A recent European visit took me to Madrid, Spain. Everywhere I go, I try to observe how other countries are handling their aging populations, so here’s a summary of what I’ve learnt.
We all know that Germany is currently the oldest of all EU nations with a median age of 45.7 years (half of its population are younger than this age and the other half are older), but most other EU countries are facing the same challenges of an aging population. By the year 2020, people aged 60+ will be one-fifth of the EU’s population and about 20 million people that year will be aged 80+ which represents an increase of 300 percent in this age category since 1960. When compared to the rest of the world, population-aging in Europe and Canada are among the most advanced just after Japan (median age of 45.8 years). While the median age of the world population is 29.4 years, it is 39 years in Europe, 41.5 years in Canada, 37.2 years in the U.S., 38 years in Australia, 36.3 years in China and 26.7 years in India.
With a median age of 41.3 years in 2013, Spain is exactly in the same boat as Canada. According to the World Bank’s estimate in 2007, by 2050, around half of Spain’s population will be older than 55, which would give Spain the highest median age compared to all of the other countries in the world.
Similar to Canada, population aging is a challenge to policy makers within the EU member states. The most important impacts include a decrease in the percentage of people in the working age and hence a decrease in the labour force; an increasing public expenditure on social security, healthcare services and pensions; and a risk of intergenerational conflicts.
Spain has undertaken several innovative measures to address these challenges. The Spanish government has been trying to increase immigrants and has adopted an open-borders approach by passing a regulation in 2004 to provide residence and work permits for thousands of illegal immigrants who were employed at the time. After centuries of emigration, Spain has recently experienced large-scale immigration for the first time in modern history. According to the Spanish government, there were close to 5.6 million foreign residents in January 2010. Of these, over 1.5 million were from Latin America, especially from Ecuador, Columbia, Bolivia, Argentina and Brazil; 750,000 were Moroccan; while immigrants and expatriates from the EU member states amounted to more than 2 million (especially from Romania, U.K., Germany, Italy and Bulgaria).
The government has also recently approved an immigration law granting a residency visa for international investors buying property in Spain. Investors, spending a minimum of 500,000 Euros on residential real estate or a portfolio of properties making up this limit, will gain a residence visa often referred to as the “Spanish Golden Visa.” This visa seems to be one of the most affordable and flexible in Europe. There is no minimum stay requirement in Spain and the visa can be renewed up to five years. After five years, those who have invested in Spanish property may apply for permanent residency although that will require a minimum residence period of 183 days. Permanent residents can then, of course, apply for citizenship and a Spanish passport which will grant them the right to live and work anywhere in Europe.
In cooperation with business leaders and trade unions, the Spanish government has also introduced a “flexible retirement” system in 2011, and subsequently enforced in 2013, which raises the official retirement age from 65-year-old to 67-year-old during a transition period of 15 years that will end in 2027. After 2027, it will be still possible to retire at 65 with a full pension if the contribution period is of at least 38 years and six months. The new system also allows early retirement from the age of 63 with a reduction coefficient on the pension per year ahead of the legal standard retirement age. In order to promote a voluntary increase of the retirement age, an increase in pension between two percent and four percent will be added for each year on top of the pensionable age within the total period contributed. The new reform also strengthens the Social Security System which improves the minimum pensions paid to old age pensioners who are living alone.
It is not clear how much positive impact this series of reforms will have on the Spanish economy which has been in the doldrums since 2008. Recent figures show that Spain’s GDP rose by 0.3 percent in the last quarter of 2013, up from 0.1 percent in the third quarter. This represents the biggest rise in Spanish GDP since the beginning of 2008. Compared to Spain’s total population of 47.27 million (2012), Canada is a smaller country with our population of 34.88 million (2012) living in the second largest land mass in the world. Even though our overall economy is in a much better shape, we should perhaps learn a lesson or two from the Spanish government in addressing our own aging-population issues.
In the meantime, Ontario Premier Kathleen Wynne has just met with her counterparts from PEI and Manitoba to create a proposed pension system to supplement the Canada Pension Plan (CPP), with the aim of delivering extra benefits to retirees. Ontario decided to press forward with a provincial pension plan after the federal government rejected its call to expand the CPP. According to The Globe and Mail today, the exact details of the plan will be revealed in the spring, but government insiders have hinted that it will be a defined contribution plan run as a non-profit organization at arm’s length from the government. It is likely to be modelled after the National Employment Savings Trust in Britain.
The latest National Household Survey shows that Canada is home to 6.8 million foreign-born residents or 20.6 percent of the population, compared with 19.8 percent in 2006, and the highest in the G8 group of developed countries. However, the Conservative Government has just scrapped its 28-year-old visa scheme for investor immigrants. Nearly 65,000 applications for Canadian residency under the Immigrant Investor Program were pending when the scheme was axed. Of the total applications, 45,500 were from mainland China. I guess these would-be immigrants will now have to turn to other countries such as Spain.