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Symposium 2010

Financing Old Age

The Challenge

People are living longer, more active and more fulfilling lives. But those additional years mean additional costs as pensions are drawn for longer periods and the costs of surgery, medication, healthcare and nursing care continue to soar. So the flipside of the scientific triumph over illness and disease is that many people do not have adequate financial resources to support their longer lives with the desired level of comfort.

Many have not saved enough privately and their investments are not generating as good a return as is needed. Many traditional workplace pension schemes, which offer a guaranteed payment linked to salary, are now deep in deficit as workers draw pensions for much longer without working any additional years before retirement or making additional contributions during their working lives.

Companies are finding the expense unacceptable and the investment and financial risk intolerable. With pay-as-you-go state pensions, a shrinking population of working young people is unable to pay enough in contributions to match the funding demands of an elderly population that is both growing and living longer. The financial crisis has highlighted further risks inherent in both public and private pension systems. While higher unemployment and increased government debt are putting additional stress on public finances and pay-as-you-go pension schemes, the substantial fall in asset prices has underlined the risks associated with pension funds invested in the financial markets.

But these are not the only signs of an expensive and escalating problem. The demographic trends that feed it are also accelerating—and they are turning what is mostly a problem for developed countries into one facing the entire globe. The United Nations reports that: “Population ageing is unprecedented, a process without parallel in the history of humanity. At the world level, the number of older persons is expected to exceed the number of children for the first time in 2045.” (The developed nations reached that point back in 1998.)

Population ageing is affecting nearly all the countries of the world. The proportion of older people in the world population has been rising steadily since 1950, when it was 8 percent. In 2009, older people made up 11 percent of the global population. By 2050, it will be 22 percent. And as fertility rates are unlikely to reach the levels of the past, population ageing is likely to be irreversible. There were 600 million people aged over 60 at the turn of the millennium. In 2009, there were 700 million. By 2050, there will be two billion older people.

Ensuring both adequate old-age incomes and the long-term financial sustainability of pension and healthcare systems is a huge challenge. In the current environment, there is the danger that immediate pressures to act will result in poorly designed short-term responses with negative long-term consequences for the capacity of pension systems to provide adequate levels of retirement income on a sustainable basis.

How can politicians find support for successfully implementing the necessary reforms of public pensions systems? What are the implications for the design, regulation and supervision of private pensions systems? And what can individuals, businesses and governments do to encourage people to prolong their working lives and to help elderly workers acquire the skills and preserve the physical and mental health needed to remain productive and competitive in today’s work environments?

    Solutions

    Solution
    Symposium 2010

    Encourage employers to employ and retain elderly workers by removing financial disincentives, such as seniority remuneration schemes and higher employment protection; by applying more flexible working conditions for elderly workers; ...

    Encourage employers to employ and retain elderly workers by removing financial disincentives, such as seniority remuneration schemes and higher employment protection; by applying more flexible working ...

    Encourage employers to employ and retain elderly workers by removing financial disincentives, such as seniority remuneration schemes and higher employment protection; by applying more flexible working conditions for elderly workers; and by improving workers’ employability by encouraging job training and skill enhancement throughout their working lives.

    Polity, Academia, Business, Civil Society
    Solution
    Symposium 2010

    Policy-makers must make pension reform credible and sustainable, by specifying a long-term trajectory of pension contributions and withdrawals, as well as a mechanism that makes this trajectory enforceable and difficult ...

    Policy-makers must make pension reform credible and sustainable, by specifying a long-term trajectory of pension contributions and withdrawals, as well as a mechanism that makes this trajectory enforc ...

    Policy-makers must make pension reform credible and sustainable, by specifying a long-term trajectory of pension contributions and withdrawals, as well as a mechanism that makes this trajectory enforceable and difficult to change in response to political contingencies.

    Polity
    Solution
    Symposium 2010

    Reduce the exposure of individuals to financial risks in funded systems by improving the governance of the pension industry, amending the design of defined contribution plans by promoting life-cycle portfolios ...

    Reduce the exposure of individuals to financial risks in funded systems by improving the governance of the pension industry, amending the design of defined contribution plans by promoting life-cycle p ...

    Reduce the exposure of individuals to financial risks in funded systems by improving the governance of the pension industry, amending the design of defined contribution plans by promoting life-cycle portfolios and greater flexibility in the timing of annuity purchases, and promoting flexible defined benefit plans.

    Polity
    Solution
    Symposium 2010

    Raise the eligibility age in statutory private and public pension systems, abolish the mandatory retirement age and maintain the momentum towards ending early retirement.

    Raise the eligibility age in statutory private and public pension systems, abolish the mandatory retirement age and maintain the momentum towards ending early retirement.

    Raise the eligibility age in statutory private and public pension systems, abolish the mandatory retirement age and maintain the momentum towards ending early retirement.

    Polity

    Proposals

    Proposal
    Symposium 2010

    Financing Old Age

    (1) Policy makers should take the financial crisis as an opportunity to address the long-run challenges to the pension systems and avoid short-term responses to the crisis that exacerbate the long run ...

    (1) Policy makers should take the financial crisis as an opportunity to address the long-run challenges to the pension systems and avoid short-term responses to the crisis that exacerbate the long run challenges. The financial crisis provides a strong impetus for all countries to review the design and implementation of their pension systems. Policy makers should, however, be aware of the danger that immediate pressures to act may result in poorly designed short-term responses with negative long-term consequences for the capacity of pension systems to provide adequate levels of retirement income on a sustainable basis. Politicians should, for example,

    Polity, Academia, Business, Civil Society