Bermuda Post

Thursday, Mar 28, 2024

Amid the pandemic recession, a global pensions crisis is building

Amid the pandemic recession, a global pensions crisis is building

The pandemic-induced recession has led to reduced pension contributions and higher government debt. Billions around the world, including in Hong Kong, face the prospects of working longer or having less income in retirement.

Among the many distressing consequences of the pandemic-induced recession now enveloping us, only a few of the most direct effects have begun to be explored – bankruptcies, unemployment, the collapse back into poverty of many millions in the world’s poorer economies, rising government indebtedness and the squeeze this will exert on most government-funded services.

But some catastrophic impacts have yet to even be recognised. One is the grim prospects facing our elderly and those in retirement. A report this week from global actuary Mercer, with Monash University in Australia, has shed some initial light. It makes for uncomfortable reading.

In the interest of full disclosure, I must confess that I have for years been forecasting the imminence of the global pensions crisis, while we continue to read dire descriptions of pension schemes in danger – from numerous US states and cities, to General Electric, where pension obligations outweigh the company’s market value and where the pensions of 20,000 staff have been frozen, to Japan where there are around seven retirees for every 10 people in the workforce.

I must also confess that I have (ageing) skin in the game. At 69, I am still hard at work not just because I enjoy what I do, but because if I live as long as I hope to, I want to leave my modest retirement pot untouched for as long as possible.

Anyone who has read the Lynda Gratton and Andrew Scott book, The 100-Year Life, will know what I mean. But Jim McCaughan, former chief executive of US fund manager Principal Global Investors, makes it clear: “Pension systems in the world were designed when people would work for 40 years, and then live in retirement typically for up to another 10. Pensions won’t work well economically or socially if a 30-year career then gets followed by a 30-year retirement."

Mercer’s annual Global Pension Index study, which examines schemes across 39 economies (including Hong Kong) in terms of three metrics – adequacy, sustainability and integrity – paints a chilling picture of how the pandemic recession will make an already terrible set of challenges even worse.

David Knox, lead author, pulls no punches: the pandemic recession “has led to reduced pension contributions, lower returns and higher government debt in most countries”, he says. “Inevitably this will impact future pensions, meaning some people will have to work longer, while others have to settle for a lower standard of living in retirement.”

While the integrity of the pension schemes studied (including regulation, governance, communication and operating costs) was generally high (Hong Kong ranked an impressive 5th out of 39), the adequacy (that is, benefits and levels of savings) was weaker, and the sustainability (the likelihood that schemes will provide benefits into the future) was weaker still.

Hong Kong was awarded an overall C+ grade, indicating “some good features, with areas that should be addressed over time”, and was ranked second in Asia behind Singapore.

But it was ranked 28th out of 39 in terms of adequacy, with Adeline Tan at Mercer in Hong Kong observing: “This probably reflects how the MPF system was initially intended to complement a member’s other sources of wealth and retirement income.”

She says the government could improve Hong Kong’s ranking if some of the retirement benefit could be “converted into an income stream” and if policies could be adopted that encourage people to work longer.


Haji Lane in Singapore. The country was ranked seventh among 39 pension systems in the Global Pension Index, and first in Asia.


I would add that contribution levels would need to be raised significantly for there to be any serious likelihood of MPF savings pools being sufficient to deliver security through old age, and that retirement ages would need to rise.

The Mercer study was particularly alarmed by the decision of many governments – including Australia, the United States, Spain and Chile – to allow people to dip into their pension pools for short-term relief during the pandemic, or temporarily cut their compulsory pension contributions to improve household liquidity.

In particular, it homed in on Australia, where nearly a quarter of the workforce were allowed to pull up to A$20,000 (US$14,200) from their superannuation accounts, and Indonesia and Thailand, which slashed compulsory contributions from both employers and employees between May and July.

“These developments will probably have a material impact on the adequacy, sustainability and integrity of pension systems,” says Professor Deep Kapur at Monash, who was part of the study team.

The overall picture is one of heightened retirement insecurity for billions of people across the world – and remember that people living in economies with pension schemes are the lucky ones. Those living in countries without formal pension schemes face significantly bleaker futures.

As companies go bankrupt, or people lose their jobs, so the pensions linked to them will flounder. Even those still in work, most with defined contribution schemes that are vulnerable to the stock market performance, are likely to see pension savings shrink.

As pension expert Amin Rajan wrote in the Financial Times earlier this year: “Risk has been transferred from those who were unable to manage it to those who do not understand it.”

And as governments across the world have taken on mountains of debt to defend their economies from deep recession, this points to the future likelihood of higher taxes, and reduced resources that support those things the elderly are likely to need most – income protection, secure medical care and robust elderly care services.

I still shudder at the recollection of the day in 2015 when 71-year-old Haruo Hayashizaki walked onto a train bound for Osaka, poured petrol over his head, and set himself ablaze in a fire so intense it melted the ceiling of the train carriage. The world subsequently learned that Hayashizaki had been in despair over the inadequacy of his stagnating pension.

Writ small, and hopefully without horrors similar to those of Hayashizaki’s suicide, the challenges facing our ageing societies have taken a sharp and measurable turn for the worse. With so many other problems to wrestle with right now, it is very likely that the unfolding pensions crisis will remain ignored. The price we pay for that will be high.

Newsletter

Related Articles

Bermuda Post
0:00
0:00
Close
Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Steve Jobs' Son Launches Venture Capital Firm With $200 Million For Cancer Treatments
Israel: Unprecedented Civil Disobedience Looms as IDF Reservists Protest Judiciary Reform
Google reshuffles Assistant unit, lays off some staffers, to 'supercharge' products with A.I.
End of Viagra? FDA approved a gel against erectile dysfunction
UK sanctions Russians judges over dual British national Kara-Murza's trial
US restricts visa-free travel for Hungarian passport holders because of security concerns
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Political leader from South Africa, Julius Malema, led violent racist chants at a massive rally on Saturday
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Spanish Citizenship Granted to Iranian chess player who removed hijab
US Senate Republican Mitch McConnell freezes up, leaves press conference
Speaker McCarthy says the United States House of Representatives is getting ready to impeach Joe Biden.
San Francisco car crash
This camera man is a genius
3D ad in front of Burj Khalifa
Next level gaming
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
'I just lost it' Lowe’s worker fired after 13 years of employment for confronting thieves trying to steal $2K of merchandise
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
Europe is boiling: Extreme Weather Conditions Prevail Across the Continent
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Italian Court's Controversial Ruling on Sexual Harassment Ignites Uproar
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
×