Pension systems stressed as working-age populations shrink -Mercer report

Globally, pension provision will come under increasing up to 2020 as working age populations shrink, according to consultant Mercer.

A major study it has released indicates that the economically vital 15-64 age group is set to drop by as much as 6% as a percentage of total population in some nations in the next eight years.

Hong Kong faces biggest decline (6%) in the ’15-64′ age group as a percentage of its total population.

Major economies with a 4% decline in working age population over the next eight years include Canada, Japan and Russia.

China, the United Kingdom and the United States are expected to see a 2% decline in the working age group as a percentage of total population.

Countries in which the working age population will increase include Pakistan (3%) and 2% in Brazil, India, Indonesia, and Mexic

According to Deborah Cooper, Partner in Mercer’s retirement business, “While the changes seem small in percentage terms…this represents hundreds of millions of workers, and can have a major impact on state pension systems.

Most national retirement schemes are state funded and start paying pensions from around age 65, so a contraction in the numbers of the most economically active group will see a reduction in funds available for welfare, health and retirement programmes.

Concurrently, the 65+ group in a country might be increasing, drawing on a greater proportion of scarcer financial resources from the smaller working population.”
Many governments have reacted to their ageing populations by a mixture of increasing the minimum payment age for the state pension and reducing the pension paid.

According to Mercer, companies already coping with the impact of demographic change in their own retirement plans, will be expected by employees to fill the gap in health and retirement benefits as the nation state retreats

“To do this effectively, we believe that companies and employees need to revisit fundamental beliefs on how to prepare for and structure retirement,” said Cooper.

“Governments are already moving in this area by removing default retirement ages or adjusting normal retirement ages.”

“At Mercer, we are seeing movement on the corporate front, too. More clients are asking us to investigate phasing out traditional pillars of retirement like fixed pension benefits. Instead, they are interested in implementing new types of scheme design, like the workplace savings products in the UK.”

There can be offsetting positive factors. If the proportion of those of working age who are in employment, or actively seeking employment, has increased, it will help mitigate the problem.

There has also been a steady reduction in the age at which people leave employment due to age. It has even reversed in some countries as individuals begin to react.

Fergal McGuinness, senior partner in Mercer’s retirement business, says emerging economies face their own challenges.

“Will their populations get old before they get rich? Will they follow the developed world down the dangerous path of unsustainable social security systems? China, in particular, will be interesting to watch, as their ‘one child’ policy has accelerated the aging phenomenon there. Certainly the high saving rates amongst the Chinese population at large point to concerns about the security of both state and company offered provision.”

Demographic change will also have implications on costs associated with healthcare, said McGuinness.

“An older workforce also means an aging clientele. Will an older sales force relate better to the retail customers of the future? Certain industries are already facing talent shortages for key skills due to the retirement of seasoned professionals.”

Overview of population ages changes by country 2007 – 2020 in percentages

Country 2007     2012     2020    
  0-14 15-65 65+ 0-14 15-65 65+ 0-14 15-65 65+
Argentina 26% 64% 10% 24% 65% 11% 23% 65% 12%
Australia 19% 68% 13% 19% 67% 14% 19% 64% 16%
Austria 16% 68% 17% 14% 68% 18% 13% 66% 20%
Belgium 17% 66% 17% 17% 65% 18% 17% 63% 20%
Bolivia 38% 58% 5% 35% 60% 5% 32% 62% 6%
Brazil 27% 67% 7% 24% 68% 7% 21% 70% 10%
Bulgaria 14% 69% 17% 14% 68% 18% 15% 65% 20%
Canada 17% 69% 13% 16% 69% 15% 17% 65% 18%
Chile 24% 68% 9% 21% 69% 10% 20% 68% 12%
China 21% 72% 8% 19% 73% 9% 17% 71% 12%
Colombia 30% 65% 5% 28% 66% 6% 25% 67% 8%
Croatia 15% 67% 17% 15% 68% 18% 15% 65% 20%
Czech Republic 15% 71% 14% 14% 70% 16% 16% 65% 20%
Denmark 19% 66% 16% 18% 65% 17% 17% 63% 20%
Ecuador 31% 63% 6% 30% 64% 6% 26% 65% 8%
Egypt 32% 63% 5% 31% 64% 5% 29% 65% 7%
Estonia 15% 68% 17% 16% 67% 17% 18% 63% 19%
Finland 17% 67% 16% 16% 65% 18% 17% 61% 22%
France 18% 65% 16% 18% 64% 17% 18% 62% 20%
Germany 14% 66% 20% 13% 66% 21% 13% 64% 23%
Greece 14% 67% 18% 15% 66% 19% 15% 65% 20%
Hong Kong 13% 75% 12% 11% 76% 13% 12% 70% 18%
Hungary 15% 69% 16% 15% 68% 17% 15% 65% 19%
India 32% 63% 5% 30% 65% 5% 27% 67% 6%
Indonesia 28% 67% 5% 26% 68% 6% 23% 70% 7%
Ireland 21% 68% 11% 22% 66% 12% 22% 64% 14%
Israel 28% 62% 10% 27% 62% 11% 27% 60% 13%
Italy 14% 66% 20% 14% 65% 21% 14% 63% 23%
Japan 14% 66% 21% 13% 63% 24% 13% 59% 28%
Latvia 14% 69% 17% 14% 68% 18% 16% 65% 19%
Lithuania 16% 69% 16% 15% 69% 16% 16% 67% 17%
Luxembourg 18% 68% 14% 18% 68% 14% 17% 68% 15%
Malaysia 32% 64% 4% 29% 65% 5% 26% 67% 7%
Mexico 30% 64% 6% 28% 65% 7% 25% 67% 8%
Netherlands 18% 67% 14% 17% 66% 16% 16% 64% 20%
New Zealand 21% 67% 12% 20% 66% 14% 20% 64% 16%
Norway 19% 66% 15% 19% 66% 15% 18% 64% 18%
Pakistan 37% 59% 4% 34% 61% 4% 32% 64% 5%
Peru 31% 63% 6% 29% 65% 6% 26% 66% 8%
Philippines 37% 60% 3% 35% 62% 4% 31% 64% 5%
Poland 16% 71% 13% 15% 71% 14% 16% 66% 18%
Portugal 15% 67% 17% 15% 67% 18% 13% 66% 21%
Romania 15% 70% 15% 15% 70% 15% 15% 67% 17%
Russia 15% 72% 14% 16% 72% 13% 17% 68% 15%
Serbia 18% 67% 15% 17% 68% 14% 16% 67% 17%
Singapore 19% 73% 9% 16% 74% 10% 14% 71% 15%
Slovakia 16% 72% 12% 15% 73% 13% 16% 68% 16%
Slovenia 14% 70% 16% 14% 69% 17% 15% 65% 21%
South Africa 31% 65% 4% 30% 65% 5% 28% 66% 6%
South Korea 18% 72% 10% 16% 72% 12% 14% 70% 16%
Spain 15% 69% 17% 15% 67% 17% 15% 66% 19%
Sri Lanka 25% 67% 8% 25% 66% 9% 23% 65% 11%
Sweden 17% 65% 17% 17% 64% 19% 18% 61% 21%
Switzerland 16% 68% 16% 15% 68% 17% 15% 65% 20%
Thailand 22% 70% 8% 20% 71% 9% 17% 71% 12%
Turkey 28% 67% 6% 26% 68% 6% 23% 69% 8%
Ukraine 14% 70% 16% 15% 70% 15% 16% 67% 17%
United Arab Emirates 18% 81% 1% 17% 83% 1% 15% 83% 2%
United Kingdom 18% 66% 16% 17% 66% 17% 18% 64% 19%
United States 20% 67% 13% 20% 66% 14% 20% 64% 16%
Venezuela 31% 64% 5% 29% 65% 6% 26% 66% 8%
Vietnam 26% 68% 6% 23% 71% 6% 21% 71% 8%

 

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