In 1889, the first system of State pension provision was introduced by German Chancellor Otto Von Bismarck. At its inception the system afforded a pension to all those who attained 70 years of age, although the average life ex­pectancy was of around 37 years of age. With time, came advancements in medical and sanitary standards, but it also brought with it the challenges of people’s longevity and the sustainability of the pension system and the economy as a whole.

Today we see a global average retirement pension age of 65, with an average life expectancy reaching well beyond 75 and 80 in most developed countries. This trend, coupled with the converse trend of declining fertility rates in many developed countries, sets the stage for the inevitable question: “is this sustainable?” In economic and demographic terms one would simply refer to this as the ‘ageing dependency ratio’, that is, how many people who are past retirement age are 100 people of working age expected to sustain?

Lower ratios contribute to better pensions and social benefits for retirees, while higher ratios increase the financial stress on the entire population and economy as a whole, not to mention political pressure on governments to actually deliver a pension.

Although strategic programmes to decrease such a ratio can and are implemented through incentives to increase fertility and through immigration, competing challenges are emerging through the advancement of industries of automation and its effect of occupation rates and other socio-demogra­phic trends that act as a drag in the opposite direction.

Barring an unprecedented economic revolution, the younger political generation is inevitably going to be saddled with the difficult but inevitable decision of increasing taxation to fund the pension and social benefit machine to the detriment of the working generation and for the benefit of an ever growing number of people exiting the State’s available pool of human capital.

Full Content: Times of Malta

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