[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] T [/yt_dropcap]he world’s six largest pension systems will have a joint shortfall of $224 trillion by 2050, imperiling the incomes of future generations and setting the industrialized world up for the biggest pension crisis in history.
To alleviate the looming crisis, governments must address the gaps in access to the pensions system and ageing populations as they are the key sources of the widening pension gap. These are the main findings of the new World Economic Forum report, We’ll Live to 100 – How Can We Afford It?, released today, which provides country-specific insights into the challenges being faced at a global level and potential solutions.
“The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change,” said Michael Drexler, Head of Financial and Infrastructure Systems at the World Economic Forum. “We must address it now or accept that its adverse consequences will haunt future generations, putting an impossible strain on our children and grandchildren.”
The report is the latest study to calculate the impact of ageing populations on the pension gap in the world’s largest pension markets, which include the United States, United Kingdom, Japan, Netherlands, Canada and Australia (for more details please see the appendix to this release). The gap in those markets is the largest in the US, where a current shortfall of $28 trillion is projected to rise to $137 trillion in 2050. The average gap in the six markets combined is calculated to reach $300,000 per person. The total gap for all 8 markets in the study (which further includes China and India, which have the world’s largest populations) will reach a total of $400 trillion by 2050. All numbers are summarized in the graph below:
The savings gap resembles the amount of money required in each country (including contributions from governments, individuals and employers) to provide each person with a retirement income equal to 70% of their pre-retirement income. Outgoings such as personal savings and tax are often reduced in retirement and targeting 70% of pre-retirement income, in line with OECD guidelines, is a crude guide to provide people with a similar standard of living in retirement as they had before retirement.
For low-income earners the 70% target will not be sufficient and could result in poverty unless savings are increased. The funding gap will continue to grow at a rate higher than the expected economic growth rate, often 4%-5% a year, driven in part by ageing population effects: a growing retiree population who are expected to live longer in retirement.
“The retirement savings challenge is at crisis point and the time to act is now,” said Jacques Goulet, President, Health & Wealth at Mercer, the lead collaborator for this initiative. “There is no one ‘silver bullet’ solution to solve the retirement gap. Individuals need to increase their personal savings and financial literacy, while the private sector and governments should provide programmes to support them.”
The report suggests five high priority actions that governments and policy-makers should take to adapt pension systems to address the challenges:
Review normal retirement age to increase in line with life expectancies. For countries where future generations have a life expectancy of over 100 , such as the US, UK, Canada and Japan, a real retirement age of at least 70 should become the norm by 2050.
Make saving easy for everyone. A good example is the recent reforms in the UK where 8% of earnings will be automatically contributed to pension savings accounts for each individual from 2019. This initiative to automate the act of saving so far has boosted savings for 22- to 29-year-olds and low-income workers, and is estimated to create $2.5 billion in additional pension savings each year.
Support financial literacy efforts – starting in schools and targeting vulnerable groups. Financial literacy education should be offered throughout people’s careers to raise awareness of the importance of saving. A good case study is the media campaign executed in Singapore for the launch of CPF LIFE, the national annuity scheme that focused on translating a simple message easily understood by the average person.
Provide clear communication on the objective of each pillar of national pension systems and the benefits that will be provided. This would give individuals an understanding of the level of income they can expect from government and mandatory occupational systems and whether they need to accumulate their own individual savings to “top-up” income provided from national systems.
Aggregate and standardize pension data to give citizens a full picture of their financial position. A good example is Denmark, where an online dashboard collates pension information to provide individuals with a holistic view of their different pension savings accounts.
The report emphasizes that governments and policy-makers have a central role to play in reforming pension systems to ensure we can adapt to societies where living to 100 is commonplace.
“Because retirement outcomes unfold slowly over decades, emerging problems are very hard to see and are virtually unchangeable once they occur,” said Robert Prince, Co-Chief Investment Officer, Bridgewater Associates and part of the World Economic Forum’s Retirement Investment Systems Reform Project Steering Committee. “Good outcomes require effective approaches and good decisions applied consistently over decades. Ineffective actions taken over decades will put a weight on society and economies that will be virtually impossible to lift once it occurs. Given ageing populations and increasing lifespans, effective reforms are required now.”
The report was prepared by the World Economic Forum in collaboration with Mercer, a global consulting leader across health, wealth and careers.
Post-COVID-19, regaining citizen’s trust should be a priority for governments
The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.
Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”
Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.
Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:
Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.
It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.
Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.
Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.
Sweden: Invest in skills and the digital economy to bolster the recovery from COVID-19
Sweden’s economy is on the road to recovery from the shock of the COVID-19 crisis, yet risks remain. Moving ahead with a labour reform to facilitate adaptation in a fast-changing economic environment, and investing in digital skills and infrastructure, will be crucial to revive employment and build a sustainable recovery, according to the latest OECD Economic Survey of Sweden.
The pandemic triggered a severe recession in Sweden, despite mild distancing measures and swift government action to protect people and businesses. GDP fell by less than in many other European economies in 2020, thanks to reinforced short-time work, compensation to firms for lost revenue and measures to prop up the financial system, but unemployment still rose sharply. Solid public finances provided room for further stimulus in 2021 to buttress the recovery.
The Survey recommends maintaining targeted support to people and firms until the pandemic subsides, then focusing on strengthening vocational training and skills and increasing investment in areas like high-speed internet and low-carbon transport. Addressing regional inequality, which is low but rising, should also be a priority as the recovery takes hold.
The Survey shows that Sweden has been among the most resilient OECD countries in the face of a historic shock. Yet, like other economies, it faces challenges from demographic changes and the shift to green, digital economies. Investments in education and training, and labour reforms along the lines negotiated by the social partners, will support job creation and strengthen economic resilience. Building on Sweden’s leadership in digital innovation and diffusion will also be key for driving productivity.
After a 3% contraction in 2020, interrupting several years of growth, the Survey projects a rebound in activity with 3.9% growth in 2021 and 3.4% in 2022 as industrial production resumes and exports recover. The recovery in world trade is bolstering the Swedish economy, however the country remains vulnerable to potential disruptions in global value chains.
|The pandemic has aggravated a mismatch in Sweden’s job market, with unfilled vacancies for highly qualified workers coinciding with high unemployment for low-skilled workers and immigrants. The public employment service needs strengthening to provide better support to jobseekers, including immigrants and women, and labour policies should strike the right balance between supporting businesses and workers and supporting transitions away from declining businesses towards growing sectors.|
A rising share of youths and older people in the population, especially in remote areas, is affecting the finances of local governments, which provide the bulk of welfare services. Strengthening local government budgets and ensuring equal welfare provision across the country will require providing tax income to poorer regions more efficiently and raising the economic growth potential across regions through investments in innovation. Improving coordination between government entities and reinforcing the role of universities in local economic networks would help achieve that aim.
Fewer women than men will regain work during COVID-19 recovery
Fewer women will regain jobs lost to the COVID-19 pandemic during the recovery period, than men, according to a new study released on Monday by the UN’s labour agency.
In Building Forward Fairer: Women’s rights to work and at work at the core of the COVID-19 recovery, the International Labour Organization (ILO) highlights that between 2019 and 2020, women’s employment declined by 4.2 per cent globally, representing 54 million jobs, while men suffered a three per cent decline, or 60 million jobs.
This means that there will be 13 million fewer women in employment this year compared to 2019, but the number of men in work will likely recover to levels seen two years ago.
This means that only 43 per cent of the world’s working-age women will be employed in 2021, compared to 69 per cent of their male counterparts.
The ILO paper suggests that women have seen disproportionate job and income losses because they are over-represented in the sectors hit hardest by lockdowns, such as accommodation, food services and manufacturing.
Not all regions have been affected in the same way. For example, the study revealed that women’s employment was hit hardest in the Americas, falling by more than nine per cent.
This was followed by the Arab States at just over four per cent, then Asia-Pacific at 3.8 per cent, Europe at 2.5 per cent and Central Asia at 1.9 per cent.
In Africa, men’s employment dropped by just 0.1 per cent between 2019 and 2020, while women’s employment decreased by 1.9 per cent.
Throughout the pandemic, women faired considerably better in countries that took measures to prevent them from losing their jobs and allowed them to get back into the workforce as early as possible.
In Chile and Colombia, for example, wage subsidies were applied to new hires, with higher subsidy rates for women.
And Colombia and Senegal were among those nations which created or strengthened support for women entrepreneurs.
Meanwhile, in Mexico and Kenya quotas were established to guarantee that women benefited from public employment programmes.
To address these imbalances, gender-responsive strategies must be at the core of recovery efforts, says the agency.
It is essential to invest in the care economy because the health, social work and education sectors are important job generators, especially for women, according to ILO.
Moreover, care leave policies and flexible working arrangements can also encourage a more even division of work at home between women and men.
The current gender gap can also be tackled by working towards universal access to comprehensive, adequate and sustainable social protection.
Promoting equal pay for work of equal value is also a potentially decisive and important step.
Domestic violence and work-related gender-based violence and harassment has worsened during the pandemic – further undermining women’s ability to be in the workforce – and the report highlights the need to eliminate the scourge immediately.
Promoting women’s participation in decision-making bodies, and more effective social dialogue, would also make a major difference, said ILO.
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