Yikes! The old people in France will need to take training from the young French 'students' in how to riot for more govt giveways !!
Pension tension
Seniors' needs will push some countries to crisis point
By Andrea Coombes, CBS MarketWatch.com
Last Update: 12:15 AM ET Nov. 18, 2002
SAN FRANCISCO (CBS.MW) -- France, Spain and Italy are heading for an economic and political meltdown unless they change their public benefit programs for the elderly -- and fast, according to a new report.
In those countries, a large and growing population of older people, generous government programs, and a dearth of private pensions will push public pension and health-care costs to 29 percent or more of GDP by 2040, more than double today's average, the study by the Center for Strategic and International Studies found.
"Some countries are going to have an extremely hard time trying to maintain their social guarantees," said Paul Hewitt, director of CSIS' Global Aging Initiative. "Private pensions are virtually nonexistent in the Continental economies. It's all tax-and-spend -- tax the workers to pay the retirees."
With a ballooning number of seniors, "it's going to place intolerable burdens on the economy," he said.
Of 12 countries studied, Australia, the United Kingdom and the United States are best able to meet the needs of their swelling ranks of retirees, mainly because of stronger private pension programs, according to the study.
The demographic shifts highlighted by the report are staggering. Over the next few decades, the number of seniors per 100 working-age adults will jump to 70, from 30 today, in developed countries. Seniors are considered 60-years-old and older in the study.
And in Japan, Italy and Spain, that number will rise to 100, meaning one retiree per worker. But Japan's demographics -- the country's median age will be 50 in 2025-- are offset by seniors who are willing to work well into their seventies, and by less generous public benefits than most European countries.
"The silver lining around Japan's cloud is the fact that 31 percent of men over 65 are in the workforce," Hewitt said. "A huge percentage of old-age income in Japan is from earnings."
France's average retirement age is about 58, but that's going to have to change to head off the impending fiscal disaster, Hewitt said.
"You have to have a change in life patterns. The idea of retiring at 60 and living until 90 is completely absurd," Hewitt said. "Part of the solution is making aging populations more active and productive."
Political sticking point
Countries that try to change their benefits system will meet political pressure to find a different solution. Cutting programs will push some seniors into poverty, making for unpopular public policy.
"When you have large numbers of people who are almost exclusively depending on government benefits in old age, any attempt to reduce those benefits is going to generate a huge amount of protest and passion," Hewitt said.
But some countries have few options, he said. Many "don't have any room to raise taxes. Payroll taxes are already at the 40 percent or higher level."
Some countries are heading off disaster by legislating forced savings plans. Australia recently passed one requiring employees save 9 percent of their paychecks, and Sweden's mandatory savings law goes into effect this year, Hewitt said.
Developed countries are also going to have to increase productivity to raise their GDPs, he said.
"Most growth in the past came from growing populations, and now you have a shrinking number of workers, a shrinking number of consumers," Hewitt said. "Aging countries are going to have to become relentlessly efficient."
Vulnerability index
Australia won the study's title of "least vulnerable" to a crisis in supporting its elderly population, a title the U.S. would have won if it weren't for astronomical health-care costs here.
While the U.S.'s public benefits are "not extremely generous," Hewitt said, and it has a strong private-pension scheme, those two characteristics weren't enough to make up for health-care expense.
The U.S. spends about $4,500 per capita in public health-care costs, making it more vulnerable to the fiscal impact of an ever-growing number of seniors. Compare that to the $2,100 spent per capita in Japan, which has the next-highest health-care costs, Hewitt said.
The countries were ranked as follows, in order from least to most vulnerable to a crisis: Australia, United Kingdom, United States, Canada, Sweden, Japan, Germany, Netherlands, Belgium, France, Italy, Spain.
The study was based on economic and demographic models that involved "no wishful thinking," unlike some government estimates, Hewitt said. Fertility rates were projected to remain low (leading to fewer workers stepping into retirees' shoes), and life expectancy was expected to continue increasing.
Hewitt warned that the status quo would lead to fiscal crises unlike anything being seen now. "Current budget difficulties are nothing to what's laying in store if these countries don't take steps soon to control the burden of old-age dependency." |
