UNDERESTIMATE the elderly at your peril, is the warning from
the International Monetary Fund (IMF).
Statisticians and economists may be downplaying the
lengthening of the human lifespan. If they're doing so by the same three years
as in recent decades, the IMF reckons the cost of pensions and healthcare will
be 50% higher than estimated.
Something, almost certainly the age of retirement, will have
to give.
Demographers keep expecting a slowdown in rising life
expectancies that has yet to occur. In 1977 the British government was being
guided by actuaries who predicted its citizens would be living to 71 on average
by 2011.
In fact, they now typically make it to 79. Estimates by rich
nation statisticians have generally fallen shy of actual lifespans by around
three years over the past several decades. Yet the number crunchers continue to
forecast a stalling of the longevity escalator.
This could prove an expensive blunder. Even under the
current cautious lifespan assumptions, the cost of providing a reasonable
retirement – replacing around 60% of pre-retirement income – will double over
the coming 40 years globally, the IMF calculates.
Supporting armies of silver-haired citizens in rich nations,
the fund believes, will gobble up 11% of gross domestic product (GDP) by 2050,
up from 5% now. Most states have done precious little to prepare even for this.
But assume current life forecasts are short by three years
again, and the cumulative price tag rises by half again at mid-century.
Facing up to the threat might be unpleasant. The pension
liabilities of the Netherlands jumped by €50bn – or 7% of GDP – at a stroke in
2010 when the country decided to take account of even modest expected increases
in lifespan.
Such moves demand chunky injections of cash into private and
public pension pots, which would in turn deprive the productive generations
needed to support the elderly of much-needed investment in education and
infrastructure.
More distress is on the way, however, unless more permanent
solutions are found. Tying the retirement age – and benefits – to the
escalating life expectancy is the simplest step.
A few pioneers, like Denmark and Sweden, have already moved
in this direction. Other nations would be wise to follow suit quickly.
Delaying will only make the final reckoning more painful.
- Reuters
* Christopher Swann is a Reuters Breakingviews columnist.
The opinions expressed are his own.