do so? Questions that no one person has
definitive answers to.
One might be tempted to ask then, what
is the state of the pensions system in
different parts of the world? Quite frankly,
it is rather bleak. Globally pension funds
are beset not only by the aforementioned
problems, but also have to contend with
issues such as lack of enabling legislation,
political
interference
and
limited
consumer education.
In the United States for instance, 48%
of all Americans aged 18 to 30 have zero
in retirement savings and no access to
a traditional pension. Surprisingly and
perhaps a little naively, young Americans
are rather optimistic that their financial
futures will be better than those of their
parents. Accordingly, they expect to retire,
on average, at age 60. That’s seven years
earlier than full Social Security benefit
eligibility for their age bracket.
What makes the situation even more
complicated is that most of those in
this demographic have just slightly over
$1,500 in savings on average and have
already chalked up more than $8,000 in
debt. These young Americans are part of
a generation whose future retirements,
if they even happen at all, will be more
dependent on their personal savings.
Europe which has the largest population of
pensioners in the world, which continues
to grow apace, presents a very interesting
set of circumstances. Foremost is that life
expectancies have risen to roughly 80 from
69. In Switzerland, the national pension
plan has been consistently running deficits
for a while now. Swiss voters have in the
recent past rejected a pension reform plan
that would have strengthened the system
by raising women’s retirement age from 64
to 65, raising taxes and which would have
required workers’ contributions.
France, Belgium, Germany, Austria and
Spain are all pay-as-you-go countries
12
MAL34/20 ISSUE
The global economy is faced with an im-
pending 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.
(PAYG) meaning they have nothing at all
saved in public coffers for future pension
obligations. The number of retirees in these
countries continues to grow even as the
number of workers making contributions
declines. Add that to the fact that in these
countries, fewer than 25% of workers
contribute to pension plans.
Retirees in the UK have always had a safety
net: the option of retiring in EU countries
with lower living costs. However, with an
eye on the impending Brexit negotiations,
that is unlikely to be an option much
longer. In Ireland, 80% of those who
have pensions do not think they will have
sufficient income in retirement, and 47%
do not even have pensions.
In Japan, the National Pension plan is a
public pension system for all individuals
aged 20 to 59 years who have an address
in the country, which provides benefits
called the “Basic Pension” due to old
age, disability, or death. Whether you
are Japanese or a foreigner, if you work
at least 30 hours a week, you must pay
into the Employees’ Pension Insurance
plan. The only exceptions are people who
are self-employed, or those who work
for companies that have fewer than five
employees.
India has a rather fragmented and
complex pension system which has very
limited social safety net for the poor and
elderly. The current fertility rate in the
country stands at 2.8 children per woman.
With a median age of roughly 24 years,
India’s current population is very young
and is expected to grow from 1.16 billion
currently to 1.66 billion in 2050. The
country’s old-age dependency ratio is
projected to increase from the current level
of 8 to 21 in 2050.
Closer home, the Moroccan pension fund
(CMR) has faced a deficit since 2014 and
it is estimated that its reserves will be
depleted by 2044. Despite their economic
and social importance to the state and
citizens, Moroccan pension systems
and compulsory social security systems
currently cover just over 40% of the total
working population.
The rise in the number of pensioners and
the decline in the number of contributors
to the pension fund is likely to put a huge
financial burden on the country’s youthful
workforce. The government will be forced
to raise the retirement age, increase
required pension contributions, or reduce
pensions. These extreme measures are very
likely to be politically unpopular.
In South Africa, the ruling ANC has
revived plans long thought to have been