Pension Systems and Budget Sustainability

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As populations age and work forces decline i.e. few taxpayers contributing to budgets, pension systems have been subjected to conflicting needs.  This includes preserving the tax base into the long term while catering to ageing electorates, in some cases dominated by pensioners or retirees.

State budgets are coming under more pressure to support pensioners

Pension and Budget Sustainability (Image copyright Pexels)

Following is an overview of the top five most sustainable systems including Australia which is a hybrid of state asset tested pension and the still developing private pension of superannuation system.

Further, an essential part of supporting the tax base is to use temporary residents churn over of international students, backpackers, temporary workers etc. as net financial contributors.

From The Nation:

‘Global top five most sustainable pension systems

WITH pension contributions expected to rise globally, a number of nations have developed models to reward their workforce for life after retirement.

As the retirement age and life expectancy continues to rise around the world, having a sustainable pension scheme is more important than ever

Thanks to gradually rising life expectancy and a higher state pension age, pension contributions are set to soar around the world. World Finance explores the top five countries with sustainable pension systems, where retirees can live particularly well with their pension pot.

Thanks to rising life expectancy and a higher state pension age, pension contributions are set to soar

Australia

Australia’s three-tier ‘superannuation’ pension system is one of the most touted in the world. It includes a tax-financed age pension, providing basic benefits, a company pension pot and the individual contribution to a retirement savings account. Employers are required to contribute 9.5 per cent of worker’s gross earnings, which totalled AUD2.3trn ($1.8tn) at the end of 2017.

Canada

Canada provides its workforce – especially low-income citizens – with the Canada Pension Plan, which is a universal flat-rate pension plus a supplement based on income. Voluntary pension plans were also recently introduced, and from 2019 until 2025, workplace contributions will increase by one percent to 5.95 percent.

Denmark

The average Danish pension pot is well funded due to its ‘folkepension’ – a universal pension scheme ensuring that pensioners receive a basic retirement income. One notable result of Denmark’s successful system is that, according to an OECD 2017 report, its private pension assets represented 209 percent of Denmark’s GDP in 2016.

Germany

Germany’s pay-as-you-earn state pension makes up its main retirement system, which provides a safety net for low-income earners. Occupational pensions are not compulsory but approximately 60 percent of all German workers participate – a number that is expected to grow in the coming years.

Switzerland

Ranked sixth in the world in 2017 by Mercer’s Global Pension Index, Switzerland’s public pension primarily depends on workers’ earnings. Conversely, the compulsory organisational pension depends on a worker’s age – meaning that with age comes a larger contribution. Swiss insurers and various banking foundations have also put voluntary schemes in place.

 

For more related blogs and articles on demography, economics, populist politics and younger generations click through.

 

International Education – Foreign Student – Value

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The value of international education and international students, tangible and intangible, is egregiously under – estimated by the application of a narrow ‘white nativist’ or politically opportunistic prism that ignores inconvenient facts and dynamics.

Many Australians of Anglo Irish heritage focus too much upon international students described as ‘immigrants’, their potential for permanent residency (with significant hurdles) and demands for same ‘foreign’ students to return home in support of their home country.

Conversely same qualifications are used by Australians internationally, many of the same gain other residency or even dual citizenship, yet there are no demands for the same e.g. to return home and/or pay back fees?

This dynamic is simply a reflection of increasing geographical and social mobility (taken for granted in the EU) for all in the developed and many in the less developed worlds for whom higher education and/or technical skills and languages improve their lives and others’.

Meanwhile too many narratives from our mono-cultural political, media and social elites seem about creating ‘us vs them’ for voters, and worse, deep seated Nativist or colonial ideology.

Global population is expected to peak mid-century whereby there may be increased competition for people, with sub-Saharan Africa being the only place with population growth and significant younger demographic cohorts.

Late news: The U.K. has announced the re-introduction of post graduate work visas for international university graduates.

Australia should try to keep more international students who are trained in our universities

Jihyun Lee – September 13, 2019 6.02am AEST

Australia’s education system takes almost one in ten of all international students
from countries that are members of the Organisation for Economic Co-operation and
Development (OECD).

That’s according to the latest Education at a Glance report from the OECD.
But Australia should do more to retain some of those students after graduation or it
risks losing good talent overseas.

A degree of talent

The OECD report says Australia’s higher education sector is heavily reliant on international students. They represent about 48% of those enrolled in masters and 32% in doctoral programs.

This is partly due to a lack of interest among Australians in pursuing higher-degree study compared to other countries, about 10% in Australia versus 15% across OECD countries.

International students make up 40% of doctoral graduates in Australia, compared to 25% across OECD countries. That’s higher than the US (27%) and Germany (18%), the other two popular destinations for international students.

Australian students are not choosing some STEM (science, technology, engineering and mathematics) subjects as much as those in other OECD countries. For example, only 17% of adults (aged 25 to 64) with a tertiary degree had studied engineering, manufacturing and construction.

Other comparable industrialised countries such as Sweden (25%), Korea (24%), Japan (23%) and Canada (21%) are obviously doing better.  This trend appears to be getting worse because the proportion of new students entering STEM-related bachelor degree programs is lower in Australia (21%), compared to 27% across OECD and partner countries.

While the government here provides for up to four years of post-higher-degree stay for international students, it is inevitable that Australia faces a drain of foreign-born specialists who were educated in Australia.

In 2017, the Australian government granted permanent visas to only 4% of foreign students and temporary graduate visas to only 16% to live in Australia after completing their study. It is obvious then that many international students return home after they study in Australia.

What can the Australian government do?

We need to provide better incentives for those who complete a higher-degree program, especially in the STEM areas, to stay on in Australia.

The OECD’s report says people who studied information and communication technologies (ICT) and engineering as well as construction and manufacturing will continue to benefit greatly from strong labour-market opportunities everywhere in the world.

Australia can do better in attracting younger generations to be trained in the STEM area at higher degree levels. We then need to try to retain more of the foreign-born higher-degree holders rather than sending them back home.

Being afraid of an influx of Chinese or Indian students who will contribute to development of innovation and technological changes in this country should become a thing of the past.

Good news for Australia’s education

The Education at a Glance program aims to give an annual snapshot of the effectiveness of educational systems – from early childhood to doctoral level – across all OECD and partner countries.

At almost 500 pages, the 2019 report does contain some good news for Australia. Australia spends a higher proportion of its GDP (based on public, private and international sources) on education, 5.8% compared to the OECD average of 5.0%.

The Australian education system strongly promotes compulsory education. Our 11 years of compulsory education is the longest among OECD countries. That means each student gets 3,410 more hours over the period of compulsory education.

When it comes to people going on to further studies, the proportion of tertiary-educated Australians has increased over the past ten years. It is now 51%, compared to the OECD average of 44%.

On graduation, the average debt for Australian students is US$10,479 (A$15,243), one of the lowest among OECD countries. It’s about half that of New Zealand US$24,117 (A$35,080), which has similar tuition fees and financial support systems.

Education pays off

Australian young adults with vocational qualifications have a higher employment rate (83%) than the OECD average (80%).  Although earning power is still greater for those with a higher level of educational attainment, the financial return from more schooling is far smaller in Australia.

Compared to those with upper secondary education, full-time tertiary-educated Australian workers earn 31% more, compared to 57% more on average across OECD countries. Adults with a master’s or doctoral degree earn 52% more, compared to 91% more on average across OECD countries.

The OECD attributes this trend partially to good labour-market opportunities for those with upper secondary vocational qualifications.  The OECD also notes that the average employment rate for Australian tertiary-educated adults is 85%, only two percentage points higher than the 83% for those with a vocational upper secondary or post-secondary non-tertiary qualification. This is one of the smallest differences across OECD countries.

For more articles and blogs about international education, immigration, population growth and white nationalism click through.

Cost of Ageing Populations

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Elections, budgets and governance in most western and now developing nations that are democracies are being impacted by increasing numbers of retirees and pensioners in the upper median age demographic, being catered to by politicians, especially conservatives.

Growing budget imbalances due to increasing numbers of retirees and pensioners drawing on budgets with declining net contributors of working age.

Older Households Drawing upon Budget (Image copyright Grattan Institute)

From the Australian Broadcasting Commission:

The costs of an ageing population keep growing, but who’s going to pay?

 

By chief economics correspondent Emma Alberici

Updated 27 May 2019, 9:29am

‘…..The politics may be tricky but future governments will have to confront the grim economic reality of the post-World War II baby boom.

Australians born after 1946 began to retire in huge numbers in 2011. Demand for the aged pension, aged care and health services have been rising commensurately.

The working age population is a net contributor to the federal budget. Older people, on the other hand, are the largest recipients of welfare, aged care and health care services.

Retirees are getting expensive

A report released last month by the independent, non-partisan Parliamentary Budget Office (PBO) warns the ageing population will exert “historically unique” pressure on the federal finances in the decade to 2028-29.

New figures in the report show that by 2028, Australians born between 1946 and 1964 will cost the Government more than Medicare does each year. Based on 2018 budget forecasts, the PBO estimates the cost of Medicare to be $32 billion in 2028-29. By then, lost revenue ($20 billion) and increased spending ($16 billion) on baby boomers will amount to $36 billion.

The number of working-age Australians for every person aged 65 and over has fallen from 7.4 in the mid-1970s, to 4.4 in 2015. That figure is projected to fall to just 3.2 in 2055.

Economists and policy makers need to find new taxpayers and increase workforce participation to support the hordes of older people entering retirement.

The ageing population means that by 2028-29, the PBO estimates there will be 600,000 fewer workers.

While the Australian population has been ageing, life expectancy has also improved.

As far as the government’s fiscal fortunes go, it’s a perfect storm. The pension was introduced in 1909 with 65 set as the qualifying age for men.

While mostly conservative parties attract most of the upper median age vote they are or have been compromised by financial policies catering to the same, but impairing budgets into the long term.  Who’s going to pay? Younger generations…..

For more articles or blogs about ageing democracy and demography, click through.