A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
For even more information feel free to visit the following external sites:
https://maltabusinessweekly.com/maltas-demographic-shift-a-growing-foreign-workforce/29055/
https://data.who.int/countries/470
B] The Issue
Some slow-burning societal issues, such as the demographic challenges facing Western economies, receive little attention from policymakers. Strategies to address demographic decline often risk upsetting most European poli¬ticians, who prefer to focus on short-term issues that are more likely to affect their careers.
Some may consider this a cynical perception of what is wrong in today’s democratic politics. Still, the medium- and long-term costs of ignoring the demographic time bomb are being underestimated.
C] The Details
An ageing population and slower labour force growth affect European economies like Malta in various ways. GDP growth slows, working-age people pay more to support the elderly, and public budgets strain under the burden of higher total costs of health and retirement programmes for older people.
In most Western countries, populations are ageing rapidly due to significant improvements in life expectancy and continued fertility decline. The OECD estimates that by 2060, the number of people over 65 for each working-age person will double in most advanced economies.
D] Financial Consequences & Challenges
Rising old-age dependency ratios will place unprecedented stress on public pensions, healthcare and long-term care financing, especially in countries with slow economic growth and high debt levels. According to an OECD report, if no reforms are undertaken and taxes do not increase, ageing pressures could increase the public debt burden to an average of 180% of GDP.
Governments face a three-pronged challenge to reform public pension systems: improving fiscal sustainability, reducing the risk of old-age poverty and ensuring equity between generations.
E] Solutions
Linking the retirement age to life expectancy can help keep the pension systems afloat without cutting benefits or burdening the younger generations. Still, the political risks of tampering with the retirement age are immense, as experienced by French President Emmanuel Macron in the last few years.
Of course, a one-size-fits-all policy on the retirement age does not make sense. Some demanding work environments are not suitable for older adults. Moreover, the shorter life expectancy of low-income people makes late retirement socially inequitable.
One strategy that is gaining popularity is offering flexible retirement choices, such as combining part-time and partial pensions with adequate financial incentives. Many older adults will continue working if the right economic and workplace environment is in place.
Policymakers must be equip¬ped with a well-planned toolkit. Such tools must include enhancing the employability of senior workers, facilitating multi-stage careers and improving the well-being of older workers in the workplace. Employers must invest more in promoting lifelong skills to enhance career opportunities and productivity for older workers.
Public policymakers must also do their part by eliminating barriers to employing older workers, such as mandatory retirement, seniority wage-setting and a lack of flexible work arrangements. Improving the labour force inclusion of women and migrants can also help mitigate the consequences of ageing on pension financing.
Ultimately, policymakers and employers must be more committed to improving families’ well-being by introducing more family-friendly working conditions. Affordable childcare, generous benefits for parents who take time off to care for their young children or elderly relatives, and mortgage support initiatives for young families should be the foundation of pro-family strategies. Unless the decline in the fertility rate is reversed, the cost of ageing will continue to become unaffordable.
F] About Pensions
Over the last few years, private pension schemes have faced immense pressure due to the erratic nature of their returns on investment. The shift to Defined Contribution (DC) systems may appear to be an ideal solution for reducing the risk of poverty in old age. However, it is unfair for individuals from lower socio-economic backgrounds who have significantly lower disposable incomes to save for retirement.
Financial education will help convince more people to consume less and save more during their working lives, thereby reducing the risk of financial distress when they retire.
While improving life expectancy is a welcome consequence of advances in medicine, living longer puts increasing pressure on long-term-care services. Improving health outcomes could help raise the well-being of older adults, especially those with lower socioeconomic status, and favour longer, active lives. Promoting healthy ageing, containing costs and realising efficiency gains in health and long-term care are crucial to ensure sustainability.
G] Finally
Addressing the demographic challenges in the economic context of secular stagnation – a condition characterised by negligible or no economic growth in a market-based economy – will require transformational societal leaders who are not afraid to engage with citizens in candid discussions.