The generation game: Adapting to an aging population

Historically, ageing populations are not conducive for a faster pace of growth. Investment typically slows as you have a smaller share of the population working and GDP growth will slow materially. The impact will be more acute for Vietnam than many developed economies as a large share of their generation retiring today are extremely asset-rich, writes Tim Evans, CEO of HSBC Vietnam.

The global landscape is currently defined by a radical and enduring demographic shift, widely recognized as one of the greatest challenges of our time.

This phenomenon, often described as an "upside-down population pyramid," is the result of a powerful convergence: sustained increases in life expectancy due to medical advancements and a dramatic decline in the total fertility rate across most nations.

Exacerbated by the aging of the post-Second World War baby boom generation, this structural change places immense pressure on social and economic systems designed for a younger, faster-growing population.

This transformation is not confined to wealthy nations, it is rapidly accelerating in Southeast Asia, with Vietnam quickly emerging as a nation on the brink of a profound, and potentially destabilizing, demographic transformation.

Lessons from mature economies

The developed world offers a clear preview of the challenges Vietnam faces. Europe, for example, currently sees 20% of its population over the age of 65 and is on track to hit a staggering 30% before 2050.

This demographic maturity is especially costly because European economies carry significant existing public welfare commitments – generous state pensions, comprehensive national healthcare, and extensive social security – all systems funded by a shrinking base of working-age taxpayers.

The resulting strain not only increases government expenditure but also impacts on crucial factors like productivity growth and investment, ultimately slowing overall economic expansion and jeopardizing the intergenerational contract – the unwritten agreement between different generations to support one another.

The pace of change is even more acute in parts of Asia. South Korea stands as the starkest global example, with the collapse of its birth rate (to well below one child per woman) projecting that a shocking 42% of its population will be over 65 by 2050, according to the UN's low-fertility scenario.

Mainland China is expected to follow closely behind, undergoing a demographic squeeze before it fully achieves high-income status. In contrast, Japan has been grappling with this reality the longest, with nearly 30% of its population over 65 since 2024.

Interestingly, despite this extremely high dependency ratio, Japan has managed to maintain surprisingly low pension spending relative to its GDP – a notable exception suggesting that cultural and policy variables, such as high personal savings rates and specific pension formulas, can mitigate the fiscal fallout.

Nonetheless, the overarching global lesson is that economic success cannot be sustained without a coherent strategy for supporting an aging population and adapting to the rising economic power of the "longevity economy."

From golden to aged

While Vietnam’s current elderly dependency ratio is not yet as high as those in developed nations, its trajectory is alarming. Vietnam is fast becoming one of Asia's fastest-aging nations, facing a demographic deadline that requires immediate policy action.

The country is set to transition from an "aging society" to an "aged society" in just under 20 years, a pace of transformation that took Japan a far more gradual 24 years. This signifies that Vietnam will have less time to prepare its infrastructure, its finances, and its social support systems.

The current decade marks the decisive close of Vietnam's crucial "golden population structure" phase – a period where the large working-age population historically provided a significant engine for economic development. The Ministry of Health confirms that this engine is slowing, with the country projected to officially become an aged society by 2038.

This rapid demographic shift is placing immediate, localized pressure on urban centers. The commercial hub of Ho Chi Minh City is particularly notable, rapidly becoming Vietnam's fastest-aging locality.

Currently, over 1.3 million residents, accounting for approximately 12.5% of the population, are aged 60 or older. Experts forecast this number will increase significantly, with seniors expected to comprise around 20% of the city’s population by 2030.

This intense concentration requires specialized municipal planning, straining everything from public transport accessibility to the need for geriatric and specialized healthcare services in high-density areas. Without prompt infrastructure and social investment, this accelerated aging process risks undermining the very economic growth it was built on.

The triple challenge: Fiscal, financial, and social squeeze

The combination of rapid population aging and an average-income economy presents Vietnam with a triple threat spanning fiscal, financial, and social domains.

First, Vietnam faces sharply rising fiscal burdens. Like its European counterparts, the public expenses associated with an older population – including publicly provided healthcare, state pensions, and social care provisions – rise inevitably with age.

This includes the future necessity of funding comprehensive long-term care insurance systems and potentially subsidizing housing or elder-friendly infrastructure. As the working-age population shrinks, the fiscal mathematics for the Government become increasingly troubling, potentially leading to a widening fiscal gap that pressures the national budget and necessitates difficult choices regarding taxes or public debt.

Historically, ageing populations are not conducive for a faster pace of growth. As a result of shifts in the population structure, investment typically slows as you have a smaller share of the population working and GDP growth will slow materially. The impact will be more acute for Vietnam than many developed economies as a large share of their generation retiring today are extremely asset-rich.

Second, there will be an intensified financial strain on the young generation. Although Vietnam is recognized for its relative quality of education in Southeast Asia (second in latest PISA rankings), which is a key driver for a productive workforce, the country’s output per hour worked remains comparatively low at 10.2, lagging behind Thailand (17.5), Malaysia (32.9), and Singapore (84.4).

As the working-age population contracts, younger workers will be expected to support a larger number of retirees while simultaneously navigating a rising cost of living, particularly in cities like Ho Chi Minh City. This amplified economic burden directly impacts lifestyle choices and contributes to the existing issue of the declining birth rate, creating a self-perpetuating negative feedback loop where high financial pressure discourages family formation and future workforce replacement.

Finally, the country faces immense intensified caregiving pressures. Rooted in deep East Asian tradition, the family structure often dictates that children shoulder the responsibility of caring for their aging parents. This informal, uncompensated care is a significant social cost. The social impact of aging translates into significant caregiving pressures on the young generation, often referred to as the "sandwich generation" – those simultaneously caring for their parents and their own children.

A single child might have to support six elderly individuals – two parents and four grandparents. This burden not only poses severe psychological stress but also forces young professionals, especially women, to reduce work hours or leave the workforce entirely, incurring a hidden economic cost in lost productivity and career progression.

A path forward

To mitigate this complex demographic challenge, Vietnam must implement proactive and comprehensive policies immediately, focusing on longevity, workforce participation, and family support.

Firstly, preventive healthcare and insurance must be prioritized. Expanding preventative healthcare for both the elderly and the youth is crucial to managing and deferring expensive acute care episodes. This means investing in national health education campaigns, chronic disease management programs, and decentralized services like mobile clinics. The goal is to maximize the number of healthy, independent life-years and reduce long-term medical costs that weigh heavily on public expenses.

Furthermore, establishing a comprehensive care insurance system is vital. This system, potentially involving public-private partnerships or mandatory contributions, would offer financial support for professional long-term care services, thereby alleviating the caregiving burden on families and society and replacing the increasingly unsustainable model of reliance on purely familial support.

Secondly, the Government must implement robust incentive policies to encourage childbirth and family formation. This requires moving beyond general rhetoric to concrete financial and infrastructural support. Such measures should include generous, well-funded parental leave policies, direct cash subsidies tied to income thresholds, tax breaks for families with multiple children, and critically, a massive expansion of high-quality, accessible, and subsidised childcare infrastructure. Reducing the financial and logistical barriers to having and raising children is the only sustainable way to gradually address the fundamental issue of the declining birth rate.

Finally, policy must embrace the concept of "active aging" and adjust the economic life cycle. Given the global shift toward less physically demanding, more service-heavy occupations, raising the retirement age is a necessary step to sustain the workforce and the national pension system. This should be implemented with flexibility, allowing for sector-specific adjustments and accompanied by substantial investment in lifelong learning and worker retraining programs.

Anti-discrimination laws and flexible work arrangements for older workers must also be introduced to ensure they can remain productive contributors, both economically and socially, thereby turning a demographic burden into a source of experienced human capital for the next phase of Vietnam’s development.