Read the following leading article from a newspaper and then try the activities.
The Pension Crisis
By Ben Tyldesley
How are you going to support yourself when you get old? The current systems of pension provision are facing crisis, and governments in western industrialised economies are finally waking up to the fact. In ten or twenty years’ time, when today’s middle-aged begin to retire, the state may no longer have enough money to support them.
How has this situation come about? For a start, we are all living longer and healthier lives. Life expectancy in many European countries is now nearly 80 years old, unlike the previous generation. Traditionally it was the full-time employed who paid for the retired through compulsory contributions to the state. With birth rates falling dramatically throughout Europe, there are not enough of us in work to keep the system going.
In Europe, there are basically two types of pension systems. In some, contributions resulted in the payment of a fixed rate pension by the state on retirement. In addition, many workers paid into company schemes and received another pension based on their final years’ earnings. This has become vital to supplement the state pension which hasn’t reflected earnings for the last 25 years.
In the 1980s, private pension schemes were introduced in Britain. How much you get depends on how much you put in while working, and on the value of investments when you retire. Several schemes have got into trouble because the funds in them have run low through poor management.
In much of the rest of Europe, state-managed national insurance schemes are much more generous as the final pay-out is based on the best years of a worker’s earnings. The problem here is that such schemes are becoming unsustainable. It is predicted that in ten years’ time they may collapse completely.
So what should governments do about the mess? To avoid major problems in future, they must start to change people’s expectations.
The first step is for the current generation of workers to accept that because they are living longer, they will have to work longer. Retirement ages of 60 are now being abolished. Many will have to go on working until they are 65 or even 70. This way they will continue to pay into and maintain the state system rather than depending on it.
More workers will have to start paying into private pensions. Unfortunately, this means becoming more dependent on the uncertainties of the market and the investments funds on which such pensions are based. How much money people will get when they finally retire will no longer be guaranteed. In addition, workers have little confidence at the moment in the people they are supposed to entrust their money with.
I believe that a return to some kind of compulsory saving system for all is the only way to prevent widespread poverty amongst an increasingly ageing population a few years down the line. Meanwhile, we should all be having more children.
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