Until 2005 George Magnus carried out the usual tasks of an investment bank’s chief economist: analysing retail sales figures, employment data and other issues affecting the market in which his employer, UBS, operated. But four years ago he swapped his routine of daily reports to start watching the horizon for the next big issue that could reshape both the market and the global economy. “I was looking out for the next climate change,” he said. What he found was demographic change: the economic threat of an ageing population.

Baby-boomers hitting retirement may not sound exciting next to the threat of countries disappearing into the ocean or drought wiping out food crops, but the threat is real and the results could be expensive. Mr Magnus puts this into context by explaining that the cost of cleaning up the banking crisis will be up to 25 per cent of GDP, but that the cost of the UK’s ageing population – the next four decades of pensions, healthcare, disability benefits and residential care – will cost 330 per cent of GDP.

The Government may not have to spend all this at once, but still it will have to find an enormous amount of money to deal with a situation that is not getting the attention it should. Mr Magnus is doing his bit to help to focus people’s minds: his book The Age of Aging, was published recently and he spent time last week talking to pensions experts about the implications of demographic change for their profession. But there is more to be done before it reaches icecap-melting levels of awareness.

The economic problem is straightforward: not enough babies are being born, which means that, as our 17 million baby-boomers retire, they will be economically dependent on a shrinking pool of working-age people. But Mr Magnus argues that the Government has yet to develop a strategy to deal with this. Most policies for older people centre on their health and care needs rather than the implications for society.

He said: “[Government thinking] is about the delivery to elderly citizens of services that allow them to be independent for as long as possible, which is absolutely important and necessary. But it’s not the same as having a strategy to deal with an ageing population.” There are two main options for managing the age imbalance: increase the number of people in the labour pool so there are more workers supporting retirees or make the existing workforce more productive. The second of these means more skills and better education, but there are signs that some sections of government see smaller numbers of children in the future and decide that education budgets can be cut. “That would be the worst thing to do,” Mr Magnus said.

“You need to have even greater efforts to keep up levels of educational attainment. You can’t afford to cut it or we will slip badly behind. The Chinese and the Indians aren’t going to wait.”

But increasing the number of workers isn’t as simple as encouraging people to have more babies; it will take 20 years for today’s newborns to start job-hunting. Increasing immigration could have a much more immediate effect, but it would need to double starting today – something that would be “politically fractious” and is unlikely. Finally, there is the option of getting older people and, to a lesser extent, women back to work. Removing the poverty trap – the cost of childcare makes returning to work prohibitively expensive for many women – would help, but the biggest difference could be made by older people.

“The richest source of participation in this country is people aged over 55,” Mr Magnus, 60, said. “We have to change the nature of work and the workplace to allow people to work longer.” He has no plans to retire soon. Given that economics does not require heavy lifting, he expects to stick around as long as his mind stays sharp.

The retirement age will also need to change, though Mr Magnus does not expect it to happen during the current Parliament. “The idea that there should be some sort of retirement age of 65 is a nonsense. We simply can’t afford to offer people the luxury of spending 20 or more years not contributing to the economy. Increasingly, people won’t be able to afford it, either.

“Whatever the eligible pension age, people will end up working for longer. There are many ways companies can prepare their workforces and workplaces to do that, but you can’t leave it for 20 years – it has to begin now.”

It is not only institutions, public and private, that will have to change their thinking. Individuals will also need to amend their attitudes about when retirement will happen and how it will be funded. “In all probability,” Mr Magnus said, “this will involve some shifting of the burden of preparedness for retirement away from the state and towards the individual.”

While it will take some time for these issues to take centre stage in the public consciousness, he takes some reassurance from the knowledge that for many years climate change was a fringe topic. Now it is a standard part of the agenda for government, business and individuals.

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