Not only Europe — China and other emerging-market economies are aging fast, too. There are solutions, but it’s time to act
Jenny François doesn’t have the world’s most glamorous job. During 20 years she has compensate 45 minutes to the office of insurer Macif in Agen, France, where she punches data from insurance forms into a computer. But recently , François and hundreds of millions of people like her in the industrialized world could look back at the early 21st century as the beginning of the end of a marvelous era, when even average workers could retire in reasonable comfort in their still-vigorous 50s. Thanks to France’s generous pension system, François, 58, is in “pre-retirement.” For the past three years she has worked just two days a week and still collects $1,500 a month — more than 70% of her old full-time salary. Her pay will decline only slightly when she reaches 60. “The system is great for me,” François says, “and I think it should be every worker’s right.”
Lower Living Standards
It’s already clear that the system will be far less generous to future retirees in France and other countries . And the message isn’t going down easy. To prevent a looming fiscal crunch, President Jacques Chirac’s government in 2003 enacted new rules requiring people to work longer to qualify for benefits. The government endured a national wave of strikes. Italy and Germany also witnessed massive protests after their governments proposed similar measures. In spite of electoral setbacks, Japanese Prime Minister Junichiro Koizumi still vows to ram through proposals to hike pension taxes from around 14% of pay to 18% by 2017 and to slash benefits from 59% of average wages now to 50%. In the U.S., the political debate is just starting to heat up over President George W. Bush’s plan to let workers park some of their Social Security separations in private investment accounts. Finland, South Korea, Brazil, and Greece all have recently moved or proposed to trim benefits, extend retirement ages, and hike workers’ pension contributions.
The rollback of pension promises is just one symptom of one of the greatest sociological shifts in history: The graying of the baby-boom generation. The positions of 60-year-olds and older are growing 1.9% a year — 60% faster than the overall world population . In 1950 there were 12 people aged 15 to 64 to support each one of retirement age. Now the global average is nine. It will be only four-to-one by mid-century, predicts the UN Population Div. By then the elderly will outnumber children for the first time. Some economists fear this will lead to bankrupt pensions and lower living standards.
The trend has drawn the most attention in Europe and in Japan, where the working-age people will decline by 0.6% this year. By 2025 the number of people aged 15 to 64 is projected to dwindle by 10.4% in Spain, 10.7% in Germany, 14.8% in Italy, and 15.7% in Japan. But aging is just as dramatic in such emerging markets as China — which is supposed to have 265 million 65-year-olds by 2020 — and Russia and Ukraine. Western European employers won’t be able to count on the Czech Republic, Hungary, and Poland for big pools of low-cost workers forever: They’re aging just as quickly. Within 20 years, East Asia’s dynamic tigers will be youthful no longer. South Korea, Thailand, Taiwan, Singapore, and Hong Kong will have a median age of 40. Indonesia, India, Brazil, Mexico, the Philippines, Iran, and Egypt will still boast big, growing pools of workers for two terms . But they’re on the same demographic curve and will show the effects of an aging population a generation or two later.
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