Cost of aging rising faster than expected: IMF
By Stella Dawson
WASHINGTON (Reuters) - People worldwide are living three years longer than expected on average, pushing up the costs of aging by 50 percent, and governments and pension funds are ill prepared, the International Monetary Fund said.
Already the cost of caring for aging baby boomers is beginning to strain government budgets, particularly in advanced economies where by 2050 the elderly will match the numbers of workers almost one for one. The IMF study shows that the problem is global and that longevity is a bigger risk than thought.
"If everyone in 2050 lived just three years longer than now expected, in line with the average underestimation of longevity in the past, society would need extra resources equal to 1 to 2 percent of GDP per year," it said in a study to be released in its World Economic Outlook next week.
For private pension plans in the United States alone, an extra three years of life would add 9.0 percent to liabilities, the IMF said in urging governments and the private sector to prepare now for the risk of longer lifespans.
Demographers for many years have assumed that the lengthening of lifespans would slow in developed countries. But with continual advances in medical technology, that has not happened as acutely as expected. In emerging economies, rising standards of living and the expansion of health care also are adding to lifespans.
To give an idea of how costly this could prove, the IMF estimated that if advanced economies were to plug the shortfall in pension savings of an extra three years immediately, they would have to stash away the equivalent of 50 percent of 2010 GDP, and emerging economies would need 25 percent.
These extra costs fall on top of the doubling in total expenses that countries can expect through 2050 from an aging population. The faster countries tackle the problem, the easier it will be to handle the risk of people living longer, the IMF said.
These estimates cover only pensions. They do not account for healthcare costs, which also rise the longer someone lives. Continued...