Pension crisis and systemic financial implications

Pension Crisis

The world is currently in the midst of a major pension crisis. Unfortunately, the situation is only getting worse with pensions creating a heavy burden on governments' shoulders.

The general population contains on average the largest number of aging individuals than any generation has ever seen before, and with less younger workers to foot the bill for pensions currently being paid out, many governments are simply unable to handle such large percentages of their GDP going to the payment of pensions alone.

Point

More elderly now than ever before, 16% of the global population is now considered elderly (Jackson & Howe 2008).

This is putting great strains on the pension structure here in the United Stated and abroad

Means that it will be a greater burden on the younger individuals to take care of such a large number of aging elderly (Jackson 2002).

Point

Less children being born than in previous generations

Far below the average of 2.1 children per household, which would be considered the replacement rate (Jackson & Howe 2008)

This then means that there will be less individuals in the younger workforce that should be helping support the elderly population by adding in funds to pension plans

Point 3

People currently being paid pensions are now, on average, working less but getting paid more

Highest pensions paid out in the last few years than ever before

Also, with life expectancies getting longer and longer, many retirees are enjoying more years paid under their pension plans (Slater 2008)

Pension plans were created when life expectancy was much less

Point 4

Public pension rates are unreasonable in today's day in age

Are the largest single source of retirement income for individuals around the world

Some countries are spending as much as 8% of the GDP on paying out public pension (Slater 2008)

Those numbers are said to grow to almost 18% of the GDP in some nations (Jackson 2002)

Governments simply can't keep up

Conclusion

Solutions are needed in order to fix the current system and better provide for retirees of today and tomorrow.

Pension Crisis

The world is currently in the midst of a major pension crisis. Unfortunately, the situation is only getting worse with pensions creating a heavy burden on governments' shoulders. The general population contains on average the largest number of aging individuals than any generation has ever seen before, and with less younger workers to foot the bill for pensions currently being paid out, many governments are simply unable to handle such large percentages of their GDP going to the payment of pensions alone.

Today's population is on average older than any other previous generation. There are more elderly now than ever before, 16% of the global population is now considered elderly (Jackson & Howe 2008). Compared to previous generations, such numbers are astounding. This number is said to increase in the near future, until it reaches 6% by 2050. The fact that the number is continuing to grow only makes the current situation look gloomier. Essentially, this is putting great strains on the pension structure here in the United Stated and abroad. Increased life expectancies mean that it will be a greater burden on the younger individuals to take care of such a large number of aging elderly (Jackson 2002). With more elderly living to longer age ranges, that means more money needed to help pay for retirees' pensions and even benefits expenses, like health insurance. This becomes a massive expense for nations already in the midst of deep financial crises. The United States and many European nations are still struggling to get out of a major recession, yet they are spending billions on public pension plans. There will be a greater strain on allocating funds for pensions on such a large scale.

Moreover, there are less children being born than in previous generations. This creates a situation where the current and future workforce will be unable to support the growing aging population. Current statistics show that there is far below the average of 2.1 children per household, which would be considered the replacement rate (Jackson & Howe 2008). For almost the entire 20th century, nations all over the world saw continuous population growths, with more being people being born than dying. Yet, today, this population growth has declined in a number of major regions, including many European nations. This then means that there will be fewer individuals in the younger workforce that should be helping support the elderly population by adding in funds to pension plans. Current structures are under the pay-as-you-go plan, where today's workers pay for today's retirees in hopes that future workers will do the same for them (Slater 2008). There are now only two workers for every pensioner (Slater 2008). This creates a situation where the workers are unable to appropriately keep up with providing money for pension payments.

People currently being paid pensions are now, on average, working less but getting paid more. The last few years have witnessed the highest pensions paid out in the last few years than ever before. Also, with life expectancies getting longer and longer, many retirees are enjoying more years paid under their pension plans (Slater 2008). Pension plans were created when life expectancy was much less. The original Prussian system was implemented when the life expectancy in that region was only around 45 years old (Wells 2005). Modern pension systems in the United States were established when the average life expectancy was around 62-65 years of age. However, the life expectancy now averages to around 78 years old, showing increased strain on the systems that fund pensions. With more money needed, it places a greater strain on the system.

Additionally, public pension rates are unreasonable in today's day in age. In fact, they are the largest single source of retirement income for individuals around the world. Some countries are spending as much as 8% of the GDP on paying out public pension (Slater 2008). Those numbers are said to grow to almost 18% of the GDP in some nations (Jackson 2002). Governments simply can't keep up. Currently, governments are encouraging individuals to start up personal plans or follow plans constituted by their employers, rather than relying on government funding to support public pensions (Jackson 2002). However, such governments are still obligated to pay out promised pensions, which could have a huge impact on how pensions are laid out for future generations.