The World Economic Forum (WEF) has warned that pensions in the world’s largest economies are spiraling towards a time bomb, reports The Financial Post.
Of the world’s economies, Canada, the United States, the United Kingdom, Japan, Netherlands, Australia, China and India have the largest pension obligations. These pension obligations are currently estimated at $70 trillion and are predicted to increase to $400 trillion within 40 years, unless urgent action is taken.
The Financial Post reports that the $400 trillion number is based on the OECD’s recommendation that retirees maintain 70 per cent of their working-age earnings in retirement. By 2050, the difference between what pensioners will receive and 70 per cent of their working-age earnings is expected to be $300,000 per person, adjusting for inflation.
On average, the OECD found that retirees receive about 63 per cent of their working-age incomes from the government, with U.K. retirees receiving the lowest, at 38 per cent.
The WEF recommends that policymakers take action to avoid future pension shortfalls. In countries where a citizen’s life expectancy is projected to rise to over 100, the WEF suggests a retirement age of 70.
Citizens should also expect to contribute towards their retirement, says the WEF. The organization recommends a savings rate of between 10 and 15 per cent, and purposes measures to improve financial literacy.
In Canada, in 2012, the retirement age increased from 65 to 67. In 2016, this change was reversed, and the retirement age dropped back down to 65. According to The Star, the current government’s economic advisory council recommended in early 2017 that the CPP eligibility age be increased, and that OAS and CPP deferrals be allowed past age 70 and be more enticing if deferred after 65.