Almost every day, we’re confronted with alarming messages about the future for older people who do not have adequate pensions or savings. Phrases like “retirement crisis”, “unsustainable pension funds” and even “millions of elderly slipping into poverty” often crop up in media coverage.
But are these predictions correct, or can we secure decent incomes and better living standards for our old age after all?
In view of the challenges threatening the world today, which include ageing populations, increased migration, vulnerable capital markets, lack of financial literacy, informal labour markets and negative attitudes towards older people in the workplace, there is definitively a need to make retirement systems stronger and more sustainable.
In many OECD countries, where the demographic trend towards an ageing population is most prominent, a shift in paradigm is especially necessary. These countries need to introduce greater flexibility as regards work and retirement and actively promote the employment of older people. Another key tactic would be to “start young” and educate new generations; they have increasing life expectancies and must plan early for decent incomes and living conditions.
At the global level, there is an urgent need to provide access to social security coverage, in particular in a number of countries in Africa, Asia and the Pacific and the Americas were pension scheme coverage is still low and old-age poverty widespread. The establishment of social protection floors, which provide at least basic pension incomes for all, should be an imperative for governments. In line with the UN/ILO blueprint for such floors, these benefits invest in individual and human capital through income security, improved health and better education, and thereby make an important contribution to social stability and economic development. In addition, these benefits contribute to increasing formality and more stable employment, and will therefore for many be the first step towards more comprehensive contributory coverage.
It is obvious that in order to be sustainable, a country’s pension system needs to include different pillars, supplementing strong mandatory public provision with private and occupational plans. Public provision is essential to ensure broad coverage and offers a high degree of security, but has recently been curtailed in a number of countries to reduce public expenditures and liabilities. Private savings or occupational plans have an important role in consumption smoothing and in compensating for recent reductions in the benefits provided by public schemes, but expose individuals to substantial financial and inflation risks.
Ensuring the right mixture of different pillars as well as broad access to them is of key importance.This is increasingly being recognized by governments and stakeholders, and if decisive action is taken it might still be possible to reverse the trend and make sustainable pension systems a reality – for current generations as well as those to come.
Author: Hans-Horst Konkolewsky is the Secretary General of the International Social Security Association (ISSA) and is also the Chair of the World Economic Forum’s Global Agenda Council on Social Security Systems
Image: A pensioner walks through the “Templete de la Virgen de los Dolores” (Shrine of Virgin of Sorrows) monument in downtown Ronda, near Malaga, southern Spain May 9, 2013. REUTERS/Jon Nazca