This week the Swiss investment bank released its latest report into retirement, warning that a demographic “time bomb” needs to be disarmed by rethinking retirement.
In the report, Credit Suisse group chairman Urs Rohner noted that retirement has become an integral part of our life biography: after education and years of work comes well-deserved rest.
“Many people tend to take this rigid three-stage structure of life for granted, as if it had been in the nature of every human being for a long time,” he said.
“What is often forgotten, however, is that the concept of retirement as a formally defined end of working life only came into being in the 19th century, when the first forms of financial support for the elderly, funded by the state, were introduced. Until then, lifelong work had been a reality for many generations.”
The report suggests that the traditional concept of the three-stage life cycle – education, working life and retirement – should be reconsidered and increasing provisions made for new forms of work (e.g. part-time or temporary employment) and further education that can ease the transition into a longer working life.
“People are getting older by the decade. Both developed and developing countries will face the problems associated with an aging population. While developed countries are seeing the impact first, the developing world will go through this process at an even faster pace,” it noted.
As a result of declining fertility rates and increasing life expectancy, the proportion of retirees in the population has risen. The share of people aged 65 and over in the developed world has increased from 7.7 per cent in 1950 to over 19 per cent today and is estimated to reach roughly 27 per cent by 2050. In contrast, the ratio stood at 3.8 per cent in developing regions in 1950 and is projected to increase to 7.4 per cent in 2020.
The Credit Suisse Research Institute report suggested a number of options to make pension systems more sustainable.
“First, people could be encouraged or forced to save more for retirement during their working life,” the report said.
“Second, additional funds could be mobilised by increasing taxes. However, given already high taxation in many OECD countries, this approach is unlikely to provide a solution, especially if negative work incentives from higher taxation or tax avoidance are considered.
“Third, raising the retirement age would be an obvious approach to reducing funding gaps, and could be complemented by incentives to encourage people to work longer.
“Fourth, people might accept lower pensions in the future in order to guarantee long-term sustainability of the system. Typically, a combination of measures will be required to ensure that future pensioners continue to enjoy the standard of living they are accustomed to.”
Credit Suisse chief economist Oliver Adler said each country faces a unique challenge in ensuring that pension systems are sustainable and typically a mixture of measures is required so that pensioners can continue to enjoy the standard of living they are accustomed to.
“We need to redress the way we look at retirement and the collective effort required to ensure an equitable and sustainable future is possible for all,” he said.