OPINION: Another conundrum for the middle aged
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The World Economic Forum (WEF) doesn’t hold back when it comes to publishing statistics, opinions and forecasts on just about every topic under the sun. Indeed, the frequency with which WEF reports are issued, coupled with their length, probably ensures that few are read cover-to-cover. However, one of its more recent (and very readable) publications, 'We’ll Live to 100 – How Can We Afford It?', proved unusually popular.
In truth, this was a comparatively brief document which posed two straightforward questions many of us ask ourselves with increased frequency once we arrive in our late forties and early fifties. "At what age are you planning to retire?" asks the WEF, followed by: "Do you have enough saved up to do so?"
Who would have thought that 17 short words could pose such a conundrum for the middle-aged?
Life expectancy underpins grey-haired reaction. Since the end of World War II, life expectancy has risen, on average, by between two and three years every decade. Remarkably, around 25pc of today’s newborns can expect to live until at least 2112.
The WEF paper, actually published just before the pandemic, highlights the positives and negatives inherent in these enhanced lifespans: “While increased longevity is a positive step for individual and societal health and productivity, this change has a profound impact on the traditional make-up of our societies and the social protection systems that are designed to support us in our old age.”
The report adds: “One obvious implication of living longer is that we are going to have to spend longer working. The expectation that retirement will start early- to mid-60s is likely to be a thing of the past, or a privilege of the very wealthy.”
The implications for people currently starting to ask themselves when they’ll retire are potentially life-changing.
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It’s a situation exacerbated by the global dependency ratio, i.e. the ratio of people in gainful employment to those in retirement, which is expected to plummet from 8:1 today to 4:1 by 2050. Very few economies can cope with such a radical shift, virtually guaranteeing rises in retirement ages well beyond even the gloomiest predictions.
Moreover, this combination of improved longevity and falling dependency ratio ensures that, in the words of the WEF, “policy-makers must immediately consider how to foster a functioning labour market for older workers to extend working careers as much as possible”.
It would appear that not only is time of the essence, but there isn’t much scope for getting things wrong – factors that will no doubt exercise the minds of Chancellor Rishi Sunak and his team gauging the overall performance and take-up of workplace pensions.
In fairness, the UK has implemented and then operated a very successful workplace pension scheme for more than a decade, although no one could argue that it has solved the “problem” of enhanced life expectancy.
Instead, workplace pensions have been part of a multi-pronged assault on the problem of life expectancy. During the pandemic, for example, the UK state pension age increased to 66 for men and women. Indeed, women have been left holding the short end of the stick: the official retirement age for females rose from 60 to 66 in the space of ten years (2010-2020). The government also plans further increases (to 67 before 2028) and there’s little indication that the official pension age will remain unchanged into the 2030s.
Across the globe, people are living much longer than studies made in the 1970s forecast, drawing state pensions for more years than systems were designed to handle.
According to data published by the World Bank, retirees in six nations with the largest pension schemes (US, UK, Japan, Netherlands, Canada and Australia) are living between eight and 11 years longer – and a massive 16 years longer in Japan. The WEF describe the situation as a ‘global timebomb’ because the schemes are expected to create an aggregate pension shortfall of $224 trillion by 2050, “imperilling the incomes of future generations and setting the industrialized world up for the biggest pension crisis in history”.
Michael Drexler at the WEF says: “The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change.
“We must address it now or accept that its adverse consequences will haunt future generations, putting an impossible strain on our children and grandchildren,” he adds, an observation which will undoubtedly continue to focus the minds of those at the Treasury charged with resolving the problem.
For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.