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This chapter focuses on one fundamental aspects of an ageing population — how to pay for old age, individually and collectively. It also presents a study of the history of old age support in the UK and US and concludes that despite the quite different beginnings of the public pension and social security systems, government policy in both countries has become similarly locked in to a set of institutional arrangements which were devised to respond to immediate social and economic problems, but which have acquired a rationale and a dynamic of their own.

In the 2012 contest for chief executive, the two candidates, Leung Chun Ying and Henry Tang, both put forth proposals for old age social security support. In this chapter, the author estimates the long-term cost of the proposals made by Leung and Tang and compares them with the long-term cost of the current welfare payments for the elderly. Their proposals are also compared with the one put forward by Professor Chow Wing-sun. Among the three proposals, conspicuously Leung's is the most affordable one. It is important to separate the issues of poverty and financing old age support. This chapter discusses three critical factors which led to the formation of government-funded old age social security schemes in the West, and states that the public must think twice about allowing our politicians to follow the footsteps of British politicians in the past.

In many developed countries around the world, public pension schemes have become fiscally unsustainable with rising life expectancies and declining birth rates (i.e., a decreasing old age support ratio). Reforming public pension systems to render them fiscally sustainable in the long-run could in theory entail cuts in benefits, increases in contributions, or increases in the eligibility age. This chapter argues that in general a gradual increase in the eligibility age yields a reasonable balance between political feasibility and widely held notions of fairness.

One of the most striking features of the topics analyzed in the previous chapters is the breadth and depth of the economics involved in the analysis of population dynamics. The conventional perception that “demographic movements were largely exogenous to the economic system, and were to be left to sociologists and other non-economists” (Samuelson, 1976, p. 243) may be based on a conventional understanding of demography itself. Once we realize that modern individual fertility decisions may be affected by many economic variables, we can understand why demographic movements may be correlated with various economic indexes of the society. Once we shift our focus from the size and growth rate of the population to its economic characteristics, we realize that there is an abundance of topics for research and analysis. Moreover, once we perceive that the characteristic composition of the population is usually an aggregate result of various decisions by individuals, we find that our analysis is not confined to fertility-related economic variables. Thus, we are able to use the general framework to study the income distribution (chapters 4, 5), the attitude composition (chapter 8), the occupation structure (chapter 9), and the aggregate savings and pensions (chapters 11,12) of the population. The methodology adopted in this book is quite consistent: I emphasize the impact of individual decisions on the aggregate dynamics of demographic characteristics. As far as the steady state or dynamic fluctuations are concerned, the theory of stochastic processes is the basic tool necessary for the analysis. Other than the possible technical difficulty, there is nothing conceptually difficult in the modeling. But very often, the aggregate variables in question may feed back and influence individual decisions. In chapters 8 and 9, we see how the aggregate custom or occupational composition in the previous period affects individual decisions in the current period. These are in fact special cases and are easily dealt with. For many other economic variables, the micro-macro interaction involved is rather complex. There are several variables that may affect and also be affected by individual decisions.