, for individuals in different generations and for the state. These are themes that will be returned to in more detail by the Commission.