Prince Charles has been waiting more than 50 years to become monarch of the United Kingdom. And his prospects for immediate accession do not look good. For his mother, Queen Elizabeth II, was one of a remarkable group born in 1926.

Britons born that year, and in others close to it, are part of a "golden cohort" whose lifespan is increasing dramatically. In Japan, demographers have discovered an even more startling step change in longevity among women born in 1910. Since 1960, they have added one year of post-50 life expectancy every four years. 

Before 1960, they had gained a year every 18 years.

Gains are not limited to the developed world. Mortality rates in Mexico, for instance, were twice those of the US in 1930. By 2010, they are projected to be roughly similar.

Actuaries and gerontologists are still unclear why these changes are taking place. In the UK, theories range from a decline in smoking after the 1960s to the use of antibiotics in fighting disease. But one thing is certain. Policymakers and electorates alike are only beginning to grasp what these profound changes may entail.

To take one example: in the year Prince Charles was born - 1948 - the corporate predecessor of British Airways set up a pension scheme. Back then, the cost to the company did not seem that great: retirement was at 65 and the average age of death was 68. Now, the average British Airways employee lives past 80, a fivefold increase in years in retirement. The pension funds have combined assets about three times bigger than the company's market capitalisation - yet BA faces additional annual contributions of £133m ($246m, €191m) to eliminate its deficit.

Individuals also tend to underestimate how long they will live. As Eric Lofgren, global director of the benefits consulting practice at Watson Wyatt in the US, notes, among private pension holders who choose to take a lump sum rather than an annuity, roughly 55 per cent run out of money before they die, leaving them to eke out their days on social security.

Pension provision is becoming a source of political and workplace friction in most industrialised economies. The challenges posed by fast-changing demographics will be high on the agenda at this week's World Economic Forum in Davos, Switzerland. Ageing societies are also forcing companies and markets to examine some fundamental assumptions.

For thousands of years, human life expectancy remained broadly stable; until the start of the 20th century it was about 40 years. Over the past 100 years it has more than doubled - a trend that, in retrospect, will be seen as a defining characteristic of the age.

That life expectancy is now improving in every age group is remarkable. But what is truly extraordinary is the speed at which longevity is rising among the oldest people.

Globally, according to the United Nations, the over-80s comprise the fastest growing segment. The world's population aged 60 and over was roughly 600m in 2000, about triple that of 50 years earlier. In the next 50 years, the number is likely to triple again to more than 2bn.

In developed countries, the percentage of older people (defined as the over-60s) will rise from the current fifth of the population to a third by 2050.

Yet a growing number of demo- graphers and medical experts now believe that life expectancy is improving even faster than most official estimates allow.

This month, the UK's government actuary dramatically raised its forecast of life expectancy for those reaching 65 and 80 by 2025. Longevity is now expected to improve by 1.0 per cent annually, not by 0.75 per cent as forecast only two years ago. And although the rate of improvement will slow, it is expected to take 25 years, not 10, before that improvement slows to half its current rate.

James Vaupel, a professor of demography and a founder of the Max Planck Institute for Demographic Research in Rostock, Germany, says statisticians tracing the rise in worldwide longevity over the past 160 years find lifespans rising by one year every four years, at a fairly steady pace.

But the methodology used by most actuaries assumes a natural limit to life expectancy; that is, at some point the maximum human lifespan hits a brick wall. This view - termed the rectangularisation of longevity (if you drew a survival curve, assuming everyone lived to the maximum age, it would stop suddenly, forming a rectangle) - has shaped much of the forecasting exercise.

Prof Vaupel believes it is fundamentally wrong and has been for decades. "The traditional method has been demonstrated over and over again to be too pessimistic."

Politicians, he argues, have no interest in facing up to the demographic shift. "Continuing belief in imminent limits is distorting public and private decision-making. The official forecasts distort people's decisions about how much to save and when to retire. They give politicians licence to postpone painful adjustments."

In a wide-ranging report on global demographic shifts issued last year, the Centre for Strategic and International Studies, a military and strategic think-tank in the US, warned that "countries will have to race against time to ensure their economic and social fabric against the 'shock' of global ageing." Of all the shocks, the greatest is the "staggering fiscal cost".

"Longevity is the 21st century's ultimate strategic issue," says Richard Jackson, senior fellow and head of the Global Ageing Initiative at the CSIS.

The report points to Germany as a country where longevity is already straining the nation's finances. In 1950, the average 60-year-old could expect to live to 76. Today's 60-year-old German can expect to live to 81 - a rise that has added nearly a third to the cost of the public pension system, the CSIS says.

Eurostat, the statistical arm of the European Commission, says that average European Union-wide life expectancy at 65 rose by roughly 25 per cent between 1970 and 2000. A 65-year-old man in 2000 could expect on average to live another 15.5 years, while a woman had another 19.5 years ahead of her. That compares with male life expectancy in 1970 of 12.6 years for men and 15.9 years for women.

"If life expectancy at 65 goes from 15 years to 22 years, that translates into a 50 per cent increase in cost," says Richard Willets, a member of the UK Institute and Faculty of Actuaries, who has recently formed a consultancy specialising in longevity.

Kevin Wesbroom, a principal consultant with actuaries Hewitt Bacon & Woodrow, puts it another way: "Employers are underwriting longevity risk."

Uniquely among European states, Sweden - the country with the highest longevity in the EU - has reformed its state pension system to accommodate the growing burden of longevity.

In 2000, Swedish men could expect to live 16.7 years after their 65th birthday, women a further 20. Under the new system, you can retire from the age of 61 but after this there is no fixed date. Swedes accrue "notional" benefits for every year they work, perform national service or raise children. Pensioners use the notional lump sum, which is converted to an annuity pegged to then prevailing longevity estimates. Those who work beyond 65 will earn bigger pensions.

"If longevity continues to increase, it will affect the size of benefits paid and indexation of notional benefits," says Ole Settergren, chief economist of Sweden's National Social Insurance Board. "Both the active and retired population will share the burden."

In the US, says Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries, a growing number of employers are converting traditional defined-benefit schemes into so-called cash balance plans. These plans - which have met enormous resistance from employees - require the employer to set aside a percentage of each worker's pay each year and guarantee a minimum return on that investment. But when the employee retires, or finds another job, the pay-out is a cash lump sum, not a promise to pay a defined sum until death. Employees can either buy an annuity or live off its proceeds in retirement.

But while longer, economically inactive retirement spells disaster for national pension systems, the implications for healthcare are less clear cut. Some health statisticians point to emerging evidence that the current elderly generation is fitter and healthier than its predecessors. Fears that society will be swamped by growing numbers of ill and disabled old people may be based on misconceptions and outdated information from the 1980s and earlier.

"New data demolish such concerns," says Raymond Tallis, professor of geriatric medicine at Manchester university. "There is a lot of evidence that disability among old people is declining rapidly."

Optimists talk about a "compression of morbidity". Advances in healthcare and the prevention of disabling illnesses are beginning to lengthen healthy life while shortening the average period of disability before death. If this is correct, it adds weight to arguments for the retirement age to be raised.

The best evidence of this trend is emerging in the US. The National Long-Term Care Survey, analysed by Kenneth Manton and colleagues at Duke University, shows an accelerating reduction in the prevalence of chronic ill health among elderly Americans.

The total number of Americans aged 65 and over rose by 30 per cent from 1982 to 1999 but the proportion of those significantly disabled fell from 26.2 per cent to 19.7 per cent - and the rate of decline doubled during the period. The proportion of elderly Americans resident in nursing homes fell even faster, from 6.8 per cent to 4.2 per cent.

If the trend continues, concerns about the long-term solvency of the federal Medicare healthcare programme for the elderly would turn out to be exaggerated, Prof Manton concluded. A study of Medicare expenditure, by James Lubitz and colleagues at the US National Centre for Health Statistics, demonstrates that people who experience more "golden years" of healthy old age do not end up having cost more in healthcare when they eventually die. People who are healthy at the age of 70 and live independently for many years accumulate total medical costs that are similar to those who are sickly at 70 and die sooner.

"The basic lesson of our study is that although healthy people live longer, they don't cost more in the long run," says Dr Lubitz. The findings suggest that the outlook for the Medicare programme, as the "baby boom" generation grows old, is not as dire as some policymakers fear.

In the UK, the General Household Survey shows that the proportion of people over 85 who were capable of living independently rose from 68 per cent in 1980 to 81 per cent in 1991.

As John Grimley Evans, professor of geriatric medicine at Oxford university, puts it: "We must squash the idea that we cannot afford an ageing population because it is so expensive."....