As people live longer, the population grows older, and the ratio of workers to retirees decreases, pension systems are in danger of running out of money.
This problem is widespread, particularly in developed countries, and is leading to increasingly acrimonious disputes between elected officials and beneficiaries.
For example, in response to French President Emmanuel Macron’s recently announced proposal to increase the retirement age to 64 from 62, France’s unions have started an open-ended standoff. In France, the government taxes workers and employers to fund retirement checks for retirees. France’s pension system, as in the US, is largely a pay-as-you-go arrangement, with current workers shouldering the benefits paid to retirees. When tax collections are no longer sufficient to fund pension obligations, the government’s alternatives are limited to raising taxes, reducing benefits and/or borrowing.
This dilemma has widespread implications for investors, taxpayers and retirees.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA