What lower birth rates mean
Birth rates remain well below the replacement level of about 2.1 children per woman in the UK and parts of Southern and Eastern Europe, including Italy, Spain, and several former Eastern Bloc countries. This will involve significant economic, social, and political consequences.
Fewer young people entering the labour market will imply reduced economic output and productivity over time. And smaller, older populations tend to spend less, which can dampen economic growth and business investment.
As the median age rises steadily, the balance of the population will shift toward older cohorts, and healthcare systems will face greater demand as age-related conditions such as dementia, chronic illness, and mobility issues become more prevalent. There will be growing pressure on social care systems, with fewer family members of working age available to provide informal care.
Older electorates tend to have different political priorities, such as pensions and healthcare, potentially influencing government spending choices and policy direction. Political parties will increasingly cater to older voters, who turn out at higher rates, sometimes at the expense of younger generations' interests such as housing and education. This could exacerbate intergenerational tension over the allocation of public resources.
Schools, universities, and youth-oriented services may face declining demand and potential closures in some areas. Rural and smaller urban areas will probably experience population decline, leading to reduced local services and economic activity.
The biggest challenge might well be in the provision of pensions. Pay-as-you-go pension systems, such as the UK operates, depend on a large working-age population supporting retirees. A shrinking workforce supporting a growing retired population makes these systems increasingly unsustainable. Governments thus face rising healthcare and pension costs simultaneously with a narrowing tax base.
Since a pay-as-you-go system will be no longer sustainable in the UK, policy makers will need to look at funded alternatives. The best person to fund someone’s pension when they are old is that same person when they were young. Instead of expecting future young taxpayers to shoulder an impossibly and increasingly large burden, people will need to build up retirement funds themselves while they are young and earning.
A system will have to feature pension fund providers that people can choose between, providers that will invest their contributions to fund them in retirement. There will have to be minimum monthly contributions set in order to prevent freeloaders gaming the system, and there will need to be provision for those not able to contribute themselves.
This will involve a philosophical shift from reliance on collective provision toward individual planning and responsibility. Instead of depending on what future society might be able to offer, people will take upon themselves the task of providing for their own future. This, in turn, will tend to foster self-reliance and an independent frame of mind in which people look to themselves, rather than the state. And this might be no bad thing.
Madsen Pirie