For 40 years, the World Economic Forum has given impartial advice about an array of financial topics. A little while ago, it turned its attention to retired people and the welfare and financial systems that support them. The Forum's aim was to produce strategies to meet the challenge of financing retirement and healthcare in a world where the population is becoming older.
An Ageing World
The Forum produced a report about retired people: "Transforming Pensions and Healthcare in a Rapidly Ageing World". The report considers the demographic changes that will have occurred by 2030 and 2050.
Within a few decades, the world population will have aged. The number of people in the labour force will have fallen. And the cost of running pension schemes and healthcare will be huge.
According to the report's authors, by 2030 developed economies and today's emerging economies will face a major problem financing retirement. And by 2050, almost every country in the world will struggle to cope.
The Forum believes the current methods of financing retirement are inadequate. Pay-as-you-go pension schemes and capital-funded pensions are not up to the job. As a result, acquiring a good quality pension will become hard for most people.
In response to this challenge, the World Economic Forum makes a set of proposals.
Promoting Work for Older People
The Forum recommends a move towards lifetime employment and what it calls "active ageing". It suggests many people are now able to work beyond current retirement ages and well into their 70s. It bases this proposal on the 20-year increase in life expectancy in the past 50 years, and the failure of official retirement ages to allow for this.
Changing the Delivery of Healthcare
Healthcare usually reacts to illnesses as they occur. The Forum proposes that healthcare systems encourage people to take more responsibility for their health and to adopt preventative measures. This approach should cut preventable chronic diseases.
Encouraging Wellness and Health
This proposal follows from the above. The Forum suggests healthcare systems make people aware of the importance of taking care of themselves throughout their lives. The intention is to ensure people remain productive and independent for as long as possible. This also means governments must make more efforts to stop people engaging in risky behaviour such as smoking.
Financial Education and Planning
The World Economic Forum believes people must receive education about private pensions and retirement savings. This education should stress the need for everyone to make financial plans. Practical measures from government should help individuals change their current behaviour and adopt a responsible attitude to financing retirement.
Retirement savings must increase, says the Forum. Governments must introduce opportunities and incentives for people to save. The Forum also wants people to contribute more to private pension schemes.
Property and Retirement Income
The Forum encourages retired people to consider equity release schemes. Alternative names for these include "reverse mortgages" and "lifetime mortgages". Those who opt for an equity release scheme receive a lump sum or an income from a mortgage company. The company recovers its money from the sale of the mortgaged property on the death of the owners.
Poor households may be able to subscribe to micro-pension schemes, according to the Forum. These schemes offer modest retirement incomes and possibly insurance. Micro-pensions are not like traditional pension plans, and do not change savings into a lifetime annuity.
Pension Fund Performance
Pension fund performance affects retirement savings and income. The Forum proposes that governments, financial institutions, employers and individuals work together to improve fund performance. All stakeholders should demand better management of funds, greater efficiency of administration and more effective investment strategies.
The Forum suggests changing the incentives offered to healthcare suppliers. For example, hospitals and doctors could receive performance pay based on meeting quality and efficiency targets. The general thrust of these incentives should be to achieve better quality healthcare for lower cost.
The Forum points to the current use of medical tourism whereby people obtain cheaper healthcare treatment in foreign countries. It suggests employers and insurance companies encourage this trend. It also believes the growth in telemedicine, using video links, will break down borders and lead to greater cross-border healthcare. This may particularly benefit low-income families in low-income countries.
There appears to be a failure among underwriters of retirement annuities to allow for increased longevity. The Forum says underwriters must improve annuities to hedge against the risk of retired people running out of money. Proposals to change the annuity market include enhancing longevity indexes, and issuing longevity-indexed bonds.
The World Economic Forum
The Forum is not associated with any political party. It does not support any particular national interests. It is a not-for-profit foundation based in Geneva, Switzerland.
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Given the fact that retirement ages are going up everywhere in the world while interest rates mean that savers are actually worse off than before, no reports are that encouraging, really. With an ageing population it’s not going to improve, either, so that rather than look at sticking plaster solutions, we need an thorough revamp of the entire system.