Demographic timebomb keeps ticking: more people in Europe are dying than are being born

Europe’s long, slow demographic suicide continues. A new study from a Texas A&M demographer confirms that more people in Europe are dying, than are being born.

According to the study, 58% of the counties in Europe has more deaths than births, compared to just 28% of the counties in the USA.

This places even more pressure on Europe’s strained finances, which are already unable to cope with pension and health care requirements as the population ages. It also places into an interesting context the current controversy over immigration and refugees. Some observers believe the real reason Germany’s Angela Merkel is so keen on admitting refugees is that Germany needs young workers.

The crisis of too many old people: demographer says Europe is literally dying

We all know that our society is aging, due to the combo of longevity and falling birth rates. But can it reach a stage where the society can be said to be…literally…committing suicide? Yes, says Emmanuel Todd, one of Europe’s leading demographers. The growing imbalance between young and old — fewer younger workers supporting ever more retirees — throttles economic growth and virtually insures a disastrous future.

According to The Economist, even with the arrival of a million immigrants every year, the ratio of pensioners to workers will increase from 28% now to 58% by 2060. In demographic terms, it’s a “perfect storm” that guarantees no economic growth. Can anything be done? According to demographer Emmanuel Todd, there is some hope, but only on a regional basis. The UK and Scandinavia are relatively better off, and if the UK became a more format part of an “Anglosphere” — including the USA, Canada, and Australia — it would be hitching its wagon to a community that will become larger, and much more prosperous, than the EU.

Read this article by Daniel Hannon, and watch the accompanying video in which Todd lays out his theory. You can  expect to see many more commentaries like this one; it’s a reminder that the “reinvention of aging” is not uniformly dynamic and exciting, but also carries with it considerable upheaval and many challenges.

 

Teacher, teacher

 

If you want a good preview of what longevity is going to do to all our established models – especially financial ones – here’s a lesson from the Ontario Teachers’ Pension Plan.

First, some background. It’s a massive – and very well-run – pension plan. It has over $107 billion    in assets, and posted an impressive 14.3% return in 2010. It owns or has owned some very big and high profile assets, too. For example, a 25% stake in Maple Leaf Foods (now sold), and 66% stake in Maple Leaf Sports and Entertainment, which owns the Toronto Maple Leafs, Toronto Raptors and Toronto FC soccer team (although this asset is apparently on the selling block). In 2010, it increased its commodities assets to $5.2 billion, up from $1.9 billion in 2009.

So we’re not talking about the little leagues here. In fact, it’s the largest single-profession pension plan in Canada, administering the pensions of 295,000 active and retired teachers in Ontario.

And yet it’s facing – in the words of Jim Leech, chief executive of the plan – “systemic funding problems.”

The plan pays out $1.8 billion more each year than it receives from contributions – a gap it projects will increase to $5.3 billion by 2030.

Why the shortfall?

“Our demographics have changed dramatically,” Leech said in an interview that was widely reported in Canadian newspapers.

No kidding. Have a look at these statistics:

  • 20 years ago, there were four active teachers per retiree. Today, the ratio is 1.5:1.
  • 20 years ago, the average teacher worked 29 years and collected pension benefits for 25 years. Today, the average career is 26 years and retirement benefits are paid out for 30 years.
  • Among the retirees are more than 90 people over the age of 10

Yikes. Teachers are collecting retirement benefits for more years than they were working. And as life spans continue to lengthen, that 100+ cohort will only get bigger.

“This is a dynamic that’s hitting every pension plan in the world,” Leech said. Fortunately for Ontario’s teachers, their fund is very strong and Leech and his team have plenty of time to take action. (“We can pay pensions for many, many years even if we didn’t have any other investment returns,” Leech noted, “but we have to think about the 70, 80 year horizon and that’s when you start to say maybe we should do some course corrections today.” )

But what about pension plans that aren’t as strong? (Hint: the entire US Social Security system)

What about benefits that already can’t be paid –  right this minute? (Hint: Europe)

And now people are going to live — shudder — even longer?