The profound effects of aging populations and a shrinking labor force on overstretched state pension schemes in emerging
The report, launched today in
"The countries of emerging
The report states that transition countries of
"Pension systems can no longer promise to provide ever more generous benefits to the ever-increasing number of pensioners. Increases in life expectancy, sharp declines in fertility, and increasing emigration have contributed to compromise the affordability of many pension systems," said
Reforms need to ensure that the elderly do not fall in poverty by providing a minimum pension benefit. This has implications for the way pensions are currently financed.
"Changing the financing mechanism for old-age security has implications for who gets benefits and how much they get," said
The report examines two potential solutions to face the demographic challenges to pension systems: generating additional fiscal revenue to cover pension deficits, and increasing the number of contributors to the system. However, countries in the region tend to already have high tax burdens, especially on labor, leaving them little scope for generating additional revenue to address pension deficits. Moving away from labor taxation as the financing source for old-age security and toward consumption and property taxes might help generate some additional revenue, but even there the scope is limited in most countries.
Expanding the number of contributors is not a panacea either. In most of the countries in emerging
"One of the more striking findings in the report is that expanding the number of contributors by bringing in informal workers or the growing influx of immigrants helps the pension system in the short-run when it receives additional revenue, but makes things worse in the long-run when pension benefits have to be paid to even more retirees," said
While both additional revenue and increased labor force can contribute to mitigate short-term adverse impacts of unavoidable pension reforms, the long-term solution might lie in adjusting the generosity of pension systems so that retirement income covers only the period when individuals can no longer work, typically the last 15 years of life. This is what was afforded to retirees in the 1970s, compared to an average of 18 years of retirement for men and 23.5 years for women in many countries today.
Raising retirement ages and encouraging and supporting individuals to work longer would go a long way toward enabling pension systems to provide for basic old-age income and be more financially sustainable. Measures to encourage older workers to continue working include:
- providing options for gradual retirement, for example, by allowing older people to work part-time while collecting a partial pension;
- adopting small adjustments to the workplace, such as putting magnification on computer screens and providing ergonomic chairs, to raise the overall productivity and comfort level of older workers; and
- investing more effectively in training at older ages by rethinking adult education, training, and lifelong learning systems to make them a better fit for aging brains.
Finally, fiscal pressures are leading countries to increasingly limit their already-overstretched pension spending by fostering private pension provision and individual long-term savings plans. Savings allow workers to have additional retirement resources available. Measures such as automatic enrollment in savings schemes can induce workers to fill any gap in retirement income with their own savings.
There are no one-size-fits-all solutions. Regardless of the path chosen, countries need to begin a social dialogue on what approach is best suited in each country context to preserve the ability of pension systems to provide basic income protection in old-age for today's young and the less well-off elderly in the face of their demographic challenges.
TNS 18EstebanLiz-140222-30FurigayJane-4645560 30FurigayJane
Most Popular Stories
- Obama Administration Releases Proposal to Regulate For-Profit Colleges
- Elizabeth Vargas' Husband Marc Cohn Addresses Rumors
- Apple, HP, Intel May Take a Hit from Slowdown in Smartphone Sales Growth
- Keurig Adds Peet's coffee, Alters Starbucks deal
- U.S. to Relinquish Gov't Control Over Internet
- Quiznos Files for Chapter 11
- SoCalGas Reaches Record Spend on Diversity Suppliers
- Is Malaysian Airlines Flight 370 in Andaman Sea?
- Motley Crue's Nikki Sixx Marries Model Courtney Bingham
- Vybz Kartel Convicted of Murder