Babies born today can expect to live to beyond 100 in the world’s biggest economies if current trends in life expectancy continue. But longer life expectancy means people may have to work past the age of 70 in the years to come.
The World Economic Forum (WEF) is warning that the money saved is far short of what’s needed. It’s predicting that the world’s six largest pension-saving systems – the United States, UK, Japan, Netherlands, Canada and Australia – will have a retirement savings gap of $224 trillion by 2050. Adding China and India, which have the world’s largest populations, the savings gap rises to $400 trillion by 2050. That’s five times the size of the current global economy.
Michael Drexler, head of Financial and Infrastructure Systems at the WEF, says the situation is indeed as serious as the WEF has announced it to be.
“People are living a lot longer than they used to when pension systems were first designed. Somebody that was born 10 years ago can now expect to live in retirement for 40 years,” he says. “When pensions were first designed people expected to live five or 10 years after retirement. Increased longevity together with a lack of investment in the pension system and lack of savings is creating a funding shortfall by 2050 that is going to be roughly five times the size of the world economy.”
But is there a means to head off this potential disaster? Drexler is confident that a combination of measures can help ease the impending effect on the global economy. One of these is raising the retirement age.
“When people live close to a hundred years, retiring at 65 might just be a bit too early,” he says.
“What simply will happen is that there isn’t enough money for the recommended replacement ratio of 70 percent of final salary. And so, if people are happy to receive pensions that are less than that, then, of course, the retirement age can remain constant,” says Drexler.
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