Concerned over the problems of ageing population world over, India on Saturday wanted comprehensive pension reforms in both developed and developing countries as the challenges were similar.
"...The reform of the pension system must begin now --because it is already too late and the management of pension funds will be the most important challenge faced by financial institutions," Finance Minister P Chidambaram said at the G-20 Finance Ministers meeting in Melbourne.
"Huge payment obligations stare in the face of ageing countries and half measures will not do. The alternative is fiscal stress and destabiliation of the macro-economic balance," he said.
An unfunded pension system is unmitigated disaster, Chidambaram said adding it is universally acknowledged that the 'Pay as You Go' system is unsustainable not even in the medium term.
"Every worker must save for his or her retirement and the government or employer may consider making a matching contribution," he said.
Thus, the contribution will be a defined one and the benefit will depend upon the manner in which accumulations are invested and the overall performance of the economy, the Finance Minister said.
Chidambaram's remarks came even as he has been finding it difficult to implement pension reforms in the country in the face of stiff opposition from UPA partners-- the Left parties.
Referring to ageing population in developed countries, Chidambaram said apart from pension reforms, the governments may be required to design a more appropriate social security net, including modified healthcare plans that lay emphasis on the needs of the aged.
These countries will have to devise financial products for meeting the healthcare and consumption requirements of the elderly, he said.
The emphasis will shift to risk-free instruments like annuities, long term inflation linked bonds, he said adding a market for reverse mortgages would have to be developed immediately.
"Questions such as who will bear the cost of these instruments, and when, would have to be addressed. The initial response of the corporate sector has been to shift the
liability to households or to the governments, but that position may need to be revisited," the Finance Minister said.
Unless ageing countries manage the demographic transition wisely and efficiently, they will not be able to cope with the consequences of slower growth, falling incomes and declining living standards, he said.
The developing countries too will face similar challenges, although with a time lag, Chidambaram said adding that only a few of them will reap the benefit of demographic dividend.
He recalled his words at the last G-20 meeting in China that well-managed migration could actually provide a positive contribution to employment and global economic growth if the integration of the migrants in host societies are successfully promoted.
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