New research has indicated that Britain is among a select group of developed countries which will need to increase its retirement age in order to avoid a pension crisis.
According to the World Economic Forum (WEF), by 2050, the deficits of the six largest global pension systems would reach $224 trillion if things continue as they are according. To avoid this, it stated, people need to save more and work longer.
The WEF compared the increasing cost of retirement security as the financial answer to climate change, especially in light of the rising average life expectancy.
The costs, it stressed, would jeopardise the certainty of incomes for future generations, warning that the developed world was on track for history’s biggest pension crisis.
Having analysed the world’s six largest pension saving systems, the WEF reported that all – Australia, Canada, Japan, the Netherlands, the UK and the US – were under pressure from the growing number of over 65s – set to rise from 600 million to 2.1 billion in 2050.
The total forecasted gap in savings rose to $400 trillion when India and China were also factored into the equation, an amount which is five times the size of the global economy at present.
The savings gap estimates in the WEF report are founded on a 70% base percentage of pre-retirement income. This level, according to the Organisation for Economic Cooperation and Development, equates roughly to an unaffected living standard; when people retire, they pay less tax and tend to save less.
Given the ageing nature of the population, the WEF stated that the gap in funding would grow yearly by an estimated 4% to 5%, outpacing economic growth.
Despite the retirement age in Britain being set to rise to 67 between 2026 and 2028, the WEF stressed that this will not be enough to prevent the vast increase in the savings’ gap – predicted to be $33 trillion by 2050.
However, the UK did receive praise in the report for its decision to automatically save 8% of earnings into a pension, a measure set to be implemented for everyone after 2019. It highlighted that, at present, the move had increased saving by 22 to 29-year-olds and low-income workers by an annual $2.5 billion.
Commenting on the report’s findings was Jacques Goulet. The president of health and wealth at Mercer stated: ““There is no one ‘silver bullet’ solution to solve the retirement gap. Individuals need to increase their personal savings and financial literacy, while the private sector and governments should provide programmes to support them.”
