Retirement and savings rates worldwide 2

The Future of Saving: The Role of Pension System Design in an Aging World an International Monetary Fund report published in 2019 has some interesting views and is worth a read by those who are interested in how we as global citizens are dealing with an ageing population. The purpose of the reports is to showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. So here are some of the conclusions reached about improving pensions, increasing private savings, and keeping the labour force high.

Improving the pension system adequacy to reduce precautionary saving.

In China, for instance, the transition to a market-based economy that began in the 1980s resulted in a weakening of the social safety net, reducing pension spending and social transfers to very low levels. Lower-income households now have a saving rate of 20–30 percent, compared with minus 20 percent in many peer countries (IMF 2017).

Similarly, in Korea, the public pension system covers only about a third of the elderly, and replacement rates are low by international comparison, resulting in a saving rate of nearly 30 percent. These countries have room for fiscal maneuver; they could redirect resources to reduce old-age poverty by expanding coverage of the social security systems, raising social pensions, and enhancing targeted social transfers. These actions would reduce households’ need for precautionary saving while ameliorating inequality and old-age poverty.

Boosting private saving by improving pension system architecture.

The presence of a Defined Contribution scheme can support higher private saving rates, attenuating the negative effect of ageing on national saving. Countries with an enabling environment might consider complementing the public pension scheme with a funded Defined Contribution scheme.

However, such reforms are not a panacea to deal with the ageing challenge; for example, too few people may be covered or contribute to the system, or contributions over the working life of an individual may fall short of providing adequate pension benefits at retirement—many private pension funds are underfunded. In addition, future returns on savings (interest and investment rates) in an ageing world could be lower, leading to lower-than-expected returns on the accumulated assets in such systems. In this case, governments might still have to make up for at least part of the gap.

Development of financial sector instruments to encourage voluntary saving.

The ability of households to diversify retirement-related risks will depend on the availability of age-specific financial products (for example, annuities and long-term care insurance). Countries with underdeveloped financial sectors would benefit from boosting financial inclusion (for example, efforts to reduce the costs of bank account for individuals) and creating sound and resilient banking sectors that offer the right mix of long-term saving instruments.

Financial literacy could foster a culture of saving and help people better plan for retirement. And government policies could focus on increasing voluntary private saving; for example, by providing tax-preferred saving vehicles related to pensions, such as the 401(K) plans in the United States. Tax-preferred general or education saving accounts could also be considered, but the participation of middle-income households would be essential for these schemes to generate additional saving rather than displacing existing saving elsewhere (OECD 2007). Nudges to encouraging workers to save can also help; for example, by automatically enrolling them in pension schemes, as in the United Kingdom.

Counteracting the effect of ageing on labour supply.

On current demographic trends, many countries will face a declining labour force, which will drive down saving. Policies should focus on reforms that close gender gaps in labour force participation (as was done in Italy and Spain) and encourage people to lengthen their productive work lives, given their increased longevity.

Policy actions could include ensuring equal remuneration for equal work and providing childcare services. Governments can make it easier for older people to remain in the workforce by reconsidering taxes and benefits that favour early retirement.

Migration could also play a role in boosting the labour force in many advanced economies, but this is a politically contentious issue. In many emerging market economies, it is important to decrease the large share of young people who are neither participating in the labour market nor studying. Furthermore, reducing the large share of the labour force that does not work in the formal sector—and thus does not pay taxes or contribute to social security—could boost saving.

Education and training policies could use some modifications to better align skills with rapid technological change, which will replace labour in some sectors but maybe labour-augmenting in others. Private (and to some extent public) saving will play a key role in helping individuals cope with these trends and changes.

Retirement and savings rates worldwide 1

The Future of Saving: The Role of Pension System Design in an Aging World an International Monetary Fund report published in 2019 has some interesting views and is worth a read by those who are interested in how we as global citizens are dealing with an ageing population. The purpose of the reports is to showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. So here are some of the conclusions reached.

Ageing challenge and saving.

Ageing populations will have important consequences for the evolution of saving rates across countries. Under current policies, public pension outlays in advanced and emerging market economies will increase by an average of 1 to 2½ percentage points of GDP, respectively, by 2050, depressing public saving.

The impact on private and aggregate saving depends on, coverage, benefits promised to the elderly, and when they would start receiving those transfers. Thus, the appropriate responses to the ageing challenge will vary across countries and will have to account for country-specific policy and institutional settings, including how pensions are determined and financed.

For instance, in countries with relatively high saving rates and inadequate social security systems, increasing generosity may be warranted. In rapidly ageing countries with relatively low saving rates and rising pension liabilities, the challenge will be to increase saving ratios in a sustainable way. For today’s younger generations in many countries, saving more for the future will become increasingly important to ensure retirement income security.

Public pension system reforms.

Overly generous pension benefits (owing to high benefit ratios or low statutory retirement age) can interact with projected demographic trends to lower aggregate saving. Reducing public pension generosity (for example, curtailing early retirement benefits or reducing benefit ratios) could attenuate long-term fiscal vulnerabilities and moderate the fall in aggregate saving.

To counter these trends, today’s workers will need to prepare for the future by saving more and extending their work lives. In advanced economies where pensions have been largely reformed, for those born between 1990 and 2009, simulations suggest that increasing the retirement age by five years (from today’s average of 63 to 68 in 2050) would close half the projected gap in benefit ratios relative to today’s retirees.

If members of the same years were to put aside an additional 6 percent of their earnings each year, they would close the other half of the gap in the benefit ratio. Financial sector and labour market policies could support such behavioural changes.

Balancing sustainability and equity considerations.

The distributional consequences of pension system reform can be significant. While ongoing and planned reforms will improve pension system sustainability, average benefit ratios are projected to decline sharply in many countries. Thus, additional pension system reforms would need to be carefully calibrated to avoid undercutting the welfare of future retirees and fueling poverty among the elderly.

One option would be to link additional increases in retirement age to longevity gains, with adequate provisions for the poor, whose life expectancy tends to be shorter than average. To minimize unintended negative consequences of such programs on aggregate saving (either through excessive fiscal costs or indirectly by crowding out private saving), antipoverty programs should be carefully designed and targeted.

New research exercise and falls

Falls are a problem for seniors and those who love them. On December 28, 2018 a review was published of the research that looked at the impact of exercise on falls among seniors. The research was a Meta-analysis called Association of Long-term Exercise Training With Risk of Falls, Fractures, Hospitalizations, and Mortality in Older Adults and it was written by Philipe de Souto Barreto, PhD.

Dr. Barreto, asked the question “What is the association of long-term (≥1 year) exercise with the risk of falls, fractures, hospitalizations and death in older adults?” 

In this meta-analysis of 40 long-term randomized clinical trials of 21 868 participants, exercise significantly decreased the risk of being a faller and injurious faller but did not significantly reduce the risk of fractures. Long-term exercise, particularly moderate intensity, multi-component training with balance exercises, performed 2 to 3 times per week, appears to be a safe and effective intervention for reducing the risk of being a faller/injurious faller in seniors. Exercise did not, however, diminish the risk of multiple falls, hospitalization, and mortality

This meta-analysis showed that long-term exercise had modest but significant association with reduced risk of becoming a faller and an injurious faller, but not a faller with multiple falls, in older adults. Moreover, exercise was associated with a nonsignificant reduction in the risk of sustaining a fracture. Exercise benefits occurred without increasing the risk of mortality and hospitalization.

Furthermore, this study further extends current knowledge by examining for the first time the association of exercise with the risk of being a faller with multiple falls. However, multiple falls were not reported in some of the largest, well-conducted original studies.

The study consistently found that exercise decreased the risk of injurious falls by about 26%. Regarding fractures, the study contributes to this still not well-established field by showing that exercise seems to protect against fractures; although the primary finding was not statistically significant. The positive results suggest that long-term exercise might lead to a reduction in the risk of fractures. 

The study found that vigorous-intensity is as safe as moderate-intensity exercise. Exercise frequency of between twice and thrice a week was associated with decreased mortality, whereas more than 3 times per week was associated with increased risk of being a faller; therefore, the best exercise frequency seems to be 2 to 3 times per week.

The association between exercise frequency and risk of becoming faller might be dependent on the fall-related vulnerability of the population, with higher risks in more vulnerable participants; indeed, among studies with exercise frequency of 4 or more times per week. It is possible that the dose-response idea implying that “more exercise is always better” might not fully apply for the most vulnerable older adults. The potential mechanisms involved require further investigation, but it could be related to overtraining: excessive exercise leads to diminished immunity and energy metabolism according with animal models and is associated with reduced calorie intake, worse sleep, and negative psychological patterns in young and middle-aged adults. 

The findings on the best exercise frequency, suggests that the best exercise regimen for protecting older people against diverse adverse events would be moderate-intensity, multi-component training comprising balance exercises, performed 2 to 3 times per week; a session duration of 30 to 60 minutes (average of 50 minutes, according to studies on injurious falls analysis) should be safe and effective. Exercise is associated with a modest decrease in the risk of becoming a faller, an injurious faller, and potentially sustaining a fracture in older adults. 

The future is bright

Looking forward to 2019 and beyond, I see that a wonderful future is waiting for us as humans. Humankind will create wonders on Earth, we will build cities on the moon and Mars. There will be artificial general intelligence that surpasses our level of thinking, molecular assemblers constructing the necessities of life from the soil, resurrected dinosaurs grazing the soil alongside de novo unicorns, and probes departing for the nearest stars.

There will be wealth beyond measure, in an age of plenty for all. Hunger and disease will be banished, even as we engineer all of the greatest dreams of past visionaries into reality.

The present, seen from the perspective of futurists two or three centuries past, already appears a golden age of staggering, near-magical machinery. An era of grand wealth and comfort, in which even the poorest of the wealthy nations live the lives of nobility, immune to famine and pestilence.

But our cities and our achievements, the towering spires and the internet, the freeways and clinics, are little more than monuments to their originators. The engineers and the creators and the visionaries of this modern world of ours are long dead or even now dying of old age.

It is a noble thing to build a greater technology, to generate the wealth of choice and capability that will aid billions in years to come. To contribute to the construction of the golden future, one step at a time is right and proper.

We put fences around graveyards. That is a foolish thing, a wished-for separation of concerns that do not and cannot exist. Every city, every building, every road is a tribute to the dead who created them.

Every last cultivated part of our environment was touched by someone who is now no more, gone to oblivion. When we walk into the doors or drive over the asphalt, it becomes a tribute for us as well. For our generation.

Whatever we strive to build, no matter how noble, no matter how useful, it will be nothing more than a monument, a marker destined to be worn down to nothing while we no longer exist if what we do does not contribute to the good of all. 

The true value of building a better future can only exist when we are all assured of living to participate in that future, in health and vigour, of sound mind and body.

A house can only be a house and a tribute if its architect and/or resident are alive in the hearts of those who live on. Yes, we should build wonders, because we can, because we can dream into existence a far better world. But of greater importance than any other technology, we must build the means to end suffering, to enable life to continue for all of us without suffering.

Until we do, we are merely marking time until we break this cycle. When we do, all that we achieved will have more meaning. The continuing story, the progression, the achievements of humankind will be celebrated.