International Perspective - American Academy of Actuaries

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Transcript International Perspective - American Academy of Actuaries

The U.S. Aging Challenge
in International Perspective
Richard Jackson
President
Global Aging Institute
American Academy of Actuaries
Summer Summit
July 14, 2014
Washington, DC
The Good News
The United States is and will remain the
youngest of the major developed countries.
Percent of the Population Aged 60 & Over in 2010 and 2040
50%
43%
40%
39%
40%
33%
20%
30%
29%
30%
26%
26%
19%
19%
25%
31%
30%
30%
26%
23%
23%
20%
27%
22%
10%
0%
Source: World Population Prospects: 2012 Revision (New York: UN Population Division, 2013)
2010
2040
Source: UN Population Division (UN, 2013)
The U.S. public old-age dependency burden
is not large by developed-world standards.
Total Public Benefits to the Elderly (Aged 60 & Over) as a Percent of GDP in
2010 and 2040
Public Pensions
Health Benefits
Other Benefits
Total Benefits
2010
2040
2010
2040
2010
2040
2010
2040
Australia
3.7%
4.7%
3.0%
5.5%
2.3%
3.1%
9.1%
13.4%
Canada
4.0%
5.4%
4.3%
9.0%
1.0%
1.4%
9.3%
15.8%
France
12.6%
13.6%
4.7%
9.0%
1.3%
1.7%
18.6%
24.3%
Germany
10.3%
12.4%
4.7%
8.9%
1.9%
3.0%
17.0%
24.3%
Italy
13.9%
15.0%
3.9%
7.9%
2.2%
2.7%
20.0%
25.7%
Japan
9.3%
10.5%
5.2%
9.8%
0.6%
0.6%
15.1%
20.9%
Netherlands
4.6%
8.6%
3.4%
8.3%
2.2%
2.9%
10.2%
19.8%
Sweden
7.5%
8.4%
5.2%
7.3%
2.6%
3.5%
15.2%
19.3%
UK
7.5%
7.9%
4.6%
8.7%
1.9%
2.3%
13.9%
18.9%
US
4.8%
6.4%
5.1%
11.0%
1.2%
1.1%
11.1%
18.5%
Source: GAP Index, 2nd Edition (CSIS, 2013)
The income of the typical U.S. elder is quite
high by developed-world standards.
Per Capita Ratio of Median After-Tax Elderly (Aged 60 & Over) to Nonelderly
(Under Age 60) Cash Income in 2010*
1.34
1.4
1.2
1.06
1.0
0.8
0.88
0.93
0.96
1.08
1.08
1.12
0.97
0.78
0.6
0.4
0.2
0.0
*Income refers to the third quintile of the elderly and nonelderly income distribution.
Source: GAP Index, 2nd Edition (CSIS, 2013)
One Reason for High Elderly Living Standards:
America’s Large Funded Pension System
Funded Pension Savings as a Percent of Median
Elderly Income and GDP in 2010*
Percent of Income
Percent of GDP
Australia
15%
4.5%
Canada
33%
5.6%
France
1%
0.3%
Germany
5%
0.8%
Italy
5%
1.1%
Japan
14%
2.6%
Netherlands
30%
4.9%
Sweden
10%
1.9%
UK
18%
3.9%
US
31%
5.9%
*Income refers
to the third quintile of the elderly income distribution.
Source: GAP Index, 2nd Edition (CSIS, 2013)
Another Reason for High Elderly Living Standards:
America’s High Rate of Elderly Labor-Force Participation
Elderly Labor-Force Participation Rate by Age Group, 1990-2010
Aged 60-64
Aged 60-74
1990
2000
2010
1990
2000
2010
Australia
33%
34%
52%
22%*
25%*
40%*
Canada
37%
36%
51%
20%
19%
32%
France
14%
11%
19%
8%
5%
10%
Germany
21%
22%
44%
12%
11%
18%
Italy
22%
19%
21%
12%
10%
11%
Japan
56%
56%
61%
44%
41%
44%
Netherlands
15%
19%
39%
8%
10%
23%
Sweden
58%
53%
65%
25%
26%
34%
UK
38%
38%
46%
19%
19%
27%
US
45%
47%
55%
27%
30%
39%
*Data refer to population aged 60-69.
Source: Labor Force Statistics Database (OECD, 2013)
The Bad News
While the projected level of U.S. old-age benefit
spending is not especially high, the projected
growth in old-age benefit spending is.
Growth in Total Public Benefits to the Elderly (Aged 60 & Over) as a Percent of GDP
from 2010 to 2040
Sweden
4.1%
Australia
4.2%
UK
5.0%
Italy
5.7%
France
5.7%
Japan
5.8%
Canada
6.5%
Germany
7.3%
US
7.4%
Netherlands
9.6%
0%
2%
4%
6%
8%
10%
Source: GAP Index, 2nd Edition (CSIS, 2013)
Behind the Growth in Entitlements: America’s
Unusually Large Baby Boom Generation
Average Annual Growth Rate in the Population Aged 60 & Over from
2010 to 2040
2.5%
2.1%
2.0%
2.2%
1.9%
1.5%
1.3%
1.0%
1.0%
1.3%
1.3%
1.5%
1.0%
0.6%
0.5%
0.0%
Source: UN Population Division (UN, 2013)
Behind the Growth in Entitlements: America’s
Unusually High Rate of Health-Care Cost Growth
Average Annual Growth Rate in Real Age-Adjusted Per Capita Public Health-Care
Spending, 1985-2010
5.0%
4.1%
4.0%
2.9%
3.0%
2.1%
2.0%
1.4%
1.4%
1.6%
2.2%
2.9%
2.3%
1.7%
1.0%
0.0%
Source: OECD Health Data 2012 (OECD, 2012)
Many developed countries have made large cuts
in the generosity of their public pension systems.
Cumulative Percentage Decline in Current-Law Public Pension Benefits to the Elderly
(Aged 60 & Over) Relative to "Current-Deal" Benefits, from 2010 to 2040*
Netherlands
-5%
Sweden
-19%
US
-22%
Australia
-24%
UK
-26%
Canada
-33%
France
-33%
Germany
-37%
Japan
-39%
Italy
-46%
0%
-10%
-20%
-30%
-40%
-50%
*The "current-deal" projection assumes that retirement ages and replacement rates remain unchanged in the future.
Source: GAP Index, 2nd Edition (CSIS, 2013)
Conclusion
An apparent paradox: The countries making the
deepest cuts in public benefits often have high
levels of elderly dependence on public benefits.
Public Benefits as a Percent of the Cash Income of the Median-Income
Elderly (Aged 60 & Over) in 2010*
100%
80%
73%
60%
60%
40%
63%
64%
73%
78%
66%
50%
39%
39%
20%
0%
*Income refers to the third quintile of the elderly income distribution.
Source: GAP Index, 2nd Edition (CSIS, 2013)
Some Policy Lessons

It the long run, it may be no more
feasible to have a retirement system
that is sustainable but inadequate than
it is to have a retirement system that is
adequate but unsustainable.
Per Capita Ratio of Average After-Tax "Old
Elderly"(Aged 70 & Over) to "Young Elderly"
(Aged 60-69) Cash Income in 2010
Japan



While there are many ways to restrain
the growth in old-age benefit costs,
demographic stabilizers represent the
global state of the art in entitlement
reform.
There are only two ways that aging
societies can maintain or improve the
living standard of the old without
imposing a new tax or family burden on
the young: increase funded retirement
savings and extend work lives.
In the end, we may need to refashion
the overall role of government in
retirement provision so that it serves
less as a retirement income floor for all
of the elderly and more as a retirement
income backstop for the “old elderly.”
0.52
Netherlands
0.62
Sweden
0.65
US
0.79
Australia
0.86
Germany
0.88
Italy
0.89
Canada
0.92
France
0.93
UK
1.01
0.0
0.5
1.0
1.5
Source: GAP Index, 2nd Edition (CSIS, 2013)
The Old Elderly versus the Young Elderly:
Higher Benefit Dependence
Public Benefits as a Percent of the Cash Income of the Median-Income Young
Elderly (Aged 60-69) and Median-Income Old Elderly (70 & Over) in 2010*
Canada
US
27%
49%
27%
49%
Netherlands
Australia
Young Elderly
52%
Old Elderly
53%
39%
68%
52%
Japan
69%
46%
UK
72%
64%
France
Sweden
Germany
Italy
41%
77%
81%
49%
83%
59%
84%
* Data refer to the third quintile of the elderly income distribution.
Source: GAP Index, 2nd Edition (CSIS, 2013)