## The Impact of Aging Worldwide on Pensions and Public Policy ## Source details **Canonical URL:** [The Impact of Aging Worldwide on Pensions and Public Policy](https://www.imf.org/en/publications/fandd/issues/2020/03/impact-of-aging-on-pensions-and-public-policy-gaspar) ## Other formats - [Markdown version](/en/publications/fandd/issues/2020/03/impact-of-aging-on-pensions-and-public-policy-gaspar/index.md) - [Structured JSON version](/en/publications/fandd/issues/2020/03/impact-of-aging-on-pensions-and-public-policy-gaspar/index.json) - [Bundle manifest](/en/publications/fandd/issues/2020/03/impact-of-aging-on-pensions-and-public-policy-gaspar/bundle-manifest.json) ## Bibliographic details - Authors: DAVID AMAGLOBELI, VITOR GASPAR, ERA DABLA-NORRIS - Published: March 1, 2020 --- ### Overview and key findings - Today there are, on average, 3.4 working-age people to support the retirement of every person 65 and older; by 2050 that number is projected to dwindle to just 2. - Japan is already nearly at that point; by 2050 more than 35 other countries (about 7 percent of the world population) will join Japan. - Aging is driven by two main factors: people are living longer and having fewer children. - Demographic stages differ across regions: many Northern Hemisphere countries, particularly Japan, are in a more advanced stage; many African countries are in the early stage. - Countries in advanced stages face a shrinking labor force and higher burdens on pay-as-you-go pension systems; countries in early stages need to create a large number of new jobs every year to absorb a rapidly growing working-age population. - By 2050 there will be stark contrasts between regions (for example, Europe and sub-Saharan Africa). ### Impact on savings - Life-cycle saving behavior implies societies at more advanced stages of aging are likely to see lower aggregate savings. - Recent IMF research (Amaglobeli and others 2019) shows that in advanced economies both private and public savings (effectively the government fiscal balance) are projected to decline as a result of more pension spending during the next 30 years (all else equal). - Younger cohorts will need to save significantly more and postpone retirement by a number of years to maintain pension benefits similar to today’s retirees. - In emerging market economies and low-income developing countries collectively, relatively young populations will lead to higher private saving; this increase is expected to outweigh an expected decline in public savings due to rising public pension spending. - Pension-system design features materially affect saving outcomes: - Overly generous public pensions lower both public and private savings, all else equal. - Less generous public pensions can drive up private saving as individuals self-fund more of their retirement. - Defined-contribution plans (dedicated pension savings accounts) are associated on average with increased private savings compared with countries without them (example cited: individual retirement accounts in the United States). ### Pension reforms and system design - Recent reforms aim to contain growth in the number of pensioners by changing key parameters (increase statutory retirement age, tighten eligibility). - Examples cited: - Proposed reform in France aims to raise the full-pension retirement age to 64. - Reform adopted in Brazil in October 2019 increases retirement ages to 65 for men and 62 for women from 56 and 53, respectively. - Cyprus, Denmark, the Netherlands, and Portugal legislate increases in statutory retirement age in line with rising life expectancy. - Reforms have also reduced benefit generosity via: - Modifying benefit calculation formulas (for example, inflation indexation components). - Rewriting valorization rules. - Changing accrual rates in defined-benefit plans. - Trade-offs and distributional consequences: - Reducing generosity and delaying retirement attenuate long-term fiscal vulnerabilities and moderate the decline in aggregate saving but have distributional consequences and require careful calibration. - Linking retirement-age increases to improvements in life spans can slow inflow of new retirees and encourage older workers to remain in the labor force. - Effective provisions to prevent old-age poverty are important when tightening pensions. ### New models and broader policy responses - Rethink pension system architecture; one option is public defined-contribution programs (assuming necessary preconditions). - Stimulate voluntary retirement saving through financial-sector instruments; priority differs by financial sector development: - Less developed financial systems should first increase financial inclusion (globally, 31 percent of adults still do not have bank accounts; the majority of the unbanked population lives in sub-Saharan Africa). - Financial literacy can foster a culture of saving and better retirement planning. - Countries with developed financial sectors could use tax-preferred retirement saving vehicles (example cited: 401(k) plans in the United States) or tax-preferred general or education savings accounts. - Participation of middle-income households is essential to generate additional saving rather than displacement of existing saving. ### Labor-market and social policies to offset demographic pressures - Policies to counteract expected declines in the labor force include: - Closing gender gaps in labor force participation (example cited: Italy and Spain have enacted such reforms). - Globally, only 50 percent of women participate in the labor force, compared with 80 percent of men (Dabla-Norris and Kochhar 2019). - Promoting access to high-quality, affordable childcare to increase labor-force participation of young mothers. - Encouraging older workers to keep working by reconsidering taxes and benefits that favor early retirement. - In countries with inadequate retirement systems, policy priorities include: - Expanding coverage of social security systems. - Raising social pensions (pure cash transfers to the elderly). - Enhancing targeted social assistance transfers to reduce old-age poverty and household precautionary saving (examples: China and the Republic of Korea cited as having high saving rates and social security systems with low coverage and generosity). ### Combined policy implications - Pension system, financial, and labor-market policies together can: - Damp projected declines in national saving. - Improve sustainability of pension systems. - Ensure decent living standards in retirement. *David Amaglobeli, Era Dabla‑Norris, and Vitor Gaspar; F&D Magazine, March 2020.* --- ## Content in this bundle - **التمويل والتنمية** - [التمويل والتنمية (Markdown version)](/-/media/files/publications/fandd/article/2020/march/ar/gaspar.pdf.md){rel="alternate" type="text/markdown"} - [التمويل والتنمية (PDF)](/-/media/files/publications/fandd/article/2020/march/ar/gaspar.pdf){rel="external" type="application/pdf"} - **Envejecer sin empobrecer ● Finanzas y Desarrollo ● Marzo de 2020** - [Envejecer sin empobrecer ● Finanzas y Desarrollo ● Marzo de 2020 (Markdown version)](/-/media/files/publications/fandd/article/2020/march/es/impacto-envejecimiento-en-pensiones-y-politicas-publicas-gaspar.pdf.md){rel="alternate" type="text/markdown"} - [Envejecer sin empobrecer ● Finanzas y Desarrollo ● Marzo de 2020 (PDF)](/-/media/files/publications/fandd/article/2020/march/es/impacto-envejecimiento-en-pensiones-y-politicas-publicas-gaspar.pdf){rel="external" type="application/pdf"} - **The Impact of Aging Worldwide on Pensions and Public Policy – IMF F&D** - [The Impact of Aging Worldwide on Pensions and Public Policy – IMF F&D (Markdown version)](/-/media/files/publications/fandd/article/2020/march/impact-of-aging-on-pensions-and-public-policy-gaspar.pdf.md){rel="alternate" type="text/markdown"} - [The Impact of Aging Worldwide on Pensions and Public Policy – IMF F&D (PDF)](/-/media/files/publications/fandd/article/2020/march/impact-of-aging-on-pensions-and-public-policy-gaspar.pdf){rel="external" type="application/pdf"} - **如何让人们体面地老去 - 金融与发展 - 国际货币基金组织季刊 -2020年3月号·第57卷·第1期** - [如何让人们体面地老去 - 金融与发展 - 国际货币基金组织季刊 -2020年3月号·第57卷·第1期 (Markdown version)](/-/media/files/publications/fandd/article/2020/march/zh/amaglobeli.pdf.md){rel="alternate" type="text/markdown"} - [如何让人们体面地老去 - 金融与发展 - 国际货币基金组织季刊 -2020年3月号·第57卷·第1期 (PDF)](/-/media/files/publications/fandd/article/2020/march/zh/amaglobeli.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2020/03/impact-of-aging-on-pensions-and-public-policy-gaspar_