Asia is set to become the oldest region in the world within decades and will have to take tough policy decisions to help it cope with the huge economic impact of an aging population, says the Asian Development Bank (ADB).

In a newly released working paper entitled Aging in Asia: Trends, Impacts and Responses, ADB notes that Asia’s share of the global elderly was 44% in 1950 but is set to rise to 62% by 2050. While the demographic shift is more advanced in developed economies such as Japan; Hong Kong, China; and Singapore, many developing countries in the region are aging at a faster pace.

"Population aging will touch every aspect of our lives and unless we start making difficult policy choices soon there is very little chance that Asia will age gracefully," says Jayant Menon, co-author of the paper with Anna Nakamura, both in ADB’s Office of Regional Economic Integration.

Some countries such as Japan - where nearly two out of every five people will be 65 years or older in 2050 - are already facing the challenges of an aging population, such as a declining labor force and spiraling pension and health care costs. Developing economies, by contrast, are yet to face such problems, with their working populations set to continue expanding sharply over the next two decades.

This, however, provides only a narrow window of opportunity to deal with aging-related issues and policymakers need to take advantage of it, the study says. Only about 60% of young men and 40% of young women in developing Asia are employed, many in low-paid or insecure jobs, leaving the region facing the prospect of aging with low levels of income.

Policymakers need to consider a wide range of actions, the study says. Populations are aging at different rates so the region could benefit from greater cross-border movement in labor. Regional cooperation efforts through ASEAN+3 and similar alliances can play a key role in facilitating this process.

Developing economies in the region need to adopt policies that allow them to take advantage of their swelling workforces over the next two decades. That could include boosting investment in education, improving workers' skill levels, and ensuring incentives are in place to attract more capital from neighbors that have surpluses. Developed economies, meanwhile, should aim to remove barriers to women's entry into the workforce and increase, or remove, the mandatory retirement age.

Overly generous, underfunded universal pay-as-you-go pension schemes could be overhauled, or be replaced by funded pension programs, financed by very long-term government bonds. Alternatively, policymakers could consider creating voluntary accounts or provident funds as supplements to pay-as-you-go schemes.