Reassessing ageing population metrics for Australia's future

Recent research conducted by Mercer Australia emphasises the need for policymakers to re-evaluate traditional metrics used to measure Australia's ageing population. It highlights that the workforce dynamics and increased life expectancies necessitate a more nuanced approach.

David Knox, Senior Partner and Senior Actuary at Mercer Australia, critiques the conventional measure of old age dependency ratio, which gauges the number of individuals aged 65 or older per 100 people in the 15 to 64 working-age bracket. The 2023 Intergenerational Report (IGR) continues to rely on this metric, despite its outdated nature, leading to unwarranted concerns and potentially counterproductive policies.

Knox argues for a more accurate approach that considers the actual labour force rather than the potential labour force, given the evolving nature of work. He also highlights that health-adjusted life expectancy will continue to rise, rendering the age of 65 less relevant as a threshold for defining old age.

The IGR emphasises the challenges posed by a declining old-age dependency ratio for Australia's long-term economic growth and fiscal outlook. According to this ratio, the number of working-age individuals for every person aged 65 and older will decrease significantly.

Knox proposes a more realistic ratio, which envisions a decrease in the number of workers per older person from 45 in 1982 to 2.9 in 2061. He emphasises the need for governments and employers to recognise that an increasing percentage of individuals aged 65 and over will remain active in the workforce.

The current denominator of the old-age dependency ratio, focusing on the population aged 15 to 64, fails to account for individuals not in the labour force. Many older individuals are healthy and contribute to society in various ways. Conversely, those aged 65 or over often join the workforce, bringing considerable expertise and experience.

In conclusion, Knox underscores the importance of adopting a more dynamic approach to measuring the ageing population. This approach should consider ongoing changes in the labor force and increasing life expectancies, acknowledging that traditional static rates may no longer suffice.