PENSION CRISIS
The Unfolding
Pension Crisis
By Walter Nyabundi
“
The most important feature of the
post-war era landscape - people, ideas,
goods, and capital moving faster and
faster across borders around the planet
- has created extraordinary wealth and
opportunity. It’s increased global equality,
reduced poverty, extended lifespans, and
supported peace and prosperity.” This
is according to Ian Bremmer and Cliff
Kupchan who in their seminal report Top
Risks 2020 paint a very clear picture of the
complex economic, social and geopolitical
challenges we are faced with in this new
decade.
Paradoxically, with the improved financial
circumstances for many across the world
and increased life expectancy now the
norm rather than the exception, the global
economy is faced with an impending
pension crisis that threatens to completely
upend the social protection system for
the elderly as we know it. In just thirty
years, it is estimated that the total gap in
pension funding worldwide will be an eye
watering $400 trillion - roughly five times
the current size of the global economy.
Factors Underlining The
Pensions Crisis
The following factors most underline the
imminent collapse of the global pension
system:
People are living much longer than what
pension systems were designed for:
Retirement age for most countries is 65.
In the 1960s pension payments ranged
from five to eight years. Pensioners are
now living 8 to 11 years longer - and in the
case of Japan (where the retirement age is
60), a whole 16 years longer. That means
that pension systems are now having to
pay benefits for much longer than what
they were designed for.
There is a gap between what is needed
for retirement and what is actually saved:
Basically, the perception young Ken-
yans have of pensions paints a rather
complex picture. Generally young Ken-
yans believe that pension remittances
are to be made by the elderly or by those
who have already retired. With respect
to the retirement age, many young Ken-
yans are not clear on when they want to
retire or have not yet decided whether
they want to retire.
10
MAL34/20 ISSUE
What is considered adequate income
for retirement? Not an easy question to
answer. A common assumption is that
one needs less money in retirement than
they do while they are still working and
accumulating wealth. Because people are
living so much longer these days, there
is a gap between what is needed during
retirement and what is available, even
among countries with developed pension
systems. Once one considers the world’s
two most populous countries China
and India as well as Africa’s relentless
population growth, the picture of the
emerging crisis becomes even clearer.
The gender divide: Globally, retirement
remittances for women are typically
30-40% lower than that of men. Lower
wages account for a fair amount of this
imbalance. Coupled with longer-life
expectancies for women, these smaller
remittances are stretched over a longer
period of time.
The gap is growing very fast: What is
accelerating the growth of this gap? First is
the continued increases in life expectancy
globally. Second is the demographic
challenge of an ageing population with
fewer workers to support them. Third and
specifically for developing economies,
the increase is also being driven by rising
wages as these countries continue to
industrialize.
Depending on what part of the world
one lives in, pensions are either from the
government, or from one’s job, or one’s
personal savings or from all these sources.
The cardinal question though is always, is
this enough? At what age are you planning
to retire? Do you have enough saved up to