The subtitle of a new book by two pension researchers reads like a financial analysis of a fairy tale: "the cost of living happily ever after."
But its subject is deeply rooted in modern reality, as the title states, "The Economic Implications of Aging Societies."
Steven A. Nyce and Sylvester J. Schieber, the authors, provide a comprehensive analysis of the macroeconomic implications of demographic trends in a wide range of countries across six continents.
Interestingly, they note the annual rate of change in fertility from 1950 through 2000 was negative in all 26 countries they chart for that particular datum set, from Argentina, Brazil and Mexico to Poland, South Africa and the United States. That change alone presents challenges for retirement provision in the future.
The book, which cites data for far more than the 26 countries, contains a number of valuable and succinct analyses on particular issues by expert contributors, such a by James W. Vaupel, director, Max Planck Institute for Demographic Research.
Life expectancy, despite what many social and health public policy analysts believe, isn't approaching its limit, or even a slower rate of increase, he states.
Females born in 2060 will enjoy a life expectancy of 95 to 100 years in such countries as Sweden, Japan, Germany, France, and the United States, he estimates. For males it will probably be five years or so lower. The U.S. Social Security Administration forecasts a life expectancy of 83.9 years for females for 2060. He calls that estimate "patently ludicrous because current female life expectancy in Japan is already 85.2 years."
Longevity, Mr. Vaupel writes, "is not a problem — it is a great achievement — but it will result in challenges for policymakers, especially concerning pensions and health care for the elderly."
That sentiment encapsulates an objective of the analysis of Messrs. Nyce and Schieber in their 422-page book, which is published by Cambridge University Press, New York.
"In the future, pension and health-care programs will become the crucial linkage between the macroeconomic prosperity of aging societies and the relative welfare of all segments within them," the authors write.
Among areas they explore are pension structures around the world and implications of aging for them. The structures range from employer-sponsored pension plans to national provident funds.
Provident funds have appeal and problems. Among the latter, their "rates of return are determined by a government-appointed entity," they write, leading to "a conflict of interest between maximizing returns for account holders and satisfying" government social goals. "These plans are often plagued by a lack of transparency about fund investments," they add.
Other topics they cover range from "risks associated with alternative public policies" to "investing in developing countries."
Messrs. Nyce and Schieber, who work at the Research and Information Center of Watson Wyatt Worldwide in Washington, have the knowledge and experience to examine the global landscape of demographic and economic data, and to analyze the implications for retirement issues. Mr. Nyce is a senior research associate and Mr. Schieber is U.S. director of benefits consulting.
With the knowledge we have of demographics and retirement systems, there is reason for optimism as long as enterprises and individuals are free to develop and experiment with new concepts in retirement programs, buttressed by the safeguards of appropriate rules.