The World Economic Forum has said that the UK, along with certain other countries, faces a pension time-bomb and needs to start thinking about increasing the retirement age to 70, and beyond that to 80.
There is good news for people born before 1980, it is not suggesting that a 70-retirement age will be required until the year 2050. This does mean of course, that all people under the age of 37 have got a very, very long wait for retirement.
The World Economic Forum (WEF) warned that the UK, US, Japan, Australia, Netherlands and Canada, will face a combined savings deficit of – well you better sit down before you read the next bit – a combined deficit of $224 trillion by 2050.
Add China and India to the equation and, well, suffice to say, the numbers are mind boggling – the deficit will be an order of magnitude bigger than global GDP.
Michael Drexler, head of financial and infrastructure systems at WEF said: "The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change. We must address it now or accept that its adverse consequences will haunt future generations, putting an impossible strain on our children and grandchildren.”
The report projects that by 2050, the number of people over the age of 65 worldwide, will top 600 million and warns that by the middle of this century many countries will see life expectancy rise to over 100.
We need to stop there, and take stock. The above ideas seem to represent thinking that is far from joined up.
Here are three points to consider, and not highlighted by the report.
Firstly, technological advances in healthcare are such that the WEF may be underestimating the extent of ageing. Google itself has made headlines by saying it is declaring war on death.
Secondly, this is good news not bad. And if the price we have to pay for living until we are 100 is that we have to work longer then, providing we are fit enough to work, and the work is appropriate, then is that not a price worth paying? See it this way. What would you prefer, retire at 65 and croak it at 75? Or retire at 80 and live until you one hundred? It depends on the jobs of course. It may not be viable for 80 -year olds to work down the pit, but technology will make such jobs obsolete, anyway.
Thirdly, consider what might happen to the global economy if we all started saving more. Note how the WEF does not include Germany on its list of countries facing a dire crisis. Germany has a higher savings ratio than most countries, but if every country in the world adopted the German economic model, we would have an enormous savings glut. But it is an economic truism, that if net savings do not equate to investment, then that money disappears, leaks from the economy like water from a leaky vessel. Net savings must equal investment – it is a matter of definition. If people try to save more, then either other people borrow more, investment rises, or the savings become meaningless. And if people are trying so save more, there will be a chromic shortage of demand and companies will not be keen to invest.
We are seeing this third issue manifest itself, already. This is what economists mean by secular stagnation. This is why interest rates are ultra-low, but economic growth remains modest.
The only possible solutions to the problems that the WEF refers to, lies with working longer, or working smarter, and maybe encourage more immigration to ageing regions. What we really need, however, is innovation. Fortunately, technology is giving us this innovation, which is why, despite the WEF’s tale of woe, it does not have to be that way.