Grasping the Nettle
    Category: Column By : James Kallman Read : 1078 Date : Wednesday, June 12, 2013 - 08:32:39

    When Socrates died at 70, it was not of old age but rather by drinking hemlock, his sentence on being found guilty of corrupting the youth of Athens, together with impiety. Some suggest that he met his fate with some equanimity: he had little enthusiasm for the prospect of his advancing years.

    While it's called golden years, but in today's world it's a time of apprehension for many, with concerns about the costs of growing old and being a burden on their family. For much of human history, people rarely lived long enough to be considered elderly, and populations remained small and young.

    In America, pensions got their start with promises made to veterans of the Revolutionary and Civil Wars but had then spread to employees at local and state government levels. In Europe, meanwhile, the first national scheme was introduced by Otto von Bismarck in Germany in 1889, and followed soon in many other countries.

    After World War II, however, pensions really became popular in the U.S., to help retain workers during the enforced wage freeze years. Soon, expectations of retirement and a pension were added to the utopian dreams of a house and a car. Today the worker's right to a pension is enshrined in the national constitution of many nations.

    Then came the massive population explosion in the last half century or so. It had taken 10,000 years from the first agricultural communities for the world's population to reach 3 billion in 1960, and doubled in less than 40 years. Today we have already passed 7 billion and should add another billion or three by mid-century. In Indonesia, life expectancy has risen from 41.5 years in 1950 to 71.1 years in 2010.

    The number of people over 60 worldwide has almost tripled in the past 50 years and is forecast to hit nearly two billion in the next half century. That means a lot of money to be spent in caring for aging populations. In Japan, for instance, already nearly 40% of the population is 55 or older, compared to less than 15% in Indonesia, placing a heavy burden on future Japanese workers as they look to support their aging families.   

    With 60% of its population of working age, Indonesia is in a fine position in preparing for the future. Currently, pensions are voluntary in Indonesia, while payment of past service liabilities and severance is mandatory. The problem is that these are unfunded, existing solely on paper and thus these liabilities provide no real security, it would be better to replace them with a pension actually funded on an annual basis.