The World Economic Forum has warned that economies around the world are facing a 'Global Pension Timebomb' which is likely to push-up retirement ages.
According to the report, the world’s six largest pension saving systems in the US, UK, Japan, Netherlands, Canada and Australia will have a $224tn gap by 2050.
The main factors causing this gap are increases in lifespans and falls in individual's savings.
"The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change," Michael Drexler, Head of Financial and Infrastructure Systems at the World Economic Forum said.
The report offers five measures to help economies to avoid pension crises:
- Review normal retirement age to increase in line with life expectancies. For countries where future generations have a life expectancy of over 100, such as the US, UK, Canada and Japan, a real retirement age of at least 70 should become the norm by 2050.
- Make saving easy for everyone. A good example is the recent reforms in the UK where 8% of earnings will be automatically contributed to pension savings accounts for each individual from 2019. This initiative to automate the act of saving so far has boosted savings for 22- to 29-year-olds and low-income workers, and is estimated to create $2.5bn in additional pension savings each year.
- Support financial literacy efforts – starting in schools and targeting vulnerable groups. Financial literacy education should be offered throughout people’s careers to raise awareness of the importance of saving.
- Provide clear communication on the objective of each pillar of national pension systems and the benefits that will be provided. This would give individuals an understanding of the level of income they can expect from government and mandatory occupational systems and whether they need to accumulate their own individual savings to top-up income provided from national systems.
- Aggregate and standardise pension data to give citizens a full picture of their financial position. A good example is Denmark, where an online dashboard collates pension information to provide individuals with a holistic view of their different pension savings accounts.
"The retirement savings challenge is at crisis point and the time to act is now," Jacques Goulet, President, Health & Wealth at Mercer, the lead collaborator for this initiative commented.
"There is no one ‘silver bullet’ solution to solve the retirement gap. Individuals need to increase their personal savings and financial literacy, while the private sector and governments should provide programmes to support them," he added.