Many of Europe’s pension systems are facing financial difficulties. Is this a temporary phenomenon due to the Babyboomers, and will it all go back to normal as of 2050?
In “My Generation” (1965), the secret anthem of the first cohort of Babyboomers, Who front man Roger Daltrey sings: “I hope I die before I get old.” That wish, luckily, has not come true. On the contrary, Roger Daltrey is still strutting his stuff on stage at age 73 and using his raucous vocal stylings to rouse his generation. That – extremely prolific – generation, born between 1946 and 1964, currently has the pension system a-quiver as well. Who will pay for all this longevity?
A broad consensus has it that the pension systems in Europe and the US are groaning under the weight of demographics. And yet one may well ask whether these systems are fundamentally in jeopardy, or just suffering from a temporary Babyboomer crisis. Will everything be rebalanced by 2050 then, as soon as the last cohort of the mighty generation that arose between the end of the war and the spread of the pill is no longer with us?
Quadrupling of over-65-year-olds
A glance at the decisive factors makes it clear that hopes for a spontaneous recovery of pension financing are illusory. If we assume that birthrates in Europe will continue at a rate of 1.5 children per woman on average, then a return to the traditional age pyramid is totally unrealistic – since to maintain population numbers, 2.1 children are a must.
Secondly, we are getting older all the time. The World Economic Forum (WEF), for instance, in a current study, predicts a quadrupling of over-65-year-olds by 2050. The study is aptly entitled We’ll Live to 100 – How Can We Afford It?
“Financial equivalent of climate change”
For study author Michael Drexler, Member of the WEF Executive Committee, therefore, the dimension of this ageing process is nothing less than the “financial equivalent of climate change”. Pension promises made by states to their citizens are mounting around the world, and yet those same states have no idea how they will be able to honour them. Thus the six countries with the largest pension systems (the US, the United Kingdom, Japan, Holland, Canada and Australia) will have a shortfall of 224 trillion US dollars by 2050. If the most populous countries in the world are included as well, India and China, the WEF forecast rises to 400 trillion, which amounts to ten times all current government debt and exceeds the expected economic production of all countries on earth.
Migration as solution?
Despite this dramatic situation, there are those who call for calm. They base their hopes on migration. A study carried out by the Bertelsmann Stiftung, for example, concludes that Germany will be able to stabilise its pension system by 2050 if it receives an average of up to half a million immigrant workers per year over the decades to come.
For his part, German economist Hans-Werner Sinn, the veteran head of the renowned ifo Institute, believes the country needs even more immigration: when over the course of the next 20 years the Babyboomers retire, Germany will see a bump of 7.5 million pensioners even as it loses 8.5 million citizens of working age. “To make up the difference and keep the contribution rate and the relative pension level constant”, says Sinn, “would require 32 million immigrants during the same period, all of whom are just as productive as those now present.” A scenario Sinn finds totally unimaginable.
What can be done?
The pension problem will not simply fix itself. So what can be done? All indications are that we ought to begin saving earlier and work for as long as possible. For France, for example, the liberal “Institut Montaigne” has proposed raising the contribution period for pension systems successively over the next decade to 43 years. “After that we could apply the following formula, for instance: retirement age is automatically raised by two thirds of the additional life expectancy.”
New definition of old age
A bleak prospect, or a rosy outlook? Obliged to go on working at 70, or permitted to remain active at that age? To quote the Roman statesman and philosopher Cicero in his De Senectute: “What makes old age disagreeable is the enforced withdrawal from active life.” According to this construction, old age is perhaps not a biological category at all, but rather a social convention. If there is a generation capable of redefining old age – or even abolishing it – then it is the Babyboomers, with their numbers and their cultural influence.
As Who front man Roger Daltrey recently observed, “We tend to think of age only in time, but I don’t think it has much to do with time at all; there’s a whole load of other things. I’ve met 16-year-olds who are old and 90-year-olds who are young.” As for himself, Daltrey confessed: “I can’t retire.”