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Falling birthrates and longer life expectancies are combining to raise the average age of the population in North America, Europe, and parts of Asia. Longer life spans will strain retirement systems as withdrawals begin to outweigh contributions.
In the United States, President Bush seeks to overhaul Social Security, in part to address the declining ratio between active workers paying taxes to finance the system, on the one hand, and retirees, on the other.
China too is facing a pension shortfall as a generation-long effort to reduce the birthrate raises the average age of the population and as the traditional family approach to caring for aged parents erodes. Anticipating the need for adjustments, ten years ago China began to shift from a pension system in which current workers finance the benefits of retirees to one in which current workers contribute to funds that would eventually provide them with income. But contributions haven't kept pace with withdrawals, and the balance is dipping into deficit.
China's policy makers have a number of options, and some would give domestic and foreign securities firms sizable opportunities. One proposal involves turning more state-owned enterprises into publicly traded ones, thus generating additional equity around them. Another is to create a system in which employers and employees would make contributions to designated funds, with payouts in proportion to their performance and to each individual's contribution. These and other proposed reforms depend on the further development of capital markets in China, on the emergence of a value generation culture there, and on better monitoring of companies and enforcement of securities regulations.
For more on China's pension deficit and proposals to reduce it, read "Filling China's pension gap." (Premium)
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