MUNICH – Over the rest of the twenty-first century, the global human population is expected to keep growing; more important, it will keep growing older. By the year 2100, the United Nations expects there to be more than ten billion of us, up from 7.3 billion today. In the meantime, the number of people older than 60 is expected to double by 2050 and more than triple by the end of the century.
As societies around the world prepare for swelling numbers of retirees, the policy challenge will be to ensure the financial sustainability of pension systems while guaranteeing adequate incomes for those no longer working. Today, according to recent research by Allianz, only four countries appear to have achieved this: Finland, Norway, the Netherlands, and New Zealand.
Previously, we analyzed the sustainability of the pension systems of 50 countries. Many of the countries that performed poorly on this test – most notably France, Greece, Italy, and Spain – were European welfare states where generous public pensions place heavy burdens on national finances. In 2010, the European Union’s expenditure on public pension systems amounted to 11.3% of GDP. This is expected to rise to 12.9% of GDP by 2060. Similar burdens can be observed in Japan and Brazil, indicating a substantial need for reform there as well.
By contrast, many of the countries that ranked highly in our sustainability rankings did so because their public pensions systems covered only the bare minimum necessary to keep retirees out of absolute poverty. These include top-ranked Australia, as well as the United States, the United Kingdom, and Ireland. In these countries, retirees will need additional forms of savings and income in order to maintain the standard of living to which they are accustomed.