Urgent action is needed to address the possibility of a global pensions crisis as life expectancy increases have not been matched by pension policy, according to Group of Thirty (G30).
The consultancy group warned that pension systems were designed when life expectancy at retirement was much lower and they have only been adjusted “minimally” to these changes.
It stated that it expected a severe crisis that would result in inadequate outcomes in retirement if public policies and individual behaviours did not shift.
“People cannot save the same amounts during their working years as they do currently, retire at the same age as today, and still receive the same retirement payouts, unless future generations pay additional taxes to enable them to do so,” the report stated.
“And there are almost certainly political limits to how much of the burden can be shifted to future generations of workers.”
G30 said it was inevitable that countries would have to take steps to avoid a crisis.
It recommended increasing the retirement age, which it said would enable people to work longer while strengthening employer responsibility for employing older workers and improving productivity.
Secondly, G30 said that workers should be increasingly encouraged or incentivised to save more during their working life and/or taxes should be raised to support public pensions.
Lastly, it said that people will need to accept that their incomes in retirement may be lower than they expected, with reduced income replacement rates needed to ensure sustainability and intergenerational equality.
Most countries would need to use more than one of these levers to address the potential crisis, according to G30, as individually they would be insufficient.
The report warned that public and political discussions have tended to “obfuscate or postpone the choices and adjustments needed to solve this brewing crisis”, but that these adjustments can no longer be pushed back.
Commenting on the findings, PwC pensions partner, Paul Kitson, said: “The report makes clear that absent a change in global pensions and retirement policy and systems, by 2050 there could be a gap between the requirements of the worlds’ then pensioners and the pensions systems in place to support them of over $15trn. That is equivalent to 23 per cent of global GDP.
“The report also makes clear that any single policy intervention is unlikely to be enough, with a balance of changes likely required, including increasing retirement age, incentivising and increasing retirement savings, and accepting a potentially lower level of income in retirement.
“There is a very real danger that, for tens of millions of workers approaching retirement across the globe, their pensions savings and private wealth may be insufficient to provide for their remaining lifetime.”
— to www.pensionsage.com