Ageing populations and fewer workers strain pensions

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Avnish Jolly

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Sep 14, 2010, 8:51:29 AM9/14/10
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Ageing populations and fewer workers strain pensions

By Andrew Walker
http://www.bbc.co.uk/news/business-11281670
14 September 2010

Economics correspondent, BBC World Service


Governments around the world are faced with the task of funding more
old people's retirement with less money The world is getting older. In
most countries, the population is ageing.

That inevitably has dramatic consequences for pensions and other
arrangements for supporting older people.

There are two factors behind the trend. The first is clearly, in
itself, good news. People are living longer.

A child born in 1960 could expect to live for 52 years. Today, the
figure is 69 years. By the middle of the century, it is likely to be
higher still, well over 70.

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At the same time, people are having fewer children. In 1960, there
were 33 births for every 1,000 people. The number has fallen to 20,
and it is expected to decline further as people in the developing
world have fewer children.

That, too, is arguably good news. It should lead to the global
population stabilising, although at a substantially higher level than
it is now.

These are all global averages, and the picture varies between
countries. Some countries have actually seen life expectancy fall in
the last two decades because of the impact of HIV/AIDS. That has
especially hit Southern Africa.

But the general pattern is one of longer lives and fewer children.

Bigger burden

Desirable though both trends are in themselves, they create a new
problem. There are fewer people of working age for every older
person.


Decreasing birth rates mean there will be fewer workers to pay for old
age pensions In 1950, 8% of the population were over 60. Now it is 11%
and by the middle of the century it will be 22%, according to United
Nations projections.

In some countries - Japan, Macau and South Korea - it will be over
40%.

So for those countries with well-developed pension systems, there is a
long-term problem from these population trends.

Many state pensions come from contributions made by current taxpayers
- it's an arrangement called Pay as You Go. So on current policies,
there will be fewer taxpayers to pay more pensions.

Private pensions are different, but some economists think a smaller
working population will tend to depress the value of financial assets
and that will in turn affect pensions.

Then there is the financial crisis. It has hit many people retiring in
its aftermath, by reducing the value of the financial assets they use
to buy a pension.

And because interest rates are so low, the pension you can get for any
given amount of savings has also fallen.

In the long term, it might be that developed economies are going to
grow more slowly as a result of the crisis. If so, that would
undermine the value of pension funds' assets.

As for public provision, lower incomes and higher unemployment have
affected contributions to state pensions.

Developing problems

The story in developing countries is different. Fewer people have any
kind of formal pension arrangement. In much of Africa, less than 5% of
the current workforce are building up pension rights. In many Asian
countries, including China and India, it is between 5% and 25%.


As more people migrate to cities, old people in villages have fewer
relatives to take care of them In developing countries, provision for
old age is often informal and based on the family. That arrangement
faces its own pressures from population ageing.

A typical older person will have fewer children to rely on. That kind
of support works better if families are close at hand. But those
links, too, are undermined by younger people migrating from rural to
urban areas in search of work.

There are some important variations in how countries are affected by
these developments. But it is a global trend and almost all countries
will be affected in one way or

Avnish Jolly

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Sep 14, 2010, 8:49:35 AM9/14/10
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