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The dollar cost of the age wave will be a huge number and can destroy finances of many governments and trigger serious economic crisis. It can even lead to today's biggest economies to run in negative national savings rate sometime in the 2020s.
To counter such future situation, many countries have privatized their pension systems and replaced the Pay-As-You-Go (PAYG) schemes with privately managed, defined pention reforms.
Some of the major pension reforms, which have occurred recently, are: -
Retirement schemes are more and more structured on pre-funding concept, necessitating reforms in pension arrangements for public sector employees who have largely, in the past, followed defined benefits or PAYG schemes.
Private sector institutions are getting involved in managing investments and also undertaking administrative functions relating to pensions.
More emphasis on regulations, capital market reforms, business transparency and governance structures with the aim to assign higher responsibility to provident and pension fund administrators.
Emphasis on privatization has led to financial assets of pension funds grow to a large extent. In the USA, the 401 (K) plan has generated roughly $ 1.7 trillion in twenty years and has been a major catalyst in the ten-year stock market boom.
The Indian Scenario
CII estimated that by 2016 in India, population of senior citizens is likely to rise by almost 107% as against a growth of 49% in its general population. Number of people aged 60 and above would be around 9% of the population by then and average life expectancy of an Indian is likely to improve to 80 years by 2020.
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* Contributed by -
Arpit Bhadani & Ashwani Gupta,
PGDBM 2006,
IMT, Ghaziabad.
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