Falling fertility rates may pose a problem for future pensioners

Unless you’re Al Pacino or Mick Jagger, you might think that fertility rates are an irrelevant statistic for seniors. In fact, a country’s fertility rate has important implications for retirees.

In the United States, it is one reason why their Social Security system is in trouble since their pensions are funded on the Ponzi-like pay-as-you-go basis that relies on an influx of young people. (That’s not true in Canada.)

Low fertility rates also translate into slower economic growth; consider the Japan experience since the 1990s. Finally, fertility rates can have a major impact on immigration policy and may also create pressure for people to retire later.

Over the past 60 years, fertility rates have been dropping almost everywhere. This is true in the Western world, including in Canada, the U.S. and most of Europe.

The decline is even steeper in the Far East, including China, Japan, Indonesia and South Korea. It is also occurring in populous countries such as India and Brazil, where birth rates were previously unchecked. The exception to this trend is Africa, but more on that below.

The term “total fertility rate” is defined as the number of children a woman is expected to have over the course of her life. Immigration aside, the total fertility rate needs to be at least 2.1 to maintain the present population and yet it is well below that level in all of the countries shown in the chart, with the exception of Indonesia, where it is right on that threshold but projected to fall below it very soon.

Why are fertility rates dropping so fast? The most important factor is the empowerment of women. As they became more educated and major breadwinners, they are less likely to bear children. For one thing, more children means less money available to save for one’s own retirement and hence less retirement security.

In the poorest African countries, a different dynamic is still at work. There, children are the main source of retirement security for their parents, so more of them is still deemed to be in their best interests. But even that is changing as the average fertility rate in Africa is projected to drop from the current level of four to about 2.5 by 2060.

As for the countries in the chart, fertility rates are generally projected to remain low over at least the next 20 years.

Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator.