PanamaTimes

Friday, Mar 29, 2024

Amid the pandemic recession, a global pensions crisis is building

Amid the pandemic recession, a global pensions crisis is building

The pandemic-induced recession has led to reduced pension contributions and higher government debt. Billions around the world, including in Hong Kong, face the prospects of working longer or having less income in retirement.

Among the many distressing consequences of the pandemic-induced recession now enveloping us, only a few of the most direct effects have begun to be explored – bankruptcies, unemployment, the collapse back into poverty of many millions in the world’s poorer economies, rising government indebtedness and the squeeze this will exert on most government-funded services.

But some catastrophic impacts have yet to even be recognised. One is the grim prospects facing our elderly and those in retirement. A report this week from global actuary Mercer, with Monash University in Australia, has shed some initial light. It makes for uncomfortable reading.

In the interest of full disclosure, I must confess that I have for years been forecasting the imminence of the global pensions crisis, while we continue to read dire descriptions of pension schemes in danger – from numerous US states and cities, to General Electric, where pension obligations outweigh the company’s market value and where the pensions of 20,000 staff have been frozen, to Japan where there are around seven retirees for every 10 people in the workforce.

I must also confess that I have (ageing) skin in the game. At 69, I am still hard at work not just because I enjoy what I do, but because if I live as long as I hope to, I want to leave my modest retirement pot untouched for as long as possible.

Anyone who has read the Lynda Gratton and Andrew Scott book, The 100-Year Life, will know what I mean. But Jim McCaughan, former chief executive of US fund manager Principal Global Investors, makes it clear: “Pension systems in the world were designed when people would work for 40 years, and then live in retirement typically for up to another 10. Pensions won’t work well economically or socially if a 30-year career then gets followed by a 30-year retirement."

Mercer’s annual Global Pension Index study, which examines schemes across 39 economies (including Hong Kong) in terms of three metrics – adequacy, sustainability and integrity – paints a chilling picture of how the pandemic recession will make an already terrible set of challenges even worse.

David Knox, lead author, pulls no punches: the pandemic recession “has led to reduced pension contributions, lower returns and higher government debt in most countries”, he says. “Inevitably this will impact future pensions, meaning some people will have to work longer, while others have to settle for a lower standard of living in retirement.”

While the integrity of the pension schemes studied (including regulation, governance, communication and operating costs) was generally high (Hong Kong ranked an impressive 5th out of 39), the adequacy (that is, benefits and levels of savings) was weaker, and the sustainability (the likelihood that schemes will provide benefits into the future) was weaker still.

Hong Kong was awarded an overall C+ grade, indicating “some good features, with areas that should be addressed over time”, and was ranked second in Asia behind Singapore.

But it was ranked 28th out of 39 in terms of adequacy, with Adeline Tan at Mercer in Hong Kong observing: “This probably reflects how the MPF system was initially intended to complement a member’s other sources of wealth and retirement income.”

She says the government could improve Hong Kong’s ranking if some of the retirement benefit could be “converted into an income stream” and if policies could be adopted that encourage people to work longer.


Haji Lane in Singapore. The country was ranked seventh among 39 pension systems in the Global Pension Index, and first in Asia.


I would add that contribution levels would need to be raised significantly for there to be any serious likelihood of MPF savings pools being sufficient to deliver security through old age, and that retirement ages would need to rise.

The Mercer study was particularly alarmed by the decision of many governments – including Australia, the United States, Spain and Chile – to allow people to dip into their pension pools for short-term relief during the pandemic, or temporarily cut their compulsory pension contributions to improve household liquidity.

In particular, it homed in on Australia, where nearly a quarter of the workforce were allowed to pull up to A$20,000 (US$14,200) from their superannuation accounts, and Indonesia and Thailand, which slashed compulsory contributions from both employers and employees between May and July.

“These developments will probably have a material impact on the adequacy, sustainability and integrity of pension systems,” says Professor Deep Kapur at Monash, who was part of the study team.

The overall picture is one of heightened retirement insecurity for billions of people across the world – and remember that people living in economies with pension schemes are the lucky ones. Those living in countries without formal pension schemes face significantly bleaker futures.

As companies go bankrupt, or people lose their jobs, so the pensions linked to them will flounder. Even those still in work, most with defined contribution schemes that are vulnerable to the stock market performance, are likely to see pension savings shrink.

As pension expert Amin Rajan wrote in the Financial Times earlier this year: “Risk has been transferred from those who were unable to manage it to those who do not understand it.”

And as governments across the world have taken on mountains of debt to defend their economies from deep recession, this points to the future likelihood of higher taxes, and reduced resources that support those things the elderly are likely to need most – income protection, secure medical care and robust elderly care services.

I still shudder at the recollection of the day in 2015 when 71-year-old Haruo Hayashizaki walked onto a train bound for Osaka, poured petrol over his head, and set himself ablaze in a fire so intense it melted the ceiling of the train carriage. The world subsequently learned that Hayashizaki had been in despair over the inadequacy of his stagnating pension.

Writ small, and hopefully without horrors similar to those of Hayashizaki’s suicide, the challenges facing our ageing societies have taken a sharp and measurable turn for the worse. With so many other problems to wrestle with right now, it is very likely that the unfolding pensions crisis will remain ignored. The price we pay for that will be high.

Newsletter

Related Articles

PanamaTimes
0:00
0:00
Close
Apple warns against drying iPhones with rice
In a recent High Court hearing, the U.S. argued that Julian Assange endangered lives by releasing classified information.
Global Law Enforcement Dismantles Lockbit Ransomware Operation
Russian opposition leader Alexey Navalny has died at the Arctic prison colony
The President of Argentina Javier Mile does not fly private, he flies commercial, with the citizens he represents. And they LOVE him for it.
Bitcoin Reaches $50,000 for First Time in Over Two Years
Belo Horizonte: Brazil's Rising Carnival Hotspot for 2024
In El Salvador, the 'Trump of Latin America' stuns the world with a speech slamming woke policing after winning a landslide election
Tucker’s interview with Putin is over 50M views on X within the first 5 hours.
Finnish Airline, Finnair, is voluntarily weighing passengers to better estimate flight cargo weight
President Nayib Bukele has proudly announced El Salvador's remarkable achievement of becoming the safest nation in the Western Hemisphere.
Former Chilean President Sebastian Piñera Dies in Helicopter Crash
This farmer seems to understand science a bit more than the event organizer, Klaus Schwab.
Facebook turns 20: From Mark Zuckerberg's dormitory to a $1trn company
The Coolest Dictator in the World" on the Path to Victory in El Salvador
Macron, France and fake news
Indian-Origin Man 'King' Arrested For Smuggling $16 Million Drugs Into US
Can someone teach Americans that not every person with slanted eyes is Chinese?
Europe's Farmers Feeding the People, Protesting Against Politicians Who Do Nothing for Their Country and Serve Only Themselves at Taxpayers' Expense
Paris Restaurant That Inspired 'Ratatouille' Loses $1.6 Million Worth Of Wine
Brazilian Police Investigate Bolsonaro's Son for Alleged Illegal Spying
Police in Brazil Raid Residence of Bolsonaro Associate Over Allegations of Illegal Spying
Border Dispute Escalates as Texas Governor Vows Increased Razor Wire
OpenAI Enhances ChatGPT-4 Model, Potentially Addressing AI "Laziness" Issue
The NSA finally acknowledges spying on Americans by acquiring sensitive data
Report Reveals Toxic Telegram Group Generating X-Rated AI-Generated Fake Images of Taylor Swift
US Border Patrol States 'No Plans' to Remove Razor Wire Installed in Texas
Bitcoin Experiences Approximately 20% Decline in Value
Klaus Schwab recently appointed himself as the Earth's "trustee of the future."
DeSantis Drops Out, Endorses Trump.
Nikki Haley said former President Trump is "just not at the same level" of mental fitness as he was while president in 2016.
Residents of a southern Mexican town set the government palace on fire in response to the police killing of a young man
Samsung Launches AI-Driven Galaxy S24, Ushering in New Smartphone Era
Judge Questions SEC's Regulatory Overreach in Coinbase Lawsuit
The Ecuador prosecutor who was investigating the television studio attack, has been assassinated.
Is artificial intelligence the solution to cyber security threats?
Vivek Ramaswamy suspends his US election campaign and endorses Trump.
Viral Satire: A Staged Satirical Clip Mistaken as Real Footage from the 2024 World Economic Forum in Davos
The AI Revolution in the Workforce: CEOs at Davos Predict Major Job Cuts in 2024
Ecuador Reports 178 Hostages in Prison Gang Standoff
The Startling Cuban Espionage Case That Has Rattled the US Government
Two Armed Men in Ecuador, Dressed as Batman and The Joker Storm the Streets.
Armed Gang Raids Ecuadorian TV Station Following State of Emergency Declaration
Anti-Democratic Canada: Journalist Arrested for Questioning Canadian Finance Minister on Support of Terrorist Group
Ecuador's 'Most-Wanted' Criminal Vanishes from Prison
Mexican Cartel Supplied Wi-Fi to Locals Under Threat of Fatal Consequences for Non-Compliance
Border Surge Leads to Over 11,000 Migrants Waiting in Northern Mexico
Outsider Candidates Triumph in Latin American Elections
As Argentina Goes to the Polls, Will the Proposal to Replace the Peso with the Dollar Secure Votes?
Fatal Shark Attack Claims Life of Boston Woman Paddleboarding Near Bahamas Resort, According to Police
×