|As Pension Crisis Looms, Golden Years Fade to Black: Clive Crook |
By Clive Crook - Mar 6, 2012
The resolution of every economic crisis sows the seeds of the next.
Public pension systems in advanced and emerging economies alike were already under stress before the Great Recession. The past few years’ destruction of wealth and the likelihood of slower growth in the future have weakened them further and will put some under intolerable pressure.
Getting pension systems to work as they should will be one of the toughest tests governments face in the next several decades. It demands something they are notoriously bad at: thinking ahead.
I’m not saying governments don’t understand the problem. Many have started to address it. The trouble is, they’re framing the issue too narrowly, and adopting fixes that are unlikely to stick. Getting on top of this issue will require more radical thinking. In many countries, options that have been taken off the table will need to be put back on.
At the moment, governments see pensions almost entirely as a looming fiscal emergency -- which, to be sure, they partly are. On average, according to the International Monetary Fund, aging populations will raise public pension spending in advanced economies by about four percentage points of GDP over the next 20 years. That is an enormous amount. Rapidly falling fertility also means that a diminishing base of workers will have to bear that burden. (The ratio of pensioners to workers in developed economies is expected to double by 2050.)