We need to defuse our pensions timebomb - The City View

City A.M.
Follow City
Life expectancy continues to climb in nearly every part of the world (Source: Getty)
The current debate over Europe’s migration crisis centres on how many refugees each country “can afford to absorb”.
The implication is that each person who migrates into an area brings an economic cost, and that allowing them in is an act of charity.
But there are many economists who argue that this just isn’t the case, and that migrants, on average, bring a net positive effect to both economic output and the public finances.
Analysts at S&P recently warned about the failure of Europe’s political elite to cope with the situation, yet said that new arrivals “could alleviate the looming economic and fiscal challenges that adverse demographic trends will bring [in Europe]”.
And yesterday, economists at Moody’s Analytics raised the same issue. “Most migrants are younger than the majority population, which is good news for ageing Europe,” the report said.
The continent is undoubtedly facing a demographic timebomb. By 2030, in EU countries, there will be around 2.5 people of working age for every pensioner.
In Indonesia, there will be nearly six people of working age for every pensioner, and in sub-Saharan Africa, there will be an estimated 15 for every pensioner.
Europeans shouldn’t feel too downbeat, however. This is essentially a problem built on top of a good news story.
Life expectancy has climbed significantly in nearly every part of the world over the past century and continues to do so. Furthermore, the problem can be solved, albeit by some politically unpopular methods.
Correcting the world’s demographic imbalances by allowing people to migrate is one remedy. Another is by transferring responsibility away from the state and towards the individual.
European societies have become used to the idea that we can study deep into our 20s, work for 30 years without putting much money aside, and then assume the state will foot the bill from there. This is no longer feasible and, fortunately, young people are waking up to the fact.
Surveys show that 18-24 year olds are increasingly likely to view welfare as a personal responsibility, rather than the state’s – which should allow governments to encourage more individual savings plans.
Auto-enrolment is a good start, but there’s a long way to go. What’s needed is a full-blown culture change. That, and migrants.

Related articles