Lords Urge Over-50s to Extend Working Lives to Help Tackle Ageing Population Challenges

Demographic Shifts: Falling Fertility Rates and Rising Life Expectancy – Economic and Fiscal Challenges for UK Businesses

At Cutts & Co Accountancy, we help businesses and individuals adapt to the UK’s evolving economic landscape. Falling fertility rates combined with rising life expectancy are reshaping the population, creating profound challenges for the economy, public finances, and your financial planning. These trends demand proactive strategies from accountancy firms like ours to ensure long-term stability.

Understanding the Trends: Longer Lives, Fewer Births

Life expectancy in England and Wales has risen dramatically over the past two centuries, roughly doubling since 1841. In 2020, period life expectancy at birth stood at 78.6 years for males and 82.6 years for females, though this dipped due to the COVID-19 pandemic – a fall of 1.2 years for males and 0.9 years for females from 2019 levels. Projections indicate further gains: by 2070, males could reach 85.2 years and females 88.1 years, an increase of 6.6 and 5.5 years respectively over 2020 figures.

Yet progress has slowed since the 2010s. Between 2010 and 2019, life expectancy rose by just 1.2 years for males and 1 year for females, compared to 2.7 and 2.1 years in the prior decade. By 2022, England’s figures were 79.3 years for males and around 83 years for females, with the UK lagging behind comparable nations – female life expectancy now ranks lowest among peers, excluding the US.

Meanwhile, fertility rates have plummeted. The total fertility rate – the average number of children per woman – has fallen well below the 2.1 replacement level needed for population stability without migration. This decline stems from delayed childbearing, smaller desired family sizes, and socio-economic pressures, amplifying the ageing population effect.

Healthy life expectancy – the years lived in good health – tells a starker story. In England for 2021 to 2023, male healthy life expectancy at birth is 61.5 years and female 61.9 years, down 1.7 and 1.9 years from pre-pandemic levels. Regional disparities are stark: southern and eastern England boast higher healthy life expectancy at age 65 than the north, while deprived areas see men spending under 75 percent of life in good health versus over 80 percent in affluent ones.

Economic Implications: A Shrinking Workforce and Mounting Pressures

These shifts translate into a smaller working-age population supporting a larger retired cohort. Fewer births mean fewer future workers entering the labour market, straining productivity and economic growth. Projections show deaths concentrating around higher modal ages – 87.1 years for males and 89.3 for females in 2020 – extending pension liabilities.

Fiscal challenges loom large. Government spending on health, pensions, and social care will surge as the elderly population grows. The state pension age may rise further, while NHS demands intensify amid stagnant healthy life expectancy gains. Businesses face talent shortages, higher recruitment costs, and wage inflation as competition for skilled workers heats up.

For SMEs – our core clients at Cutts & Co – this means rethinking succession planning, workforce strategies, and cash flow projections. International comparisons highlight the urgency: the UK’s life expectancy slide post-pandemic underscores the need for policy action, yet businesses cannot wait.

Key Demographic Metrics
Life Expectancy at Birth (2020): Males 78.6 years, Females 82.6 years
Projected to 2070: Males 85.2 years (plus 6.6), Females 88.1 years (plus 5.5)
Healthy Life Expectancy (2021 to 2023, England): Males 61.5 years, Females 61.9 years
Fertility Rate (Replacement Level): Below 2.1 for both genders

Fiscal Strain on Businesses and Households

Public finances face a double squeeze: reduced tax revenues from a smaller workforce and ballooning welfare costs. By 2018, UK life expectancy had already fallen short of projections – 1.49 years lower for males overall – requiring accelerated annual gains of 0.43 years for males to catch up by 2028. Gender gaps persist, widened temporarily by COVID-19 but narrowing since.

For your business, this means higher National Insurance contributions, potential tax hikes, and increased compliance burdens. Pension schemes strain under longer retirements, with defined benefit plans facing deficits. At Cutts & Co, we specialise in optimising these: reviewing auto-enrolment compliance, stress-testing pension forecasts, and modelling longevity risks.

Individuals encounter similar pressures. Longer lifespans demand larger retirement savings, yet low fertility delays inheritance and family support networks. Healthy life expectancy gaps exacerbate care costs, hitting deprived regions hardest.

Practical Strategies from Cutts & Co Accountancy

1. Bolster Retirement Planning
Extend savings horizons with our tailored ISA and SIPP advice. Factor in projected life expectancies – aim for 30 to 40 years post-retirement funding. We use official projections to simulate scenarios, ensuring resilience against fiscal policy shifts.

2. Optimise Workforce Investments
Combat labour shortages through upskilling and automation audits. We analyse your payroll for efficiency, forecasting National Insurance impacts from demographic pressures.

3. Succession and Estate Planning
With fewer family successors, formalise business transfers early. Our probate and inheritance tax services minimise exposure amid rising elderly populations.

4. Monitor Healthy Life Expectancy
Advise on health-linked financial products, like critical illness cover, given healthy life expectancy declines. For directors, we integrate wellness incentives into remuneration packages.

5. Fiscal Forecasting
Our bespoke models incorporate national and international data, projecting cash flows under various fertility and longevity scenarios. Stay ahead of Budget changes targeting these challenges.

Looking Ahead: Opportunities Amid Challenges

While pressures mount, opportunities exist for agile businesses. An older, experienced workforce brings wisdom. Targeted immigration or technology adoption can offset falling fertility.

At Cutts & Co, we turn data into action – partnering with you to build financial resilience.

Contact us today for a no-obligation review. In a demographic landscape defined by longevity and low births, expert accountancy is your competitive edge.