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Economy

Retirement: The IMF’s Remedy to “Longevity Risk”

Translated Sunday 6 May 2012, by Gene Zbikowski and reviewed by Bill Scoble

The International Monetary Fund believes that the increase in life expectancy has been under-estimated, pretends to be unaware of mass unemployment, and invites the world’s governments to up the retirement age.

Retirement? For the International Monetary Fund (IMF), unsurprisingly, it’s above all a financial threat. And a threat that has probably been under-estimated, the IMF states in its latest half-year Global Financial Stability Report.

On the basis of the past average under-estimation of longevity — three years — the IMF calculates as follows: If, by 2050, average life expectancy increases by three years over the forecast increase, “the cost of aging, which is already high, will increase by 50%.” “On a global scale, that increase amounts to tens of trillions of US dollars,” And the experts warn: “Longevity risk threatens to undermine fiscal sustainability in the coming years and decades, complicating the longer-term consolidation efforts in response to the current fiscal difficulties.”

The solution? “Addressing longevity risk requires a three-pronged approach. … An essential reform measure would allow retirement ages to increase … This could be mandated by government, but individuals could also be encouraged to delay retirement voluntarily… where it is not feasible to increase contributions or retirement ages, benefits may have to decrease.”

“A first-best policy would be to link the eligibility age for public pensions to actual developments in longevity /…/ preferably through automatic or formula-based periodic adjustments to avoid recurring public debate about the issue,” the IMF explains.

It goes on to invite governments to act without delay: “Measures will take years to bear fruit and effectively addressing this issue will become more difficult if remedial action is delayed.”

It is evident that the determining role played by employment in the financial health of systems of social protection does not enter into the mind-set of the IMF directors. Raising the retirement age, when a very great number of older people have already been excluded from the job market well before they reach that threshold would quite simply amount to lengthening the period of unemployment. “Savings” would be made for pension funds by transferring the cost to unemployment insurance funds and solidarity mechanisms. Similarly, at this temple of free market capitalism, they exclude the idea of financing retirement pensions by taxing the financial revenues whose mad sky-rocketing initiated the crisis in the first place.


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