Pension Systems and Budget Sustainability

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.

 

Australian Brexit?

Sam Roggeveen of the Lowy Institute has written about the potential of an ‘Australian Brexit’ due to a global political transformation (ideology and strategy) towards radical white nativist ideas, isolationism and putting pressure on mainstream parties to comply, while being presented as organic or the ‘people’s will’.

There has been gross over simplification of Brexit to supposedly avoid bureaucracy, the EU, Europe and increasing antipathy towards immigration by ageing electorates through populist politicians.

However, many would suggest Australia had a form of Brexit upon colonisation via the First Fleet 1888 by the British, then after Federation in 1901 the bi-partisan ‘White Australia Policy’ inspired by British eugenics movement (and finally ended after mostly through opposition by NGOs, churches etc.).

Fast forward to the supposed crisis of Tampa when then Australian Prime Ministers helped start the demonisation of refugees with able support from mainstream media including Murdoch’s NewsCorp, then carried further by society in creating antipathy towards non-Europeans; a new proxy white Australia policy.

Further, there are clear links between ideology, political and media tactics of white nativism or white nationalism inspired by eugenics, which has been mainstreamed in the US and UK; with further links onto the fringes of Europe.

White nationalism, white nativism or eugenics all share a clear architecture including astro turfing, manipulation of media, fake news etc., that can also be linked to radical right libertarians or elements of neo-liberalism by global corporates, via think tanks, to deflect attention away from tax avoidance, interference in domestic policies, cast doubt on climate change etc.

Brexit for Australia?

The new conventional wisdom in Canberra doesn’t stack up

By Sam Roggeveen

November 5, 2019 — 12.00am

It is Canberra’s new conventional wisdom: the government’s unexpected election victory gives Prime Minister Scott Morrison stature and stability that his recent predecessors all lacked. The last decade of political dysfunction is behind us. The trouble is, this view is based solely on very recent events in one country alone. What if we took a global perspective over a longer period?

A political transformation has been under way in Western democracies for decades now, quietly and in the background for most of that time, though in recent years it has broken cover. In the US it produced Donald Trump, in the UK Brexit, and in Europe the rise of new right-wing populist movements.

Western democracy has hollowed out. It has happened in two stages. First, the public has drifted away from major political parties, the institutions that once connected them to the political process. In every Western nation, mainstream centre-right and centre-left parties are in decline. In the early to mid-20th century, party affiliation was a question of class, religion and family inheritance – you voted a certain way because your parents and peers did too. But for decades now membership of the big parties has fallen and the share of the vote they can rely on has decreased.

In response (and this is stage two), the big parties have found new ways to survive. They have evolved from amateur mass-membership organisations to small, professionalised outfits financially reliant on big donors and, increasingly, the state. Other than at election time, the big parties don’t really need the public.

So, voters withdrew from political parties, and the parties responded with a withdrawal of their own. The result is that the public square is left empty and politics is hollow.

In Europe, right-wing populist parties have done well because the minority of voters who are attracted to those ideas have slipped from the grip of the big parties. But as France’s Emmanuel Macron and Germany’s Greens show, the big parties are not bleeding votes only to the right, they are losing them in the centre and on the left too.

In America, the weakening of parties helped mavericks like Trump and Bernie Sanders, who tied themselves to the big parties out of self-interest rather than conviction.

In the UK and Australia, the decline of the big parties has produced a different kind of instability. In both countries the voting system makes it hard for small parties to win seats even though their vote share has increased. Yet as the big parties have become less popular, they have also become less stable and more vulnerable to shocks from outsiders and ambitious MPs. That’s what caused Brexit, essentially an internal Tory Party dispute stirred up by Eurosceptic backbenchers and Nigel Farage’s UKIP.

It is also what has produced the leadership churn in Australian politics over the last decade, a succession of tight election results, and two periods of minority government. Australians are abandoning the major parties at record rates. At the same time, these shrinking and insular parties are increasingly cut off from a bored and unengaged Australian public.

Lacking genuine connections to a deep social base, major-party MPs look to their peer groups in politics and the media for inspiration, which is where they got the idea that changes of leadership might fix their problems and why, for instance, Morrison borrows Trumpian language on “negative globalism”.

The 2019 election resolved none of these underlying problems. True, the Liberal and Labor parties have now changed their rules so that leadership coups are harder to mount, but this is much more than just a leadership issue.

Again, if we broaden our view beyond Australian shores, we can see why. Angela Merkel has been German chancellor for 14 years, yet in that period, German politics has been completely transformed – Alternative fur Deutschland, a populist party that didn’t even exist when Merkel took office, is now the official opposition in the Bundestag.

It would be foolish to assume that Australian politics, still dominated by two parties the public cares little for, is suddenly immune to upheaval on that scale.

Sam Roggeveen is director of the International Security Program at the Lowy Institute and author of Our Very Own Brexit: Australia’s Hollow Politics and Where It Could Lead Us.’

For more articles and blogs about white nationalism, immigration and Australian politics click through.

Cost of Ageing Populations

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.

Population Ageing – Populist Politics

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With ageing societies, living longer, back grounded by increasing mobility of youth and working age, are younger generations viewed as a threat and going to be disadvantaged by upper median age voting demographics, led on by Nativist and populist politicians?

‘From Project Syndicate.

Is Pensioner Populism Here to Stay?

Oct 10, 2018 EDOARDO CAMPANELLA

It is often assumed that the rise of populism in Western democracies is primarily a response to economic insecurity and anger toward privileged elites. But the fact is that neither of those sentiments can be understood without also accounting for the political consequences of population ageing.

Elderly including pensioners living longer are voting for populist leaders and against youth.

Ageing Voters and Populism versus Youth? (Image copyright Pexels).

MILAN – The right-wing populism that has emerged in many Western democracies in recent years could turn out to be much more than a blip on the political landscape. Beyond the Great Recession and the migration crisis, both of which created fertile ground for populist parties, the ageing of the West’s population will continue to alter political power dynamics in populists’ favour….

….Britons voted disproportionately in favour of leaving the European Union, and older Americans delivered the US presidency to Donald Trump. Neither the Law and Justice (PiS) party in Poland nor Fidesz in Hungary would be in power without the enthusiastic support of the elderly. And in Italy, the League has succeeded in large part by exploiting the discontent of Northern Italy’s seniors. Among today’s populists, only Marine Le Pen of France’s National Rally (formerly the National Front) – and possibly Jair Bolsonaro in Brazil – relies on younger voters……

…Most likely, a growing sense of insecurity is pushing the elderly into the populists’ arms. Leaving aside country-specific peculiarities, nationalist parties all promise to stem global forces that will affect older people disproportionately.

For example, immigration tends to instil more fear in older voters, because they are usually more attached to traditional values and self-contained communities….

….By backing right-wing populists, older voters hope to return to a time when domestic affairs were insulated from global forces and national borders were less porous. At the heart of today’s nationalist politics is a promise to preserve the status quo – or even to restore a mythical past.

Hence, nationalist politicians often resort to nostalgic rhetoric to mobilise their older supporters. For his part, Trump has pledged to bring back jobs in the American Rust Belt, once the centre of US manufacturing. Likewise, there could be no clearer symbol of resistance to change than his proposed wall on the US-Mexico border. And his crackdown on illegal immigration and ban on travellers from predominantly Muslim countries signals his commitment to a “pure” American nation.

Similarly, in continental Europe, right-wing populists want to return to a time before the adoption of the euro and the Schengen system of passport-free travel within most of the EU. And they often appeal directly to older voters by promising to lower the retirement age and expand pension benefits (both are flagship policies of the League).

In the United Kingdom, the “Leave” campaign promised vindication for those who have been left behind in the age of globalisation. Never mind that it also touted the idea of a free and independent “Global Britain.” The Brexiteers are not known for their consistency.

At any rate, to the extent that today’s populist wave is driven by demographics, it is not likely to crest anytime soon. In greying societies, the political clout of the elderly will steadily grow; and in rapidly changing economies, their ability to adapt will decline. As a result, older voters will demand more and more socioeconomic security, and irresponsible populists will be waiting in the wings to accommodate them…..

For related blogs and articles about population growth (and decline), immigration and NOM net overseas migration click through.