The Price of an Aging Society
=============================
Wolran Kim (Mar 2011)
For the last couple weeks, the news of Japan, which had a serious earthquake and nuclear power plant incident, has been broadcast through CNN all day. The refugees shown occasionally through the screen are mostly elderly. Japan is also the highest longevity country in the world. We start to get old from the moment of birth. Nobody can go against the laws of nature. The aging of the world community has long been obvious. Most developed countries experience demographic changes simultaneously with the process of modernization. Then, how serious is an aging society in the world and what are the problems we are faced with?
An aging society is divided into aging society, aged society, and super-aged society depending on a component ratio. The aging society has a high average age from long life expectancy due to advances in medicine, improvements in living standards and environment. It is any community in which the population over 65 has reached 7% of the total population. The aged society refers to 14% the total population and the super-aged society exceeds 20% or more. When you view the case of developed countries, it requires a considerable period to move from an aging society to an aged society. France took 115 years to enter into an aged society, the United States took 71 years, and Japan took 24 years. After 50 years, the world's population will increase to 10 billion from now 6.6 billion, and the population over 60 years old will be 2 billion where it is now 6 hundred million. The great population reverse phenomenon is expected to occur when the elderly population overtakes the population of children (Caregivers).
Because of aging populations, all developed countries have been overloaded and struggling to prepare for the side effects of contraction of the economy and the welfare system. This sign is appearing in China, an ongoing development country, which fears they are getting older without before being young. The World Assembly on Ageing held last in 2002 (every 20-year period), dealt only with elderly issues just like UNICEF deals with the world's children. NGOs—nongovernmental organizations—from every country gathered at the UN to establish an international action plan. They discussed the aging issue: pensions, health care, poverty eradication, and the social, economic and political roles of security. These issues have emerged as serious problems which urgently challenge the world (See figure 1).
The United States is an advanced nation worthy of the name which prepared for an aging society early. U.S. Social Security began in 1935 as a national insurance net, which compiles revenues as taxes and back into retirement on a monthly fixed amount each month. The average deferred retirement per household reached $10,740 per year in 2004, and Social Security, which appropriates total funds from taxes, is still a strong financial base. The problem will come in 2018 because pension payment for retirees will be greater than tax funds. There is speculation of a deficit in 2042, and it will be all depleted in 2052—pessimistic observation would be 2031, much faster than expected. In a 2006 annual report to Congress, the Medicare Board of Trustees reported that the program's hospital insurance trust fund could run out of money by 2018. According to the CDCP—Center for Disease Control and Prevention—life expectancy of the average American is 77.6 years, 14.3 years older than in 1943 (Fermandez).
The time of President Franklin D. Roosevelt could not expect an aging society, and it ran into limitations due to increasing the period of their pension benefits. One of the retirees received a pension with tax from five people in 1960, three people for now, and two people are going to support one retiree in 2075. According to a survey of experts from Harvard Kennedy School, Americans know that their savings are not enough, but they cannot believe in Social Security and they feel in a dilemma without any optimistic view. The United States is struggling with the acceleration of its aging society, in spite of having a good reputation as a country that responded most rapidly to elderly-friendly issues in the 1950s.
This is not just a U.S. problem, but most countries, which are beyond the level of developing, faced this problem (See figure 2). An aging society is a severe problem in China, a rising major economic power with a large population. According to the Chinese population forecast from U.S. CSIS (Strategic and International Studies), China's elderly population will reach 400 million in 2040, and 100 million of them will be over 80 years old. (China's population is 1.3 billion for now.) It threw a shocking warning of a '4-2-1 situation' in which one child needs to boost two parents and four grandparents. The Chinese government expects that the elderly population will reach 20% in 2036, and professor Huangang from Tsinghua University warned that the problem of an aging society is China’s biggest challenge as a lower developing country (Lee).
Another example in the east is Japan, who has the largest economy after the United States, and the hot issues of an aging population and population decline in the future. Japan's aging population percentage is 19.5% (2004); one out of five is 65 years old or older. This will increase to 35.7% in 2050. The world's oldest nation is another name of Japan, and male and female life expectancy is 78.4, and 85.3 years (2002). Japan set a record for the shortest period of time to become an aging society, within 24 years, which surpassed France (115 years), Britain (47 years), and Germany (40 years) (Cannon). The cost of low birth rate and aging are expensive; the economic downturn, bankrupt pensions, and social security costs.
Population control policies might be one method of reducing the rate of aging, but this cannot be the ultimate solution. European birth rates have decreased. The birth rate in Germany is only 1.3. The population which is largest in Western Europe, currently 82.5 million people, and this is expected to decrease to 75 million in 2050. This is the result of participation of women and changes in values. The speed of aging is transfixed according to declining birth rate. An average of 1.3 people is expected to support one person in 2050, and one third of the German government's budget has been committed to conservation of deficit in the Old Age Pension (Germany). Britain, who experienced early industrialization, is suffering from a serious aging complication due to falling birth rates and lengthening their life. Their birth rate is increased slightly, but lacks a hold on aging. The population of aged 65 was 9 million in 1995, and it is estimated to grow to over 13 million (British). Aging will lead to reduced growth through pension expenditure, increased health care costs, and serious labor shortage.
Switzerland has the pension problem in spite of the high employment rate of older workers. Their birth rate is 1.37, and the government is concentrating continuously on family planning policy with tax benefits to more than two children families. Welfare policy cannot be sustained if reproduction of the population is not supported. Switzerland is one of the most active working countries of older workers. 70% of 54-65 age group is employed, and this significantly exceeds the level compared with 48% of OECD average. But they are also hard up with pension, and increased the retirement age to 67 because of the deterioration of pension finances measures (Bern).
Usually, the pension system is nationalized, but Chile's pension system is worthy noticing for its privatization of public pensions. Chilean pension privatization was established in 1979, and gained extensive support from people after implementation in 1981. Chile had a long tradition of social security system instituted in 1924, but the situation was reached just before the bankruptcy in 1970 due to operational inefficiencies and chronic deficits for 50 years. The first-ever privatization of public pensions has succeeded through private retirement savings accounts since 1981. The core principle of an Individual Capitalization Accounts, Private Administration of Funds, Free Choice of AFP, and minimum of Role of the State (Exploring).
Chile’s Privatization of pension reform evaluated positively for development of capital markets and economic growth. The National savings rate increased to 29% in 1996 from 10% in 1986, and the size of funds exceeded to 55% of GDP in 2001 from 1% at the time of introduction. Annual assessment is also very good with 11.2%, because people can change companies in the three months according to published monthly fund management performance under supervision of SAFP. Also it is a positive impact to the labor market, because it is recognized as deferred compensation of reserve rather than the tax system.
On the other hand, there are also negative aspects. As The Century Foundation argues, Retirement plans in the United States and many other countries have traditionally depended on contributions from both employers and workers. But the Chilean system puts the [burden] on employees alone. In order to offset the absence of employer contributions to AFP accounts…the dictatorship ordered a salary hike of 18%, so that workers took home more in wages even after contributing to the new system (Century).
The average yield was 10.7% in 1980s due to sparkling upward tendency, but it was declined to 5% since the mid 1990s. It has been criticized that the only saving feature of the pension has been maximized but one of the major functions of the public pension system has been lost by giving up the income distribution. In addition, national financial problems had become a burden by increasing the minimum pension obligations to the Treasury due to reducing the number of premium payers and the poor return on the fund since late 2000 (Rix).
There is a need to clarify that the pension system in Chile is not entirely entrusted to the market even though they privatized the main part of the system. The government has strict rules on investment and management of AFP, and also paid the minimum pension to people who do not receive enough benefits. If pros and cons of privatization and state pension combine efficiently in the hands of experts, it might be possible that our concerns will be allayed.
Society means interaction between people, and welfare is the policy of the social dimension maintaining their happy lives beyond subsistence. The basic life pattern based on income and expenses is very different economically between families with many children, young couples, and elderly couples. In a rapidly changing modern society, an aging society demands change of the basic paradigms, and this is our near future, not distant. It is time to go under the knife in front of acceleration of an aging society and deficit of the pension system. Our society gets younger when we pay and maintain the price for aging.
=============================
Wolran Kim (Mar 2011)
For the last couple weeks, the news of Japan, which had a serious earthquake and nuclear power plant incident, has been broadcast through CNN all day. The refugees shown occasionally through the screen are mostly elderly. Japan is also the highest longevity country in the world. We start to get old from the moment of birth. Nobody can go against the laws of nature. The aging of the world community has long been obvious. Most developed countries experience demographic changes simultaneously with the process of modernization. Then, how serious is an aging society in the world and what are the problems we are faced with?
An aging society is divided into aging society, aged society, and super-aged society depending on a component ratio. The aging society has a high average age from long life expectancy due to advances in medicine, improvements in living standards and environment. It is any community in which the population over 65 has reached 7% of the total population. The aged society refers to 14% the total population and the super-aged society exceeds 20% or more. When you view the case of developed countries, it requires a considerable period to move from an aging society to an aged society. France took 115 years to enter into an aged society, the United States took 71 years, and Japan took 24 years. After 50 years, the world's population will increase to 10 billion from now 6.6 billion, and the population over 60 years old will be 2 billion where it is now 6 hundred million. The great population reverse phenomenon is expected to occur when the elderly population overtakes the population of children (Caregivers).
Because of aging populations, all developed countries have been overloaded and struggling to prepare for the side effects of contraction of the economy and the welfare system. This sign is appearing in China, an ongoing development country, which fears they are getting older without before being young. The World Assembly on Ageing held last in 2002 (every 20-year period), dealt only with elderly issues just like UNICEF deals with the world's children. NGOs—nongovernmental organizations—from every country gathered at the UN to establish an international action plan. They discussed the aging issue: pensions, health care, poverty eradication, and the social, economic and political roles of security. These issues have emerged as serious problems which urgently challenge the world (See figure 1).
The United States is an advanced nation worthy of the name which prepared for an aging society early. U.S. Social Security began in 1935 as a national insurance net, which compiles revenues as taxes and back into retirement on a monthly fixed amount each month. The average deferred retirement per household reached $10,740 per year in 2004, and Social Security, which appropriates total funds from taxes, is still a strong financial base. The problem will come in 2018 because pension payment for retirees will be greater than tax funds. There is speculation of a deficit in 2042, and it will be all depleted in 2052—pessimistic observation would be 2031, much faster than expected. In a 2006 annual report to Congress, the Medicare Board of Trustees reported that the program's hospital insurance trust fund could run out of money by 2018. According to the CDCP—Center for Disease Control and Prevention—life expectancy of the average American is 77.6 years, 14.3 years older than in 1943 (Fermandez).
The time of President Franklin D. Roosevelt could not expect an aging society, and it ran into limitations due to increasing the period of their pension benefits. One of the retirees received a pension with tax from five people in 1960, three people for now, and two people are going to support one retiree in 2075. According to a survey of experts from Harvard Kennedy School, Americans know that their savings are not enough, but they cannot believe in Social Security and they feel in a dilemma without any optimistic view. The United States is struggling with the acceleration of its aging society, in spite of having a good reputation as a country that responded most rapidly to elderly-friendly issues in the 1950s.
This is not just a U.S. problem, but most countries, which are beyond the level of developing, faced this problem (See figure 2). An aging society is a severe problem in China, a rising major economic power with a large population. According to the Chinese population forecast from U.S. CSIS (Strategic and International Studies), China's elderly population will reach 400 million in 2040, and 100 million of them will be over 80 years old. (China's population is 1.3 billion for now.) It threw a shocking warning of a '4-2-1 situation' in which one child needs to boost two parents and four grandparents. The Chinese government expects that the elderly population will reach 20% in 2036, and professor Huangang from Tsinghua University warned that the problem of an aging society is China’s biggest challenge as a lower developing country (Lee).
Another example in the east is Japan, who has the largest economy after the United States, and the hot issues of an aging population and population decline in the future. Japan's aging population percentage is 19.5% (2004); one out of five is 65 years old or older. This will increase to 35.7% in 2050. The world's oldest nation is another name of Japan, and male and female life expectancy is 78.4, and 85.3 years (2002). Japan set a record for the shortest period of time to become an aging society, within 24 years, which surpassed France (115 years), Britain (47 years), and Germany (40 years) (Cannon). The cost of low birth rate and aging are expensive; the economic downturn, bankrupt pensions, and social security costs.
Population control policies might be one method of reducing the rate of aging, but this cannot be the ultimate solution. European birth rates have decreased. The birth rate in Germany is only 1.3. The population which is largest in Western Europe, currently 82.5 million people, and this is expected to decrease to 75 million in 2050. This is the result of participation of women and changes in values. The speed of aging is transfixed according to declining birth rate. An average of 1.3 people is expected to support one person in 2050, and one third of the German government's budget has been committed to conservation of deficit in the Old Age Pension (Germany). Britain, who experienced early industrialization, is suffering from a serious aging complication due to falling birth rates and lengthening their life. Their birth rate is increased slightly, but lacks a hold on aging. The population of aged 65 was 9 million in 1995, and it is estimated to grow to over 13 million (British). Aging will lead to reduced growth through pension expenditure, increased health care costs, and serious labor shortage.
Switzerland has the pension problem in spite of the high employment rate of older workers. Their birth rate is 1.37, and the government is concentrating continuously on family planning policy with tax benefits to more than two children families. Welfare policy cannot be sustained if reproduction of the population is not supported. Switzerland is one of the most active working countries of older workers. 70% of 54-65 age group is employed, and this significantly exceeds the level compared with 48% of OECD average. But they are also hard up with pension, and increased the retirement age to 67 because of the deterioration of pension finances measures (Bern).
Usually, the pension system is nationalized, but Chile's pension system is worthy noticing for its privatization of public pensions. Chilean pension privatization was established in 1979, and gained extensive support from people after implementation in 1981. Chile had a long tradition of social security system instituted in 1924, but the situation was reached just before the bankruptcy in 1970 due to operational inefficiencies and chronic deficits for 50 years. The first-ever privatization of public pensions has succeeded through private retirement savings accounts since 1981. The core principle of an Individual Capitalization Accounts, Private Administration of Funds, Free Choice of AFP, and minimum of Role of the State (Exploring).
Chile’s Privatization of pension reform evaluated positively for development of capital markets and economic growth. The National savings rate increased to 29% in 1996 from 10% in 1986, and the size of funds exceeded to 55% of GDP in 2001 from 1% at the time of introduction. Annual assessment is also very good with 11.2%, because people can change companies in the three months according to published monthly fund management performance under supervision of SAFP. Also it is a positive impact to the labor market, because it is recognized as deferred compensation of reserve rather than the tax system.
On the other hand, there are also negative aspects. As The Century Foundation argues, Retirement plans in the United States and many other countries have traditionally depended on contributions from both employers and workers. But the Chilean system puts the [burden] on employees alone. In order to offset the absence of employer contributions to AFP accounts…the dictatorship ordered a salary hike of 18%, so that workers took home more in wages even after contributing to the new system (Century).
The average yield was 10.7% in 1980s due to sparkling upward tendency, but it was declined to 5% since the mid 1990s. It has been criticized that the only saving feature of the pension has been maximized but one of the major functions of the public pension system has been lost by giving up the income distribution. In addition, national financial problems had become a burden by increasing the minimum pension obligations to the Treasury due to reducing the number of premium payers and the poor return on the fund since late 2000 (Rix).
There is a need to clarify that the pension system in Chile is not entirely entrusted to the market even though they privatized the main part of the system. The government has strict rules on investment and management of AFP, and also paid the minimum pension to people who do not receive enough benefits. If pros and cons of privatization and state pension combine efficiently in the hands of experts, it might be possible that our concerns will be allayed.
Society means interaction between people, and welfare is the policy of the social dimension maintaining their happy lives beyond subsistence. The basic life pattern based on income and expenses is very different economically between families with many children, young couples, and elderly couples. In a rapidly changing modern society, an aging society demands change of the basic paradigms, and this is our near future, not distant. It is time to go under the knife in front of acceleration of an aging society and deficit of the pension system. Our society gets younger when we pay and maintain the price for aging.