The world is facing a retirement crisis. A new report suggests that 20 of the richest countries in the world are facing a pension shortfall totaling around $78 trillion, and this could have disastrous consequences for everybody, both government and non-government workers.
Citi released a report Wednesday (via CNBC) that warned social security systems, government and private sector pensions and individual retirement accounts in 20 countries belonging to the Organisation for Economic Co-operation and Development (OECD) are “unfunded or underfunded.”
“Government services, corporate profits, or retirement benefits themselves will have to be reduced to make any part of the system work,” the report stated. “This poses an enormous challenge to employers, employees, and policymakers all over the world.”
Nations with immense government pension systems across the Euruope face massive liabilities. Countries like the United Kingdom, Germany, France, Portugal, Italy and Spain maintain public sector pension liabilities that exceed 300 percent of gross domestic product.
Even corporations face a similar problem. Some of the globe’s biggest corporations are not meeting their pension obligations, particularly United States- and UK-based companies.
What are the solutions? Citi presents the case that governments gradually hike the retirement age, which some jurisdictions are doing already, and link the retirement age with the projected age expectancy. The Canadian government recently rolled back its retirement age from 67 back to 65 for Old Age Security (OAS).
Another idea is to ensure government pensions are more of a safety net than a primary pension income. Moreover, corporate pensions should be functioned as an opt out program instead of an opt in endeavor.
“Another idea is to ensure government pensions are more of a safety net than a primary pension income. Moreover, corporate pensions should be functioned as an opt out program instead of an opt in endeavor.”
With price inflation almost always being higher than wage inflation. How are the going to accomplish this? Wishful thinking. The politicians have known for years that Social Security is under funded, but have they raised the tax rate? No!
They could index it to the COLA given each year until the tax reaches 10% for employer and employee. This would be more in line with what a retiree receives and ensure total funding for the program.