Pensioners Straining System
Seniors are Living Longer and Stressing Pension Funds
The world’s first pension plan was introduced by the Prussian aristocrat and statesman Otto von Bismarck. That was in 1889 and workers were entitled to draw a state pension at the age of 70. However, as life expectancy at the time for the average Prussian was 45, Bismarck’s program was not as generous or forward-looking as it seems on the surface.
The United Kingdom got its first pension scheme in 1908; eligibility did not start until 70 while the average lifespan at the time was 50.
The United States got its Social Security system in 1935, by which time the gap between qualifying age and life expectancy had narrowed to three years. The Canada Pension Plan did not kick in until 1966, at a time when Canadians were living an average of just under 72 years, while they could start receiving their pension cheques at 65.
Retirees Living Longer and Straining Pension Plans
According to The Economist (June 27, 2009) longer life expectancies are stressing the funds of government-run pension schemes. What were once expected to be short-term payments for just a handful of years are now stretching into a long-term income-support programs.
“In some European countries,” says The Economist, “the average retirement lasts more than a quarter of a century. In America, the official pension age is 66, but the average American retires at 64 and can then expect to live for another 16 years.”
According to the Organization for Economic Cooperation and Development (OECD) public pensions among its member states now gobble up seven percent of GDP.
The economic recession is not helping any. In its publication, Pensions at a Glance, the OECD says, “With rising unemployment and falling tax revenues squeezing public finances, OECD governments face budget deficits of nearly nine percent of national income on average in 2010. This leaves little room for more generous public pensions… Some countries have already had to cut back on future public spending on pensions.”
No Fixed Retirement Age
Many jurisdictions have abandoned their mandatory retirement age legislation; this has mostly been at the insistence of civil rights activists who saw such laws as age discrimination.
However, working past age 65 may soon become an economic necessity, as predicted by The Economist: “Whether we like it or not, we are going back to the pre-Bismarckian world, where work had no formal stopping point.”
More Pensioners and Fewer Workers
A lot of countries designed their pension plans to be paid for by current workers. That worked fine in 1950, when most developed countries had about seven people of working age for each person who was retired.
The balance has changed dramatically, as The Economist points out: “Now it is four to one - and on course to be two to one by 2050. That will ruin the pay-as-you-go state pension schemes that provide the bulk of retirement income in rich countries.”
One answer is for people to work beyond retirement age. They’re not going to be doing manual labour, but they are showing up more and more in retail and service jobs such as fast food restaurants. The added income from casual work can be clawed back out of pension payments to reduce the strain on the system.
Otto von Bismarck: Father of Pensions.
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