The Pension Industry Will Change Radically, Willingly or Otherwise

Promises to pay at a future date are a dangerous tool in the hands of politicians and state employees, those who suffer little to no personal consequences when past promises are revealed to be based on faulty assumptions and thin air. Either someone ends up paying, usually the taxpayers, or the promises are broken. Pensions are, of course, just such a promise. The pensions industry in the US is a good example of the way in which entitlement schemes run awry even without any sort of external shock to the system, such as large numbers of pension recipients suddenly living 5-10 years longer than the models predict. This seems likely to happen in the relatively near future, given progress towards the effective targeting of mechanisms of aging by the research and medical development communities. There must and will be radical change in pensions, either willingly or otherwise.

If you work in social security, it's possible that your nightmares are full of undying elderly people who keep knocking on your door for pensions that you have no way of paying out. Tossing and turning in your bed, you beg for mercy, explaining that there's just too many old people who need pensions and not enough young people who could cover for it with their contributions; the money's just not there to sustain a social security system that, when it was conceived in the mid-1930s, didn't expect that many people would ever make it into their 80s and 90s.

When you wake up, you're relieved to realize that there can't be any such thing as people who have ever-worsening degenerative diseases yet never die from them, but that doesn't make your problem all that better; you still have quite a few old people, living longer than the pension system had anticipated, to pay pensions to, and the bad news is that in as little as about 30 years, the number of 65+ people worldwide will skyrocket to around 2.1 billion, growing faster than all younger groups put together. Where in the world is your institution going to find the budget?

Suppose for a moment that human aging never existed and that, barring accidents and communicable diseases, people went on living for centuries - their health, independence, and most importantly, ability to work, remaining pretty much constant over time. In a scenario like this, it's difficult to imagine why any government would go through the trouble of setting up a pension system that works the way the current one does. Paying out money to perfectly able-bodied people to do nothing for the rest of their lives just because they're over 65 would make no sense at all.

Thus retirement exists out of necessity more than desire. The health of average retirees doesn't interfere just with their ability to work but also to enjoy life in general. Most people over the age of 65 suffer two or more chronic illnesses; the risk of developing diabetes, cancer, cardiovascular diseases, dementia, and so on skyrockets with age. Many people imagine a longer, drawn-out old age in which ill health and the consequent medical expenses and pensions are extended accordingly, just as in the nightmares of social security planners. This is most definitely not what life extension is about, and it's obvious that extending old age as it is right now would not be a solution to the problem of pensions.

However, lifespan and healthspan - that is, the length of your life and the portion of life you spend in good health - are causally connected; you don't just drop dead because you're 80 or 90 irrespective of how healthy you are. The reason we tend to die at around those ages is that our bodies accumulate different kinds of damage in a stochastic fashion; as time goes by, the odds of developing diseases or conditions that eventually become fatal go higher and higher, even though which specific condition will kill you depends a lot on your genetics, lifestyle, and personal history. The idea behind life extension isn't to just "stretch" lifespan; rather, the idea is to extend healthspan, that is preserving young-adult-like good health well into your 80s or 90s, and the logical consequence of being perfectly healthy for longer is that you will also live for longer.

Again, the fundamental reason that pensions exist is to economically support people who are no longer able to do it themselves. We need to have such a system in place if we don't want to abandon older people to their fate. If life extension treatments take ill health and age-related disabilities out of the equation entirely, pensions as we know them today will no longer be needed, because you will be able to support yourself through your own work regardless of your age.

Link: https://www.leafscience.org/the-future-of-pensions/

Comments

I think a person still needs to get out of the rat race every so many years, for 10 - 15 years. This would allow you to take time off, and to become educated for a new career without constantly struggling so much.

The time off is just going to be necessary to decompress and reinvent.

Posted by: bmack500 at May 23rd, 2019 11:00 AM

My feeling in the USA is the federal government will just direct some of the money printing towards pension payments if necessary. The federal government is already having to run a $1 trillion a year deficit in order to put sufficient money into the economy to balance out the deflationary effects of automation.

To give an analogy the Post Office is needing about $20 billion per year to make up for its deficit in expenses versus revenues. At first there was debate in Washington about this continuing subsidy. But spending the money towards the Post Office is an effective way of essentially helicopter dropping the money around the USA. Postal workers are spread around the USA and they are doing work that has public value(eg.. the law often requires communications to and from the government to be delivered in writing), even if it is not entirely economic.

Social Security spending likewise is an effective way of distributing money around the USA. Even in areas experiencing economic problems, those social security checks come in and put money into circulation in the local communities.

Posted by: aa3 at May 24th, 2019 1:25 AM

@aa3 : The Keynesian economists, cranking millions through Econ 101 every year and in bed with mainstream media have indeed won if posts like yours can go unchallenged at a website like this. Having read your post, the inflation-sensitive canary I carry around just dropped dead, so it's time to load up on more real assets.

Posted by: Tom Schaefer at May 24th, 2019 10:13 AM

Tom Schaefer: Lol, you should have seen the debates online I had back in the 2005-2010 period where I said massive printing through expanding the national debt would be an inevitability to avoid deflation.

Where I would get worried about inflation, is if as fast as corporations like Ford & GM could build new factories, and as fast as the new robots in each of their factories worked they still couldn't keep up with demand.

Posted by: aa3 at May 24th, 2019 7:31 PM

@aa3: a good article on why it seems US federal debt spiral has not mattered is in this article; https://www.nytimes.com/2019/02/23/upshot/how-america-learned-to-stop-worrying-and-love-deficits-and-debt.html

Also, interesting to note Warren Buffett's view on this topic; https://www.axios.com/warren-buffett-national-debt-6fa22c24-bc40-4cda-8895-973605ea465a.html

Re Pensions - the under-funding crisis of defined benefit pensions does not anticipate a sudden increase in health spans, nor the possibility of a period (say 10 years) of lower than average market returns, the latter is suggested in times when stock market valuations are relatively high - as they are now.

One concern re getting government support for seeing aging as disease, is that any politician who has some understanding of the pension funding crisis (which by the way might impact their personal pensions!) may have a reason to slow/bury legislation enabling funding for funding medical research involved with "aging as disease".

Posted by: Michael Nuschke at May 28th, 2019 5:33 PM

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