Possible solution for the pension fund problems in the West.

4 Novembre 2014   •   no comments   

Will our kids ever earn enough money to pay our pensions?

A possible solution against the negative demographic effect on the welfare state.

Just came back from a conference on future planning of big economic players in Sofia, Bulgaria. … Thinking about what was said…..
If one looks today at the pension fund prognoses of most western European countries for the future financing of the funds, one has serious reasons to fear the future loss of income and the total debacle of the western welfare state system.
One European pension fund expert, while having a coffee with me 7 years ago, even stated that his country does not have the funds to pay pensions anymore in the near future. And this was before the financial crisis.
Financial prognoses in most western European countries clearly show on the one hand the increase in the number of elderly, inactive people and the decrease in the number of active young people contributing to the social welfare system. This of course creates a negative saldo in the pension funds financing over the long term.
On the other hand, in most western European countries, there is an increase in the years of inactivity of people due to different factors which increase the lifetime expectation of the elderly people. There is at the same time a decrease in the time of activity of young people due to different factors allowing young people not to work and to study longer and to stay out of the labor market for a longer time.  This again creates a shortage in the pension fund financing over the long term.
Yes a solution, be it partial, might be to increase the working years of the labor market and to set the minimum retirement age 5 years later. But this resolves the problem only partially.

Students – via a deficient school system – are more and more misguided to « study longer » on the university chairs, making them less practical and less ready for action, if not totally inactive on the labor market. Especially with the level of education today in most European countries leading to students to become « parrots » or worse….

If any solution – different from increasing the minimum age of retirement as proposed in most western European countries – can be foreseen, I plead for an extra solution.
Let the students work in the industry from the age of 16 while studying at the same time in the evenings or afternoons. Provide the industrial world with financial tools for this. And help the students who adapt this solution. The financial investment towards this solution in the social welfare model might very well give a positive return on investment and stop the pension fund gap over the long term.
At the same time, due to more practically educated labor market the efficiency of the nation’s industry might be increased giving it a competitive advantage.
I challenge the western European countries to do so.
Marc J. de Turck

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