Across the world, populations are increasingly growing older, while governments that seek to reform pension systems face backlash and social unrest. Governments need to take action to avoid critical cost reduction, but must also engage citizens in understanding the need for reform.

The world is experiencing an aging process, as a result of medicine progress, urbanization, control of contagious diseases through vaccination, reduction in malnutrition, decline in the infant mortality rate, improving knowledge and use of contraception and abortion, and changing people customs, who being capable of controlling birth, give priority to present consumption over having children that cost money to raise and are no longer needed, as in the past, for work in agriculture. In addition, children used to care for old adults but the expansion of social security now provides, at least in the most developed countries, protection in old age and long-term care.

Aging is a blessing for humanity as higher life expectancy brings a longer life, but it has adverse economic effects, because pension costs increase. As the population ages, the proportion of the older population (age 65 and above) increases rapidly, while the productive segment (ages 15-64) that supports the elder shrinks hence less workers contribute—with their employers—to old-age pensions. Furthermore, the older population with a right to retirement expands and collects pensions for a longer time hence increasing pension expenditures. The contraction of revenue and the growth in expenditures often results in deficit in pension programs and exhausting reserves needed to finance pensions in the long run.

The population seldom knows about this severe and growing problem, while politicians are reluctant to approve the painful remedies because they are unpopular; the result is that insurrections are occurring all over the world and they will increase in the future.    

In Chile, socialist president Michelle Bachelet appointed a commission of pension experts, which in 2015 approved 56 recommendations to correct the failures of the private pension system. However, a year passed and the president failed to enact the law to implement them. Angered by that year of inertia, a million Chileans took to the streets protesting against private administrators (AFP) and demanding better pensions. Her successor, the conservative Sebastián Piñera did not succeed either. Current president Gabriel Boric, supported by a leftist coalition, hoped for a constitutional reform to make a radical pension reform, but he failed and now is trying to elect a new constitutional convention to pass the needed reform.

In 2016, public demonstrations soared in Greece against a bill from the left-wing Syriza party, which increased contributions and reduced social security pensions. The Greeks erected barricades in streets and ports, and organized a general strike. The law, finally approved, cost Alexis Tsipras the post of prime minister.

In Nicaragua, socialist president Daniel Ortega passed in 2016 without debate a law to postpone the bankruptcy of the public pension system, through an increase in contributions and a reduction in lowly pensions—but not an increase in the low retirement age. This provoked mass demonstrations and traffic blockades demanding the abolition of the law. A frightened Ortega suspended the reform, but the protest had turned into a rebellion against his eleven-year rule, his concentration of power and rampant corruption. The government's response was violent: more than 200 people killed, 1,500 injured and thousands imprisoned. This was followed by a general strike that paralyzed the country. Remarkably, Ortega survived the rebellion and remains in power.

In 2023, for several months, France has been shaken by demonstrations and strikes that have paralyzed the country, mainly supported by the left and the unions but also by the right that seeks to fish in troubled waters. The reason has been a decree of the moderate conservative President Emmanuel Macron that increases the retirement age from 62 to 64 years in both sexes and contribution from 42 to 43 years. Last April, the Constitutional Council ratified the measure and Macron immediately promulgated the law. The prevailing chaos has eroded public support for Macron, as well as trust in democratic institutions; the only beneficiary has been Marine Le Pen, the candidate of the extreme right for the 2027 elections. In 2010, conservative President Nicolas Zarkozy had already raised the retirement age from 60 to 62 and this cost him his job. Le Pen's election would be a disaster for France and the world but that doesn't seem to matter to the protesters.

Governments, no matter whether they are left, right or center, have four remedies to alleviate the aging problem: 1) increase the retirement age when it is very low relative to life expectancy; 2) increase contributions, 3) reduce pensions or 4) a combination of the previous three.

If these painful but necessary measures are not taken, pension revenues will contract as expenditures increase, causing a growing deficit that must be covered by the state, reaching a peak where it is impossible to pay pensions and causing the bankruptcy of the system. In conclusion, if the French protesters had their way, it would be like a suicide. Two-thirds of the population oppose the measure, suggesting a colossal lack of information or gross misinformation by the media or blind demagoguery or all those reasons combined.

The age of 64 in France is well below that of other industrialized countries: it is 67 in Denmark, Holland, Italy and Norway; 66 growing to 68 in the United Kingdom; 66 in Spain, Ireland and Portugal; 65 rising to 67 in Germany and Belgium, and 65 in Canada, Hungary, Japan, Luxembourg, Poland and Slovenia. Moreover, countries much less developed than France have a retirement age of 65, like Azerbaijan, Honduras, Mexico and Nepal. Finally, life expectancy at retirement age is over 83 years in France, but the average of developed countries members of the OECD is one year lower, therefore a French retiree lives at least one year longer than in other developed countries. It is obvious that the retirement age of 64 is rational and necessary to avoid a catastrophe. On April 17, Macron addressed the nation and claimed that raising the age was the only way to avoid a US$14,200 million deficit by 2030, but did not explain the fundamental problem of aging.

In the United States, the board of advisers to social security estimated in 2023 that the old-age pension fund will be extinguished in 2034, a year earlier than forecast in 2022. In 1985, Congress passed a reform that raised the retirement age from 65 to 67 but it has been insufficient; Republicans have a project to raise the age to 70, while Democrats propose to increase the threshold of wage income subject to the contribution by 56% to US$250,000.  If no agreement is reached, pensioners would suffer a 20% cut in their pensions from 2033 and the reduction would be increasing, which would harm 67 million people. Whoever is elected president in 2024 will have to cope with this problem.

Proponents of pension privatization argue that this system, unlike public systems, is immune to aging because it is not based on a pay-as-you-go scheme where younger generations help finance the pensions of the elderly, but on fully-funded individual accounts to which workers and employers contribute, so each insured person finances his own pension. They adduce that individual accounts belong to the insured and are not shared with anyone hence preventing solidarity transfers from younger to older generations, from men to women and from high-income to low-income groups, as usually happens in public systems. Finally, the private system is called "defined contribution" because it is argued that it should never be increased, whereas in the public system the contribution should increase with the aging process.

But private systems are also affected by aging: as the population ages and life expectancy grows, the amount accumulated in the individual account must finance a longer period of retirement. This requires measures similar to those used in public systems, such as increasing the retirement age or contribution, otherwise the pension financed by the individual account would have to be cut.

In 2017, the International Federation of Private Pension Fund Administrators (FIAP) accepted my argument stating that private systems "face the challenge of an ageing population, having to finance an increasing number of pensioners, for longer periods of time. To face this challenge, it is urgent to increase the contribution rates [hence it is false that the contribution is "defined"] and the retirement age, in order to adjust them to the... demographic changes." FIAP ratified in 2020: "the increase in expectations at retirement, which have not been accompanied by increases in the legal pension ages... adversely affect both individually-funded systems and pay-as-you-go schemes." [3]

As pension insurrections increase in the future, a citizenship education campaign is essential to understand the problem and its solutions.

Header photo by ev - Unsplash