Financial Planning Issues Of A Falling Fertility Rate


The BBC website has published an interesting article on the findings of recent research by the University of Washington. A link to the article in question can be found here.

In summary, there is a growing expectation that the long term trend of reducing birth rates will fall below a crucial 2.1 necessary average, the level below which population numbers can be maintained. This 2.1 figure might seem odd when you would think that 2 children from 2 parents would equate to parity, however, the additional 0.1 stems from the fact that some children do not survive to adulthood and a marginally greater weighting of babies are males.

As a consequence, the populations of many countries are expected to start a downward trend and fall to levels approximately half of those presently by the end of the century.

This is nothing to do with falling sperm counts or other fertility related matters. Greater access to contraception is undoubtedly one aspect. However, better education and consequently more couples choosing a career path over a family is another. I suspect financial aspects such as cost of housing, living and childcare may well also influence decisions in this regard, particularly when it comes to how many children parents have.

These decisions clearly give rise to more immediate financial planning issues such as house buying and financial protection planning. Greater reliance on dual incomes for example increases the need to ensure robust cover should one such income source cease through ill health or even death. Where there are financially dependent children, this becomes even greater.

Clearly the research indicates this is a long term trend and the dire consequences are some way off, but the fact that this is the case could begin to have some financial planning implications much sooner than that.

It is a known fact that the State Pension is an unfunded system, paid for by the Government ‘on the go’. The fact that we have an ageing population has resulted in gradual extensions to the State Pension Age. Firstly we had the age for women being equalised with that for men from age 60 to age 65. Then we have had the pension age for both men and women being extended to age 67. It has already been announced that this will be moved back even further to age 68. With the ever increasing burden in the shorter term, it wouldn’t be a surprise if at some point this extends to 69 or even 70. However, with less children coming through to replace the retiring working population, how will the Government be able to pay for this? Higher Income Tax, increased National Insurance, etc. Means testing?

Whenever we discuss retirement planning with clients, we always encourage them to start as early as possible. Saving a little for a long time can accumulate into a tidy sum. After all, our often used motto is to let the investment do the hard work. However, if the funding of hard earned State Pensions is at risk due to falling birth rates, then there is added incentive to begin saving for one’s future retirement. Otherwise, working longer and longer into retirement may well become a necessity.

 Please feel free to contact us if you wish to discuss your planning for the future.