Demographics drives reform in government-run pension systems

A surge of greying baby boomers is putting pressure on governments around the world to reform their old-age pension systems, writes Pete Engardio and Carol Matlack of BusinessWeek magazine.

In 2003, for instance, the French government responded to the growing financial burden of supporting the elderly by enacting new rules requiring people to work longer to qualify for retirement benefits. Other non-European nations, Brazil and Japan have proposed similar changes, despite massive political pressure and citizen protests.

But the demographic realities facing nations around the world have reached the point where dealing with them has become a priority regardless of their political costs:

  • Worldwide, the ranks of 60-year-olds and older are growing at 1.9 percent per year – 60 percent faster than the overall population.

  • In 1950, there were 12 people ages 15 to 64 to support each one of retirement age; today, the global average is 9.

  • By 2025, the number of people ages 15 to 64 will fall by 10.4 percent in Spain, 10.7 percent in Germany, 14.8 percent in Italy, and 15.7 percent in Japan.

    If countries can't maintain the size of their labour forces, they'll need to increase productivity to maintain current growth levels. This may be difficult for Europe, where productivity has averaged 1.3 percent a year since 1995.

    The United States, with its slightly higher fertility rate and high levels of immigration, is in a more favourable position, say Engardio and Matlack. Median age is expected to rise by only 3 years to 39 over the next 25 years.

    Source: Pete Engardio and Carol Matlack, Now, the Geezer Glut, BusinessWeek, January 31, 2005.

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    FMF Policy Bulletin/ 15 February 2005
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