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France’s pension riots are a warning to the world

People are expected to live longer, but unless they also work for longer, they’ll need to draw their pensions for more years.
The global retirement crisis is a slow-ticking time bomb. Image: Shutterstock

When it comes to retirement, France is like other countries, only more so: Everything about its system is untenable. It’s untenable that it has 42 separate public pension schemes — one for train drivers, another for opera singers, and so on. It’s untenable that the French think they have a God-given right to retire at 62 or even earlier. And it’s untenable that they tend to riot in the streets every time the government tries to confront these realities.

If they chose a slightly different perspective, the French might actually have reason to celebrate. After all, like people across almost the whole world, they can expect to live longer. The only problem is that unless they also work longer, this means they’ll need to draw their pensions for more years. Moreover, because of lower fertility in recent generations, fewer young people will be financing these pensions.

This global retirement crisis is a slow-ticking time bomb, not as dangerous as climate change but almost as consequential for financial markets, living standards and much else.

This year, almost one in 10 people in the world will retire, according to the United Nations; by 2070, it’ll be about one in five.

The crisis isn’t evenly distributed. Africa, for once, has less of a problem, because of its relative youth. In North America, the problem is big. In Asia and Europe, it’s huge. The world’s “oldest” country (demographically) is Japan, and one of the fastest-ageing is South Korea. The oldest continent is Europe, and countries such as Greece, Poland, Portugal, Slovakia, Slovenia and Spain are among those ageing fastest.

Policymakers really only have three big dials to address this dilemma.

One is the contribution rate: how much people of working age are required to pay into the system. That rate is trending upward in rich countries. This represents an increasing burden on young people trying to get started in their careers (and questioning whether the system will even be around when they themselves retire). The alternative to making workers pay more is to fund shortfalls out of government coffers, which is a great plan to create the next sovereign-debt crisis.

The second policy dial is the replacement rate: the income level of retired people relative to what they made when they were still working. These rates range from as low as about 30% in Lithuania, Mexico or the U.K. to as high as 90% in Austria, Italy, Portugal or Turkey. Because most pension systems are unsustainable, these levels will go down almost everywhere. That means many old people will end up poor.

That leaves the third dial: the retirement age. Increasing it is the simplest way to make pension systems more sustainable, while simultaneously taking pressure off younger generations and promising more income to the old. What’s important is that the total time people spend in retirement doesn’t keep lengthening. That means the pension age should not only be raised immediately but also indexed to future gains in life expectancy.

Unfortunately, only one country, Estonia, has recently raised its retirement age. A few others, notably Denmark, have had good pension policies all along, so that their systems are in effect demography-proof. 

By contrast, most other rich countries (defined here as the 36 members of the Organization of Economic Cooperation and Development) are headed for trouble. Only slightly more than half have legislated future increases in the pension age, and even those increases are adding only half as many years as life expectancy will rise by over the same period. In other words, they’re insufficient.

More worrying, quite a few governments are backsliding, by actually lowering the retirement age, loosening rules for leaving the workforce early or breaking links to life expectancy they had previously created. Among these policy delinquents are Canada, the Czech Republic, Italy, Poland, Slovakia and Spain.

The reasons for this dynamic aren’t exactly mysterious. The effects of demographic change, like those of climate change, will be revealed gradually over decades. By contrast, a week is a long time in politics. Leaders who take a long view must sell their constituencies on changes that disrupt old habits and seem to bring nothing but inconvenience.

Voters tend to reward such honesty and foresight in their leaders by firing them or rioting. All the more reason for calmer minds to speak up and praise the courage of those politicians who dare to reform. 

© 2019 Bloomberg L.P.


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“The state is that great fiction by which everyone tries to live at the expense of everyone else.” – Frédéric Bastiat

…wasn’t expecting such comment from an Afikaner *lol* But you’ve said it.

Waarvandaan kom al die Du Preez, Du Plessis, Cilliers, Cronjes, De Klerks, De Villiers, Du Randts, Du Toits, Duvenages, Buys, Fouches, Delports, Hugo, Gouws, Le Rouxs, Lombards, Jordaans, Malans, Naudes, Marais, Malberbes, Nortiers/Nortjes, Retiefs, Reynekes, Rossouws, Senekals, Taljaards, Terblances, Therons, Tredouxs, Viljoens…??


“Hier is té veel Franse!”

Ja. My kommentaar is verwyder. Die Moneyweb ouens is baie PC.

…ek sien so! Jy was nie eers PC incorrect nie….net tongue in cheek teen die Franse 😉

I think one of MW’s editors drives a Citroen or Peugeot, and disliked your comment *lol*

(Merry Christmas)

Praise the courage of EU politicians????? It’s to their hard line promotion of negative interest rates that these pension funds are folding. Get back to market related interest rates and people will start saving and pension funds will start growing, even a kindergarten graduate knows this principal.

@boots……agreed !…

Typical Bloomberg MSM article

At the end of the day the only ppl benefiting from the negative interest rates are the big financial entities [ who can borrow billions for nothing, expand and invest their operations to oligarch status ]…while the man on the street conversely, is being punished by trying to save money in the bank as he actually has to PAY the bank to store his money

No wonder they are rioting in the street !….good for them

Fact is, you can’t save enough to retire, unless your retirement lasts for just a year or two.

That’s the big myth pedalled by the retirement industry.

The big government myth is that there will always be enough young workers around to support the old. Oh, and that you can make consistent returns in excess of inflation.

Developed countries have shrinking populations. It certainly makes sense to increase the retirement age. A way to bridge the gap would be to pay smaller salaries and pensions to the generation reaching the end of their careers but who are able to continue working.

In SA the risk was passed to the pensioner many years ago through defined benefit funds.

Undeveloped countries need to get their population growth under control, just follow the example of China.

Ill take the social system of the EU over the social system of Africa 10 times out if 10.

End of comments.





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