Finance and aging

People are living longer, more active and more fulfilling lives. But those additional years mean additional costs as pensions are drawn for longer periods and the costs of surgery, medication, healthcare and nursing care continue to soar. So the flipside of the scientific triumph over illness and disease is that many people do not have adequate financial resources to support their longer lives with the desired level of comfort. Get a 2019 medicare advantage plan to get health coverage.

Many have not saved enough privately and their investments are not generating as good a return as is needed. Many traditional workplace pension schemes, which offer a guaranteed payment linked to salary, are now deep in deficit as workers draw pensions for much longer without working any additional years before retirement or making additional contributions during their working lives.

Companies are finding the expense unacceptable and the investment and financial risk intolerable. With pay-as-you-go state pensions, a shrinking population of working young people is unable to pay enough in contributions to match the funding demands of an elderly population that is both growing and living longer. The financial crisis has highlighted further risks inherent in both public and private pension systems. While higher unemployment and increased government debt are putting additional stress on public finances and pay-as-you-go pension schemes, the substantial fall in asset prices has underlined the risks associated with pension funds invested in the financial markets.

Ensuring both adequate old-age incomes and the long-term financial sustainability of pension and healthcare systems is a huge challenge. In the current environment, there is the danger that immediate pressures to act will result in poorly designed short-term responses with negative long-term consequences for the capacity of pension systems to provide adequate levels of retirement income on a sustainable basis.

Solutions

  • Raise the eligibility age in statutory private and public pension systems, abolish the mandatory retirement age and maintain the momentum towards ending early retirement.
  • Reduce the exposure of individuals to financial risks in funded systems by improving the governance of the pension industry, amending the design of defined contribution plans by promoting life-cycle portfolios and greater flexibility in the timing of annuity purchases, and promoting flexible defined benefit plans.
  • Policy-makers must make pension reform credible and sustainable, by specifying a long-term trajectory of pension contributions and withdrawals, as well as a mechanism that makes this trajectory enforceable and difficult to change in response to political contingencies.
  • Encourage employers to employ and retain elderly workers by removing financial disincentives, such as seniority remuneration schemes and higher employment protection; by applying more flexible working conditions for elderly workers; and by improving workers’ employability by encouraging job training and skill enhancement throughout their working lives.