Pension funds --- reforms a top priority area

Alok Agarwal.
24 August 2001

Pension systems across the world are in a reform mode. With life expectancy going up, demographic changes have swayed in favour of the greying population. Not unique to developed countries, the phenomenon of aging is a characteristic found in most countries including some of the less developed south block nations.

The number of retirees receiving retirement benefits such as pension has been rising. This has been compounded by the decline in the number of actively working people and contributors to the pension system. According to figures provided by Confederation of Indian Industry (CII), Japan tops the list with life expectancy of 79 years followed by USA 77 years, UK 76 years, Argentina and Sri Lanka 72 years each, Africa and Russia 64 years each and India 62 years.

By 2010, it is estimated that 30 per cent of Japan, 25 per cent of Italy, 25 per cent of Germany, 23 per cent of UK and 20 per cent of the US, Canada and Russia will be over the age of 60.

Says Sanjay Sachdev, chief executive officer and managing director IDBI-Principal Asset Management Company Limited, " The dollar cost of the age wave works out to a minimum of $64 trillion. A mind-boggling number that could destroy finances of many governments and trigger an economic crisis that will make the current slow-down look like a picnic."

He added that unless the developed world changes its policies, demographic aging will so forcefully suppress private as well as public savings that today's biggest economies may actually begin running negative national savings rate sometime in the 2020's.
 
To wriggle out of the situation many countries have privatised their pension systems and replaced the much in vogue Pay-As-You-Go (PAYG) schemes with privately managed,  defined contribution or DC schemes, as suggested by the World Bank.