Ivan Zhigalov
Some self-proclaimed “experts” promote the idea of getting rid of retired people as some nations are aging while working population and pension funds are running low. They say that several nations are nearing a demographic disaster. Is the problem really so serious? Let’s have a closer look at the situation…
Aging Nations
It is common knowledge that most European nations are aging.
Unlike Australia and the USA, few European countries can boast population growth – Great Britain, Cyprus , Switzerland.
As for Italy, France and Germany, the ageing problem is especially burning. The population of Germany is ageing at the biggest pace: Since 1950, the amount of citizens over 65 has doubled. In 50 years, it will double again. At the same time, the birth rate in Germany is the lowest one in Europe. Retired people make 18% of the entire German population. In Italy and France, retired people represent 17% and 20% correspondingly. The situation in France is explained by the fact that the retirement age is Europe’s lowest one - 60 years.
Obviously, governments have to spend more money on pensions and other benefits for the retired. In particular, the USA allocates some 6% of GDP, Turkey – 8%, Italy – 14%.
The ageing problem in ex-USSR states is aggravated by the fact that the ageing of population takes place at the expense of lower birth rate instead of higher duration of life.
China seems to bear the fruits of its policy aimed at curbing the rate of birth and improving the quality of life. People over 60 represent 20% of the entire population of China. Yet, China has no infrastructure to provide good care for retired people in the future, when the percent increases.
The chart below, courtesy of , reflects the current situation in various countries around the globe:
Over the last few years, most countries have had to increase the retirement age.
Obviously, there is no direct correlation between the number of retired people and the ageing of a certain nation because a retired person is a social phenomenon determined by legislation (the retirement age can be changed).
A range of experts assume that countries with over 20% of retired people are on the edge as their pension funds may fail to carry the load once there is no fundamental reforms.
Population Ageing
Conventional wisdom has it that today’s progress leads to an increase in the amount of aged people. Simultaneously, the working population is getting scantier. Another thing that is usually associated with the problem is the rate of birth. They say population ageing (in combination with lower birth rate) leads to demographic and economic crises. In this aspect, authorities usually start talking about the necessity of unpopular austerity steps in order to prevent the social security system from collapsing.
Obviously, the youth and working population gradually start yielding to the retired.
The situation in various countries is different. In particular, the ageing of population in Japan and Germany is mainly caused by lower death rates. Better living conditions and healthcare make generations die off more slowly. At the same time, lower birth rates aggravate the situation.
Population Ageing: Possible Solutions
Politicians play first fiddle in promoting the idea that population ageing is a disaster. Ministers, parliamentarians, pension fund managers keeps reminding us that the retired are supported by the working population of a certain country. They like represent the ageing problem as an objective problem. The only solution they see is to raise the retirement age to decrease the amount of the retired people in favor of the working ones.
But the thing is that the retired earn their pension benefits during the working period of their lives. So it is wrong to treat them as dependants.
Therefore, pension cuts, retirement age hikes and other similar measures won’t solve the problem in the long run. Pension systems need fundamental reforms as they were created and developed in other conditions.
Today’s pension system should be closely and entirely connected with how much labor a certain retired person contributed to his/her country during the working period of his/her life.
Accumulative pensions can be a solution in some countries, but it should be done quickly.
However, some experts assume that a complete denial of solidarity-based state pension systems is immoral, amateurish and inefficient.
Such a system makes it possible for the retired to stay an economically active social stratum – consumers who support the national economy. Indeed, it needs to be reformed. To abandon such a system would be a big mistake.
What about the correlation between the “population ageing” problem and the national currency exchange rate? Eugene Olkhovsky, ’s leading expert, says that there is some indirect correlation. The bigger the amount of the retired is, the bigger burden the budget feels.
However, one thing is sure: this factor has not impact on the Forex market at this point.
Ivan Zhigalov
