Universal pension of 1 dollar every day may reduce old age poverty

A universal pension offering benefits equivalent to the extreme poverty line of US$1 (0.75 EUR) a day would reduce old age poverty in developing countries which are to see the most rapid population aging in coming decades.

Photo: Universal pension of 1 dollar every day may reduce old age poverty

In most developing countries, even those with low incomes, the World Economic and Social Survey 2007 said a basic pension "represents an affordable option."

Undersecretary-General for Economic and Social Affairs Jose Antonio Ocampo said a minimum pension would achieve a long-term U.N. goal of eliminating extreme poverty "for all the older people now."

At a news conference launching the report, Ocampo said the world is aging at unprecedented rates - "a phenomenon that is universal now" - with the population aged 60 and older expected to increase from about 670 million in 2005 to close to 2 billion in 2050.

"Although the phenomenon is more advanced in the industrial economies, it's going to grow at a much faster rate in the developing world," he said.

At current trends, by 2050 almost 80 percent of the world's population over the age of 60 - nearly 1.6 billion people - is expected to live in what are now developing countries. That compares with 63 percent - or 422 million people - in 2005, the report said.

Aging reflects "human progress" in lowering mortality and improving health and nutrition and provides an opportunity to utilize the experience of older workers, Ocampo said, but it also provides economic and health challenges for many older people.

According to U.N. figures, the labor force itself is aging.

In 2005, less than one-fifth of the global working age population, aged 15-64, were older workers, aged 50-64. That figure is expected to grow to one-quarter worldwide by 2050 - and almost one-third in developed countries, the report said.

Ocampo said the expectation that the problems of an aging and declining work force can be solved through increased fertility and migration "will not materialize."

Facing the economic challenges associated with aging will require a mix of solutions including increased participation of women in the work force, increasing the working life of both men and women, "and finally and very importantly to increase labor productivity," he said.

"It is quite clear that if there is not an increase in labor productivity in the rapidly aging societies, there will actually be a slowdown in economic growth that will affect everyone," Ocampo said.

He said "countries that arewell-advanced in the aging process" - including Germany, Italy, the U.S. and Japan - need to focus on increased productivity, especially Italy and Japan.

At the global level, the most rapidly growing age group is aged 80 and over, the report said.

While this group now represents less than 1.5 percent of the total world population, it is expected to quadruple from less than 90 million in 2005 to almost 400 million in 2050, according to the report.

The report documents the link between poverty and the lack of pensions.

The expansion of pension coverage and increases in benefits, for example, have been important factors in the decline in the incidence of poverty among older Americans from 35 percent in 1960 to less than 10 percent at present, it said.

But the report said 80 percent of the world's population does not have sufficient income protection in old age to enable them to face health problems, disability or income loss, citing the latest available statistics from the International Labor Organization in 2002.

"This would mean that in developing countries alone, about 342 million older persons currently lack adequate income security," it said.

Ocamp said that number would rise to 1.2 billion by 2050 if no measures are taken to expand old age pensions.

"It's important to start now to address this problem," he stressed.

The U.N. Department of Economic and Social Affairs, which prepared the report, said its researchers conducted an exercise to assess the cost of a US$365 (272 EUR) annual pension to all those over age 60 in 100 countries and found that for 66 countries the cost would be less than 1 percent of GDP in 2005.

"The costs of a basic pension scheme for such countries, despite rapidly aging populations, are projected to be relatively modest by 2050," the report said.

"However, the affordability of such pension schemes depends as much on the political priority given to ensuring a minimum income security in old age, as on the pace of economic growth," it said.

Especially in low income countries, there may be competing demands for scarce government resources, the report said.

For example, in Cameroon, Guatemala, India, Nepal and Pakistan, the report said the cost of a $1 (0.75 EUR)-a-day pension would represent as much as 10 percent of total tax revenue.

Ocampo said financing a basic pension may therefore need to be closely coordinated with government spending for social programs, including the use of international development assistance.