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A new and maiden report on pension systems around the world by Allianz, one of the world's leading insurers and asset managers with more than 100 million retail and corporate customers in more than 70 countries, identifies the need to avert major crisis with social security in retirement. According to Global Pension Report 2020, over the next decades, the number of people in retirement age will markedly increase, putting social security systems under severe stress.
    
The report says only a handful of countries have already made their pension system demography-proof, with Sweden, Belgium and Denmark leading the pack. In most other countries, pension systems will struggle, beset with high public deficits and an uneven balance between sustainability and adequacy, says the report.

No African country ranks among the top-10, as pension systems in most of these countries are still in the build-up phase, said Allianz in a statement announcing the report late in May.

Nigeria ranks 64th in the global rankings, which according to the statement, reflects the need for further pension reforms in the country. With respect to “sustainability” – one of the three pillars of the study – Nigeria also ranks in the bottom third. The other two pillars are “financial leeway” – which combines demographic change and the public financial situation – and “adequacy of a pension system.”

The report says the number of people aged 65 or older in Nigeria is set to increase from 5.6 million today to around 16 million in 2050. It, therefore, advises the need for the introduction of a pension system with a broad coverage and for further improvement of the access to financial services. The report also recommended for the country the harmonization of the retirement ages of the various professions and adjusting the retirement age in line with future gains in life expectancy, which would improve the long-term sustainability of the pension system.

However, the report identifies Nigeria as having by far the most comfortable starting position for reform, especially because it has one of the youngest populations worldwide. The median age of Nigeria’s over 200 million population was 17.9 years in 2019, according to Worldometers.info.

“Demographics and pensions have been eclipsed by other policies in recent years, first and foremost climate change and today the fight against Covid-19”, said Ludovic Subran, Chief Economist of Allianz. “But you ignore demographics at your own peril, demographic change will soon be back with a vengeance. Defusing the looming pension crisis and preserving generational justness and equality are key for building inclusive and resilient societies.”

According to the report, the dramatic shift in demographics is best characterized by the increase in the global old-age dependency ratio. Until 2050, the metric will grow by a whopping 77% from the current level to 25%, globally. This would be a faster growth of the ratio than in any other period in the last 70 years. In many emerging economies, the ratio is going to more than double within the next three decades. The most prominent example is China where the old-age dependency ratio is going to increase from 17%, to 44%, and projected to reach 51% in Western Europe.

Allianz says capital-funded retirement solutions are under increasing pressure in the persisting low interest rate environment. The COVID-19 pandemic has further exacerbated this trend by further pushing down yields. “The low yield environment has forced both pension funds and life insurers to explore alternative asset classes,” said Cameron Jovanovic, head of global retirement proposition at Allianz SE.