Why National Pension Systems Are a Ticking Time Bomb

As humans live longer, pensions need to fund retirements lasting many years or even decades. At the same time, pension funds face the challenge of eking out decent returns in an era of near-zero interest rates. Even before the coronavirus began exacting its economic toll, concerns were mounting that national pension plans the world over would struggle to meet their obligations. Adding to the difficulty: Attempts by governments to reform their systems have met with forceful popular resistance.

Because the clock is ticking and the math does not add up. By 2035, the basic U.S. system known as Social Security will no longer be able to cover payments, forcing a 20% reduction in benefits, according to its trustees. On a global scale, pension shortfalls will be the equivalent of about 23% of world output by 2050, the Group of 30 consultancy estimated. The financial strain is challenging old-age support systems and leaving many countries facing tough choices about raising the age of retirement, cutting benefits or lifting taxes.