European Aging on the Rise

(March 2, 2012) – The percentage of citizens in European nations aged 65 years or over is set to rise by up to 10 percentage points over the next quarter century, putting more pressure on pension systems, statistical data has shown.

Some of the European Union member states that run defined benefit pensions systems – funded and unfunded — are to be the worst hit by increasing longevity that will add to liabilities and make retirement provision more costly.

The highest increase is set to take place in Germany where 31% of citizens are projected to live beyond 65, compared to 21% in 2010, data from the Office for National Statistics in the United Kingdom revealed today.

The Netherlands is also projected to see as large an increase in percentage terms, from just over 15% of citizens aged 65 or over, to around 26% in 2035.

Low birth-rates across the continent and improving elderly care has meant the average age of the population is to rise more quickly than ever before.

Last month, Gordon Sharp of the Actuarial Profession, said: “The last 20 years have seen unprecedented improvements in mortality rates, particularly for pensioners. We are able to say with confidence that the mortality improvement for 2011 has been well above the average.”

The United Kingdom is projected to see a smaller rise – from 17% to 23% – with Ireland keeping its position as one of the ‘youngest’ nations with a rise from just 11% to 19%. Longevity is one of the hardest risks to hedge out of a portfolio as it has few financial matching tools.

There has been an increase in the number of deals done with the life insurance industry, which needs to hedge out mortality risk, but limited capacity and a failure to create a stable market place in which to trade has meant the tool remains relatively underused.