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Financial impact of living longer is worse than pension plans think

Major countries may need to set aside half of the GDP to pay for the long-term costs of an aging population that will likely live three years longer apiece by 2050.

By Staff Writer | Updated on April 16, 2012

An International Monetary Fund analysis says advanced economies would need to set aside half of their GDP today to pay for a three-year increase in longevity that is actuarially likely by 2050. While aging occurs slowly and imperceptibly, its financial effects can be catastrophic if not addressed now, the IMF’s Global Financial Stability Report argues.

The report written by IMF economist S. Erik Oppers says that government liability for social security systems is based on estimates of fertility and longevity. Over the past several decades, governments have consistently underestimated longevity projections and thus have underestimated their pension liabilities. If people live just three years more than expected in 2050, which is in line with the average underestimates of the recent past, the funding gap to pay retirement benefits would be 1 percent to 2 percent per year—an amount equal to 50 percent of 2010 GDP.

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