The issue of population ageing has brought forth critical concerns regarding the escalating expenses associated with pensions and healthcare. Given the financial constraints faced by governments, the pivotal question arises:
Who will bear these mounting costs?
This quandary has not only ignited widespread protests in France but has also engendered apprehension in numerous other nations.
In a comprehensive exploration of this topic by Tanya Beckett of the BBC “Talking Business” 09/06/2023, she engages in dialogue with Han Yik, an esteemed authority in the realm of pensions. Yik expounds upon the impending financial conundrum stemming from a system conceived nearly a century ago.
Furthermore, Mark Zandi, the chief economist at Moody’s Analytics, delves into the profound strain that an ageing populace is exerting on the fiscal landscape of governments worldwide.
This blog discusses the challenges of aging populations and rising healthcare costs, and provides insights on how governments can balance the books and ensure comfortable senior years for their citizens.
The document features three texts from experts in the field, discusses the solutions to ensure that aging populations do not bankrupt governments. The expert suggests that a range of adjustments may be required, including increasing revenue through potentially increased taxes, focusing on benefits such as increasing the retirement age, and addressing the cost of medical care.
The emphasis is that there is no single solution to the financial challenges of aging populations. Instead, a combination of strategies may be necessary, such as increasing the retirement age, increasing taxes on high income individuals and businesses, addressing immigration policy, and encouraging populations to save more for their own retirement.
The team discusses the impact of global debt on the ability of governments to provide healthcare and pensions for their citizens. The expert notes that even short-term conflicts such as the war in Ukraine can have long-term impacts on pension systems. The responsibility for retirement planning may fall back on individuals, as governments and private pension fund providers may come under pressure. Overall, the document highlights the need for governments to take action to address the financial challenges of aging populations and rising healthcare costs, and for individuals to plan for their own retirement.
Throughout Europe, the United States, Japan, and numerous other nations including the UK, our populations are undergoing a demographic shift towards ageing, paralleled by significant perturbations in the global economic landscape. Since the conclusion of World War II, there has been a consistent upward trajectory in global life expectancy, coupled with a decline in birth rates. Prior to the pandemic, in 2019, the average life expectancy stood at 72.8 years; however, projections from the United Nations anticipate an increase to 77.2 years by 2050. This demographic shift places escalating pressure on each economically active individual contributing to society. The ratio of contributors to those over the age of 65 was 16:100 in 2019, but it is predicted to nearly double to 28:100 by 2050.
An alarming assessment for the six major savings systems foresees a staggering funding shortfall of 224 trillion by 2050. Consequently, the funds required to sustain the anticipated lifestyles of citizens within these nations may prove inadequate. This predicament is driving many countries to contemplate increasing retirement ages.
The looming “pension time bomb” is fundamentally rooted in the reality that we now outlive the original intentions of pension systems. Notably, the retirement age of 65, established in 1935 with the inception of Social Security in the United States, was based on a life expectancy of 61 at that time. Subsequently, pension systems were tailored for a few post-retirement years, whereas contemporary longevity surpasses this threshold.
While extending the working years appears as a logical remedy, it encounters resistance, exemplified by widespread protests against President Macron’s proposal to raise France’s retirement age. Beyond pension implications, societal factors such as healthy years of productivity significantly impact the requisite pension savings. A dwindling workforce, coupled with an ageing population, presents challenges to funding systems, particularly those reliant on a “pay-as-you-go” approach.
In this context, individual accountability for retirement savings becomes paramount. Successful models, as seen in the Netherlands and Denmark, interweave robust public and private sector systems. These systems not only bolster subsistence levels but also enable supplementary individual and corporate contributions to ensure an enhanced post-retirement standard of living.
What is your solution or insight ?
Tanya Beckett of the BBC “Talking Business“ 09/06/2023