telegraph.co.uk - Pension pledges have left UK and US 'insolvent'
Fam IslamMarketing Assistant
Pension pledges have left UK and US 'insolvent'
telegraph.co.uk - 13 Jan 2011 - By Philip Aldrick, Economics Editor
The world's most advanced economies, including Britain and the US, would be insolvent if they accounted properly for the pension and health pledges made to their aging populations, an authoritative report has warned.
More painful austerity measures, of higher taxes and further spending cuts, will be necessary in the years ahead 'to cover the gap between expected future liabilities and expected future income', the World Economic Forum said in its Global Risks 2011 report.
'Age-related liabilities dwarf short-term issues such as the cost of fiscal stimulus [in the recession],' the report added. It estimated that the undisclosed cost of age-related spending in the UK is roughly 3.5 times the size of the UK economy or around £5 trillion.
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The undisclosed cost of age-related spending in the UK is roughly 3.5 times the size
of the UK economy or around £5 trillion. Photo: Getty Images
Daniel Hofmann, chief economist at Zurich Financial Services and a co-author of the report, said: 'Under a proper accounting framework, most advanced economies would be fiscally insolvent... In the absence of far-reaching structural corrections, there will be a high risk of sovereign defaults.'
The UK economy is 'close to unsustainable', he said, due to its mix of high public debt and deficit. The US finances, though, would already be 'no longer sustainable' were the dollar not the world's reserve currency, he added.
Christian Mumenthaler, chief marketing officer at Swiss Re and a co-author, said cultural changes would be necessary. People will have to work longer, pay more towards age-related care and receive less in old age. In the European Union, 16pc of the population is currently above 65. Within 40 years, it will be 28pc, he added.
Pressures on governments come just as 'the world is in no position to face major, new shocks', the report warned. 'The financial crisis has reduced global economic resilience.'
One of the world's most pressing concerns is income and wealth inequality, the Forum said ahead of its annual meeting in the Swiss ski resort of Davos. 'The benefits of globalisation seem disproportionately spread ? a minority have harvested a disproportionate amount of the fruits... There is evidence of economic disparity within countries growing,' the report said.
'There are signs of resurgent nationalism and populism as well as social fragmentation.'
Water, food and energy security is identified as another major risk. 'Both population growth and increasing meat consumption will have a tremendous impact on resource needs,' the report said.
Demand for food is expected to leap 50pc by 2030, by 30pc for water, and by 40pc for energy.
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