The rankings of the new Global Aging Preparedness index from the Center for Strategic and International Studies — or, handicapping the Race to Sovereign Default 2040:
And some detail from the index’s authors on how its two subcomponents are constructed:
On the fiscal side, the GAP Index includes three indicator categories: public burden, fiscal room, and benefit dependence. The public burden category measures the projected magnitude of total government benefits to the elderly, defined as adults ages 60 or older. The fiscal room category measures the ability of countries to accommodate their growing old-age dependency burdens by raising taxes, cutting other spending, borrowing, or some combination thereof. The benefit dependence category measures the degree to which the elderly rely on government benefits in different countries. …
On the adequacy side, there are also three indicator categories: total income, income vulnerability, and family support. The total income category measures the overall level of and trend in the living standard of the elderly relative to the nonelderly in each country, based on projections that reflect the effect of changes in government benefit programs, private pension provision, and labor-force participation rates. The income vulnerability category measures the relative level of and trend in the living standard of middle-income elders, a group that will be disproportionately affected by changes in the generosity of retirement income systems. It also takes into account the extent of elderly poverty in each country. The family support category measures the strength of family support networks, which play a crucial role in retirement security in many emerging markets and some developed countries.
The authors find that policy matters as much to destiny as demography. But there’s a dilemma in that it’s very difficult to score high on both of these subcomponents: improving fiscal sustainability by reducing future benefits definitionally means reducing the projected income of the elderly. And the elderly are a powerful political constituency.
So what’s the right policy mix? Depends on the country (click to enlarge):
These are all conventional measures, if difficult to implement politically.
As a reminder, FT Alphaville has also been a steadfast believer in the unorthodox and ethically dubious — but extremely effective — solution of simply killing the old. (The fiscal sustainability problem is resolved instantly and the income adequacy issue becomes irrelevant.)
Unless, in the case of certain developed countries, the Boomers agree among themselves to forswear a chunk of their inheritance and pay off the nation’s debt in a profound and unprecedented generational gesture.