GLOBAL - Global ageing will hit nations including Germany, Japan and Italy so hard that they will be left with approximately one pensioner per worker by 2040, according to PriceWaterhouseCoopers (PwC).
According to John Hawksworth, head of PwC's macroeconomics unit, issues such as terrorism, global warming and third world poverty pale in comparison to the threat posed by global ageing.
PwC’s research found that the developed countries that will be most affected are Germany, Italy and Japan. In those three nations, the ratio of people aged between 20-59 and people over the age of 60 will drop from around 2.4 to 1.1. The US will see a huge fall as the “baby-boom” generation starts to retire, with the ratio dropping from today’s figure of 3.4 to 2.1 in 2020, before easing down to 1.7 by 2040.
“Unfortunately, the costs of global ageing will probably be beyond the means of even the world’s wealthiest nations, even if current retirement benefit systems are drastically reformed,” he said.
Hawksworth claims that not only will there be less people to pay for others pensions, but faced with a decline in the available work force, investments in training and educating workers - an important driver of economic growth - will be curtailed.
As such, he predicts that the economies of the developed world will start to slow, with the combined gross domestic product (GDP) of the US, EU and Japan falling from the present figure of 50% to 30% by 2050.
Another side effect of the increased legions of pensioners will be the prospect of an increased age of retirement and less generous occupational schemes. Whilst the equities and bond markets may benefit from the increased demand for private pensions, the effect on Government bonds will dependent upon whether or not they take action before the “demographic tsunami” hits them.
At present, most emerging and developing economies have higher support ratios than their developed counterparts, but “this is going to change rapidly” according to Hawksworth. Whilst China currently has a worker vs pensioner ration of 5.6 today, it is projected to fall to only around two in 2040, barely above US levels.
In South Korea, the expected decline is even steeper from 5.7 to 1.6, whilst Brazil’s current score of seven will fall to just 2.8 by 2040. It does not matter where you look according to Hawksworth, as the only certainty regarding developing economies is “yesterday's tigers may be tomorrow's ageing tortoises”.
Despite the dire warnings, Hawksworth claims that the UK is in a better position than most nations. PwC calculates that the combined spending on pensions, education and healthcare will only rise by 3-4% of GDP in the UK, a rise that may not be unaffordable. PwC’s research estimates that at current rates, total state spending on pensions will stand at 6.1% of GDP by 2040, an increase of just under 1% today’s levels.
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