Problem of ageing "underestimated"
Financial Times 2000-06-17

Official forecasts in most industrialised countries sharply underestimate future ageing trends, suggesting pensions crises loom of an even greater magnitude than expected, according to a new study.

The report suggests that the countries making the biggest miscalculations about ageing - Japan and continental European economies, led by Italy - are those facing the biggest crises.

The study, which uses new population forecasting methods, was commissioned by the Washington-based Centre for Strategic and International Studies for release at a conference it is holding next week in Paris. It was undertaken by Mountain View Research Associates, a California-based specialist in demographics.

The report says no one solution will solve the problem, not even an increase in retirement ages by a ecade or more. To hold benefits and tax rates constant, by 2030 retirement would have to start at 78 in Japan, 74 in France, 73 in Italy, and 72 in the US. By 2050, retirement ages would need to be 81, 78, 79 and 75 respectively.

Beyond that, immigration, despite its social difficulties, may help slow population ageing and be more effective than attempts to increase fertility, the report says.

"Official forecasts already show that some countries will face explosive deficit pressures by the decade's end. Yet our forecasts suggest that these frightening assessments are actually optimistic. The most devastating and fastest ageing countries are also the ones that continue to make the worst miscalculations, with devastating implications," said Paul Hewitt, project director of the CSIS global ageing initiative.

Ageing trends are influenced by the retirement of the post-second world war baby boom generation over the next 30 years, record low fertility rates in many countries, which seem unlikely to rebound, and continued falls in death rates.

Many official forecasts assume life expectancy will increase much more slowly than in the past, project an improbably high percentage of young people and a low percentage of old, and overestimate the future size of working populations, the study says.

The biggest challenge is in Japan, where official forecasts underestimate ageing by wide margins. By 2010, the study says, there is a 66 per cent chance that life expectancy will be 1.63 years higher than the official estimate and a 50 per cent probability that the official underestimate is 2.7 years.

This means that government outlays on benefits are likely to be 16.6 per cent higher than currently forecast.

By 2030, there is a 66 per cent chance that life expectancy will be 4.8 years higher than the official estimate and a 50 per cent chance it will be six years higher and by 2050, 7.6 and 8.9 years respectively.

In Europe, Italy faces the most severe ageing and has sharply underestimated it, while Germany and France have done the same but to a less dramatic degree.

In the UK and US, ageing will be a smaller challenge and estimates are more reasonable, while Canada has the least severe problem.

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