| Systems providing financial security for the old are under increasing strain throughout the world. Rapid demographic transitions caused by rising life expectancy and declining fertility mean that the proportion of old people in the general population is growing rapidly. Extended families and other traditional ways of supporting the old are weakening. Meanwhile, formal systems, such as government-backed pensions, have proved both unsustainable and very difficult to reform. In some developing countries, these systems are nearing collapse. In others, governments preparing to establish formal systems risk repeating expensive mistakes. The result is a looming old age crisis that threatens not only the old but also their children and grandchildren, who must shoulder, directly or indirectly, much of the increasingly heavy burden of providing for the aged. |
| For these reasons, many economists and policymakers are seeking information and advice about old age security arrangements. But there are still too few who are aware of the impact these arrangements have on such diverse concerns as poverty, employment, inflation, and growth. Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth is the first comprehensive, global examination of this complex and pressing set of issues. The culmination of a two-year research project, it synthesizes what is known, analyzes the policy alternatives, and provides a framework for identifying the policy mix most appropriate to a given country's needs. |
| The study identifies three functions of old age financial security systemsredistribution, saving, and insurance. It evaluates the policy options for meeting these according to two criteria: their impact on the aged and their impact on the economy as a whole. It finds that most existing systems provide inadequate protection for the old (because benefits are rarely indexed) and that redistribution is frequently perversefor example, from poor young families to comfortable retirees. Moreover, as the systems mature, they may actually hinder growththrough high wage taxes, which cause evasion and push labor into the less efficient informal sector; through rising fiscal deficits, which fuel inflation; by squeezing out growth-promoting public spending, such as |
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