 Let me just say a few words of a background before I turn it over to Richard. You know, there are, I think, two of the most fundamental issues come together in this conference. One is, do we understand these titanic, underlying forces that are reshaping nations? You know, we tend to focus on, because we're such a now kind of a culture, we tend to look at what's immediately on the headlines and maybe there's a tsunami in Japan and it fundamentally changes the energy environment. I mean, there are big events like that. The one thing that's probably more fundamental than anything and yet it gets very little attention in policy circles are these profound demographic changes in the world and they are huge. And then that's the first thing that we're looking at, but the second thing is even more important and that is, are governments effective in addressing these problems? Now, this is not the best time to raise that question in Washington. When you say, when you say government effectiveness, it's kind of like one of those general intelligence kind of things, it's a contradiction in terms. You know, I mean, effective Washington right now is obviously a painful conundrum. We're in a woeful way. And it could be very damaging to us over time, very damaging to us over time. So no one in America is going to be throwing rocks at anyone else about this fundamental problem, but it is a fundamental problem for everyone. And so the goal with this effort is to create an objective framework that everybody can look at. We may argue about specific pieces of it, but it's trying to be objective about this large problem and how well different countries are going to manage it. Obviously, if we can create an incentive for governments to become more efficient in handling such a fundamental problem, it'll be good for everybody. It'll be good for governments, it'll be good for society. So that's the purpose for this. I would like to say special thanks to our friends at Prudential who have made this possible. Now Prudential, I always thought of Prudential as an American company. I didn't learn until this morning I was wrong, you know? And so, but they do have an American outpost called Prudential, but it's a different Prudential. And their outpost here in the colonies, this is a British firm, their outpost here in the colonies is Jackson Life and it's Jackson that's making this possible. But it's the underlying intellectual commitment that Prudential has had. They've been our partner on a number of projects that have made this possible. And I just would like to say a sincere thanks to you, Miles, and your team for giving us a chance to do this work and to bring it to the policy community in Washington. So thank you all for coming. I'm glad you're here. Richard, you're going to start this for real. I'm simply color commentary until he got his notes together. Let me turn it to you. Very good. All right, turn it to you, Richard. Exactly. Thank you. Thank you, welcome. I'm delighted that you could come today despite or perhaps because of the government shutdown and despite the London weather, even though we're in Washington. Let me first introduce Arup Banerjee who's the World Bank's Global Director for Social Protection and Labor. I'm absolutely delighted that he's able to take time out of his schedule on this long weekend, of all long weekends in order to join us here and say a few words about the bank's work on aging preparedness. Let me turn it over to you. Thank you so much. Thank you, Richard. Thank you, everyone. And again, indeed, thank you for sparing the time to come and talk to all of us and have this discussion on this very important work by Richard and colleagues here. I certainly have a reason to be here beyond the fact that I want to talk about, as you said, what the World Bank is doing on this. It's really because I feel that this is terribly important to me personally, given that I'm aging very rapidly and by the end of this weekend I would have aged a few more years, I think, given the fact that the annual meetings of the World Bank and IMF going on right now, from which I've stolen a few minutes to come here. But it is indeed a great pleasure to be here today at the launch of the second round of the Global Aging Preparance Index. For us in the World Bank, which, as you know, the primary objective that we try to serve is, and it's a renewal that we have made to ourselves, is to try and end global poverty and to boost the incomes of the most disadvantaged in society, the bottom 40% in society. And aging brings challenges to these that are fundamental in terms of how to make sure that old age and disability due to old age does not actually contribute greatly towards ending poverty and to make sure that people aren't impoverished by the challenges that comes through aging. So because of that, the World Bank has long recognized the sort of multifaceted aspects of global aging. Now, aging, of course, will affect all countries in the world, even the countries that think, and I've been to some of them over the last week who think that they're quite young, and therefore they don't need to worry about these things. But for the World Bank, it all really, our interest in this work really started with the engagement in the early 1990s with the countries of Eastern Europe and the former Soviet Union. This was the time of the transition, and there it was quickly evident that the combination of a group of countries that had fairly extensive social systems to deal with aging, but for many of them, were getting old before they became rich, was one of the central challenges of the era of the time. And so the World Bank began at that time to devote significant, both intellectual and financial resources to this challenge. And that led to almost 20 years ago to the month, the launch of a major report which was called Averting the Old Age Crisis. It's a very ironic title if you think about it as we stand here today. It was called Averting the Old Age Crisis. 20 years ago we were going to avert it. And let's, in my remarks, I'll actually try and see whether we have. You may not be answer. But Averting the Old Age Crisis documented at that time the problems with existing pension systems across the world, including especially this focus on the emerging and developing and transition countries, and laid out a framework for looking at pension systems in particular supported by analysis and data. And that led really, as many of you know, to the basis of the World Bank Group's engagement with dozens of countries over the last, over the next few years. And it was both in terms of policy advice, in terms of financial support, but also an investment in the generation of knowledge. We have learned a lot since then. That was a first mark. And as many of you know and have been friends and contributors to the debate, we have evolved in our thinking. The basic framework I think still exists and is valid, but we have refined it very much since in the face of new challenges. For myself, my involvement with this issue came with a book that I co-authored again on the aging crisis in Eastern Europe and the former Soviet Union. It was rather fancifully titled from red to gray and looking at how the former communists and former socialist countries were aging fast. And the challenges that even six years ago we put forward are things that we still, I think, haven't found answers to. When you have, we have eminent demographers like John May here. So if we have countries such as Ukraine or Bulgaria, which between 2010 and 2025 are going to lose between 20% to 30% of their population, entire populations, while having a fairly generous set of Pego transfers in terms of the pensions, you have a sustainability issue that is a real challenge and something that countries have not, these countries have not been able to tackle yet, partly because of the political cause. So I hope that part of our discussion will not just be on this fantastic index that Richard and colleagues have developed, but also on what this, how can this index actually lead to sustainable solutions? Aging, of course, does not affect just the pensions part of the issue. It affects labor markets, it affects growth, it affects spending on healthcare, it frees up, perhaps spending from education. And these are all aspects that we looked at in the book and I think part of the challenge is actually to look at how we have helped countries and worked with countries to make the sorts of changes in the entire economic structures that are needed when countries are aging. Now, finally, thinking about, I've talked a lot about Eastern Europe and Central Asia, partly because that's where some of my work has concentrated, but today I lead a team and Robert Palacios is part of that team and leads the pensions work there that looks at these challenges globally, not just in Eastern Europe and Central Asia. We are working today quite closely with China, the largest country in the world and one of the countries that is trying to grapple with how to deal with the consequences of rapid aging. Next year we will produce a major report on East Asia which is indeed the fastest, now today, the fastest aging region in the world. The oldest region may be Eastern Europe but the fastest aging is indeed East Asia. There's another book due out in a few months on pension coverage in Latin America but last week I was in Southern Africa in countries like Lesotho and Botswana and Namibia as well as South Africa and it is clear that policy makers there have not actually quite realized that if you look at their demographic profiles they are aging as well, despite these huge, the population pyramid is biased towards the young but the shape is changing quite fast and the decisions that they are making today are going to be very important about whether there's sustainability. So again, looking at indices such as this, one of the hopes that I have is that these will serve as early warning systems for countries that actually can make the changes that are needed today without actually butting up against a crisis that they'll need to avert because to say the obvious, the old age crisis has not been averted despite the World Bank and I wonder, clearly I have not done a job well. Finally, Richard, I really want to congratulate and welcome the work that has been done on the Global Aging Preparedness Index. It very much complements what we are trying to do with our countries and it I think is a major contribution to the global discussion around aging and its consequences. The two particular points that I'd like to highlight here. First, and this is I think core to the issue, that in this intensely political space of aging related policies, this encourages the use of data and evidence to understand where countries are with respect to the aging process. And that is as I pointed out with the example of the Southern African countries and very important way to sort of have a wake up call in terms of what countries are able to in terms of their sustainability and adequacy of their old age income protection. But secondly, it actually, by raising awareness of the aging challenge in terms of an index, it fosters a sort of healthy competition, I hope, among countries. By looking at how policies that they have right now increase or decrease their ability to cope with population aging. And that sort of competition is I think where we too can partner by using this index in terms of the dialogue that we have with these countries. We really would want to underline, and I would really like to underline the eminent need for evidence-based policy making in this area. Because again, without this, it really becomes a debate and a power play among different interest groups in society on how best to design the policies. This puts, casts a little flashlight into this. Now, that being said, I'm sure the panelists, and since they are essentially discussants, will point out that there are lots of ways in which this can be done otherwise. There are debates about the indicators themselves, how adequacy should be measured, how sustainability should be measured. We are facing similar challenges. We are at the World Bank also trying to figure out how we can make our work focus on results and outcomes. And this debate is healthy, but by putting it out there, Richard, what you're doing is saying, this is our version of the way we look at the world. If you have a better one, come up with it. And I think that's a good thing to do, and I think that's probably the best way to do that. And this is also, I said, a healthy competition among countries. It's also a healthy competition among thinkers in this area to say, if you can do better, please do so. Finally, I want to underline the point that what I mentioned about raising awareness. We have to, I think, we all of us who are interested in these issues have to go beyond the rhetoric and make sure that the broader audience, the public at large, is well informed by information that is presented in a way that is accessible, that quickly synthesizes this complex topic. And that's really the way that I see this report contributing to the debate. This is a complex issue. It's not something that's unidimensional, even if sometimes it's reduced to that. And therefore, putting this data out there, I think, is a huge contribution. And finally, if it does, as I hope it will, generate a debate, some pushback, some controversy where countries may or may not like where they are in the rankings, where they may disagree with the methodology and challenge this, that's all to the good. Because that means that there's more attention being paid to an issue, which I certainly consider and the World Bank considers as one of the defining challenges for the next few decades. So once again, congratulations. And I look forward to the discussion. And thank you very much for having me here. Arup, thank you very much for that. My name is Myles Selick. I am responsible for thought leadership issues at Prudential PLC, as John Hamre outlined earlier. That's not Prudential Financial, before any lawyers start getting twitchy. We operate in the United States under the brand Jackson National Life. And I'd like to apologize, having flown in yesterday from London for bringing the weather with me. I was wrong. In fact, actually the weather in London was better than this. I was brought it with me, you could thank me. But thank you, Arup, for those comments. I'd just like to say a few words and introduce the panel that will be having the discussion, leading the discussion with you in the audience in a few moments' time. We've been working with Richard Jackson and CSIS on aging issues for nearly five years now. So I can remember very clearly the launch of the first edition of the Global Aging Preparedness Index and the excitement that that created. The impact that that had, the response that that had, it was the first time that somebody had gathered together an overarching view of the challenges of fiscal sustainability and the broader policy challenges facing aging societies in 20 key markets and to have done so in the context of the financial crisis that was taking place at the time. The response was really quite phenomenal. I mean, certainly from my perspective and from the perspective of Prudential, it was beyond what we could have dreamed of. So the interest that was generated in Washington but not just in Washington, in London, in Brussels and elsewhere was I think a real tribute to the work that was done by Richard and his colleagues and we're very much looking forward to continuing that debate because as Arup has said, nobody in this area has all the answers and I think the best that we can hope for is that we encourage the right questions to be asked and in encouraging those questions and looking at those questions that we have a dialogue that can deal with the policy challenges that in many ways are common across so many of these countries but that often demonstrate themselves in individual ways in each country. So we'll be having that discussion shortly. What will happen for the rest of the panel is in a few moments, Richard will come up and run through a presentation highlighting the key elements of the second edition and some of the, I think, very rich data and very rich findings that have come out of that. We will then open up to a panel discussion which will begin with a response from Benedict Clemens who is division chief expenditure in the policy division at the IMF who will then be followed by Sandy McKenzie, consulting economist and editor of the Journal of Retirement and Robert Palacios, pensions team leader in the social protection team at the World Bank and I'd just like to say that I'm delighted to have such a distinguished expert panel with us to discuss this today. So I won't speak for very long. Each of the panelists will be strictly limited to 10 minutes so I will be guillotining, except for Richard, except for Richard. That exemption has been carved out good and early but I will be guillotining everybody else ruthlessly at 10 minutes with a threat of more London weather if they don't stick to time. So with that we'll now have a short video presentation and then a few words from Richard. Thank you. The world stands on the threshold of a stunning demographic transformation. By 2030, the number of Americans aged 65 and over were nearly doubled. By 2040, more than one in three adults in Germany, Italy and Japan will be retirees. By 2050, there will be 100 million Chinese over age 80 and more South Koreans may be turning 90 each year than being born. Global aging will transform everything from the shape of the family to the shape of the geopolitical order. Along the way, it will challenge society's ability to provide a decent standard of living for the old without imposing a crushing burden on the young. Which countries are most prepared to meet the challenge? And which are least prepared? The CSIS Global Aging Preparedness Index provides the first comprehensive assessment of how well countries are balancing the two dimensions of aging preparedness. Fiscal sustainability and income adequacy. There's good news and bad news. The bad news is that very few countries do well on both dimensions. Most developed countries have adequate retirement system. But without reform, many may leave younger generations a destructive legacy of rising tax burdens, runaway debt and diminished economic opportunity. Most emerging markets have fiscally sustainable retirement systems. But with informal family support networks weakening, many more face a humanitarian aging crisis unless they strengthen formal retirement provision. With farsighted policy choices, it is possible to provide the old the security that they have earned, while ensuring the young the future of economic opportunity they deserve. Some countries are making these choices. Australia, Canada, Chile, and Sweden all score well on both fiscal sustainability and income adequacy. But most countries are failing to meet the challenge. There is still time for them to change course, but the clock is ticking. To learn more about the Global Aging Preparedness Index, visit gapindex.csis.org. The world stands on the threshold of a stunning. Well, I find myself in the difficult position of following my own video. I racked my brains last night and this morning trying to think of a creative new different way to begin the presentation than the way I began it in the video. And in the end, I decided just to begin exactly the same way. The world stands on the threshold of a stunning demographic transformation. For most of human history, the elderly defined in the Gap Index as adults age 60 and over, comprised just a tiny fraction of the population, never more than 5% until well into the industrial revolution of the 19th century. In today's developed countries, the elderly make up about 20% of the population. By 2040, that share is on track to reach 30%. And that's just the average. In Japan and the fastest aging European countries, it could be approaching or even passing 40%. Now, the developing world as a whole is still much younger. But it too is aging with some countries traversing the entire demographic distance from young and growing to old and stagnant or declining at a breathtaking pace. By 2040, Brazil, forgot I have a PowerPoint presentation here. By 2040, Brazil will be nearly as old as the United States and China will be considerably older. Meanwhile, South Korea will be vying with Spain, Italy, Germany, and Japan for the title of oldest country on Earth. 10 or 15 years ago or 20 years ago, on the eve of the publication of Averting the Old Age Crisis, the global aging issue, really the global aging challenge, barely registered as a policy issue. But today, it's a growing preoccupation of policymakers, business leaders, and even the broad public in countries around the world. In the developed world, much of this concern has centered on reducing the growing burden that old age benefit systems threaten to impose on the young. Most developed countries, after all, have universal pay-as-you-go state pension systems that were put in place back in the early post-war era when workers were abundant and retirees were scarce, but that are now being rendered increasingly unsustainable by the rapid aging of their populations. Graying also means paying more for health care because the elderly consume at least three times more per capita in medical services than the non-elderly and at least 10 times more per capita in long-term care services. So faced with this daunting fiscal arithmetic, several developed countries, including France, Germany, Italy, Japan, Sweden, and Spain, have enacted deep perspective reductions in the generosity of the public pension benefits that future retirees can expect to receive. Many are also beginning to raise retirement ages, extend work lives, and expand funded pension systems to take pressure off government budgets and to help fill in the gap in elderly income that will emerge as state retirement provision is scaled back. The focus of concern in the developing world is often just the opposite. Although the rising cost of government old age benefit systems does pose a major challenge in a few countries, Brazil and South Korea lead to mind, most emerging markets are aging before they've had time to put in place the full social protections of a modern welfare state. Here, the central problem is not so much the growing burden of the old on the young, but the growing vulnerability of the old. In countries like China, India, and Mexico, only a fraction of the workforce is earning a pension benefit through any formal retirements system, public or private. The elderly still rely heavily on the extended family for support, yet informal family support networks are weakening and are under stress from the forces of modernization and will soon come under intense new demographic pressure as populations age and family size shrinks. In response, many countries are rushing to expand participation in formal contributory retirement systems and also to strengthen non-contributory floors of government old age poverty protection. Yet despite the growing concern, I am allowed a slight overstatement. No, I think so. Despite the growing concern, until recently, there existed no satisfactory measure of how effectively different countries are actually responding to the global aging challenge. And the purpose of the Global Aging Preparedness Index, now in its second edition, is to fill that gap. The Global Aging Preparedness Index is based on a long-term projection model developed by CSIS that tracks trends in total government benefit spending and total household income by age. The projections extend through the year 2040 in order to capture the full impact of the demographic transformation, now sweeping the world. The index covers 20 countries, including most major developed economies, as well as a selection of emerging markets for which adequate data was available. There are actually two parts to the index. There's a fiscal sustainability index and an income adequacy index. On the fiscal side, we begin by looking at projections of the total pay-as-you-go transfer burden of benefits to the elderly, but we don't stop there. We also look at the fiscal room that countries have to accommodate their growing old age dependency burdens by raising taxes, by cutting other spending, or by borrowing. In addition, we consider the degree of dependence of the elderly on government benefits, which we think is a reasonable proxy for potential political resistance to cost-saving reform, or indeed resistance to actually following through and implementing reforms that are already in the pipeline in many countries. On the adequacy side, we look at projections of the after-tax income of the elderly relative to the non-elderly. We also include indicators that measure the extent of elder poverty in each country, as well as the strength of family support networks, which are a mainstay of old age security, still in some emerging markets, in many emerging markets, as well as some developed countries. Now, this being an index, I initially thought that I would proceed sequentially through each of the indicators and explain how they were calculated and what they imply. But unfortunately, or perhaps fortunately, depending on your perspective, I don't have time to do that. So instead, I'm going to focus on a few of the top-line findings and along the way, highlight a few of the indicators that I consider most revealing. I think what's most striking about, I should have a pointer here, what's most striking about the index or at least one of the things that's most striking is that, as was already said in the video, very few countries do well on both dimensions. Three of the top seven countries on fiscal sustainability, India, Mexico, and Russia are among the bottom seven on income adequacy. And three of the top seven in income adequacy, the Netherlands, Brazil, and Germany are among the bottom seven on fiscal sustainability. So there appears to be a worrisome trade-off between the two. Countries are either buying sustainability at the expense of adequacy or adequacy at the expense of sustainability. There are also a few countries that fail to score well on either dimension of global aging preparedness. France, Italy, and Spain are among the bottom five countries on fiscal sustainability, yet despite heavy spending on old age benefits barely rise to the middle of the income adequacy index. And then you have Japan, which scores in the bottom tier of countries on both indices. What all of these countries have in common is that they've enacted deep reductions in the generosity of public benefit systems while failing to put in place adequate alternative sources of income support to fill in the resulting gap in elderly income. Despite these reductions, though, they still have such expensive old age benefit systems and or are aging so rapidly that they remain on a fiscally unsustainable course. In short, they're in the unenviable position of moving towards retirement systems that are both inadequate and unaffordable. Not surprisingly, the emerging markets tend to score better on fiscal sustainability than the developed countries do. Most start out today with much lower public old age benefit burdens, both because they have their demographically younger and because their public benefit systems are typically far from universal. Poland and Russia, which have developed world age profiles and universal, though less than generous, welfare states are exceptions. So is Brazil, which despite its youthful demographics spends lavishly on public pensions, in fact, more than many developed countries do. Even so, and despite the fact that public benefits to the elderly are projected to grow rapidly in some countries, some emerging markets, roughly doubling as a share of GDP in Brazil, roughly tripling in China and nearly quadrupling in South Korea. At the end of our projection horizon in 2040, only one emerging market, Brazil, is among the top 10 highest burdened countries. And the developed countries spend more today and are projected to spend more in the future. But obviously, there's a considerable range of outcomes there as well with the United States and the other Anglo-Saxon countries at the low end of the spectrum in Japan and the continental European countries at the higher end. At turning to income adequacy, we see just the opposite picture. With the developed countries scoring, for the most part, at the top of the rankings and most of the emerging markets scoring toward the bottom of the rankings. In fact, in several developed countries, the per capita ratio of median after-tax elderly to non-elderly income is actually more than one to one. And in all of them, it's over 0.75 to one. The relatively poor performance of the elderly on this adequacy measure in most emerging markets is, of course, due in part to the limited reach and or low replacement rates of their formal retirement systems. But there's also a deeper backstory here. Economic development itself plays a role in the economic marginalization of the elderly since rapid wage growth, the rapid wage growth that accompanies development, boosts the economic fortunes of the young relative to the old. It's the young who have the skills. It's the young who earn higher wages. And it's no accident that the two emerging markets that do score well in terms of the relative living standard of the elderly are both in Latin America where slow growth and entrenched inequality tend to tilt the age distribution of income the other way. In the case of Brazil, the outcome is also due in part to its lavish spending on public pensions. Now, I need to be aware that I, though I'm taking the privilege of speaking longer, I don't have unlimited time. I did want to say at least a few words about how countries can pay for their rising old age benefit burdens. I mean, just a projection that shows that pension spending or total old age benefit spending, including health care, is going to rise substantially as a share of GDP doesn't in and of itself mean that the system is unsustainable. You have to also take into account the fiscal room that countries have to accommodate that growth, either by raising taxes, by cutting other spending, or by borrowing. On the tax option, suffice it to say that most countries would end up with considerably higher tax burdens by 2040 than they have today, including some traditionally low tax countries like Japan, Switzerland, and the United States. Some developed countries might, in fact, not be able economically to raise the tax take enough to pay for the full cost to their age waves. I mean, pushing taxes past 50% of GDP is quite a feat accomplished only by one or two countries thus far. The emerging markets would appear to have an advantage, but that advantage may be more apparent than real. Because remember, most have large informal sectors that by definition can't be taxed. They may have a Brazil or a South Korea may have trouble pushing the tax burden past 40% of GDP. I will vault over the cutting other spending option to cannibalize the rest of the budget option, except to note that some of the countries which do very poorly on tax room, take a Sweden, do very well on what we call budget room. And the implication being that if you're spending 50% of GDP through channeling that through the public sector, presumably there's some lower priority spending somewhere that you could cut to make room for the rising cost of old age benefits. And then the IMF specialty, borrowing room. I include this because it's a set of corner solutions. Those are the three ways you can accommodate a rising old age dependency burden. But this one for most countries is largely theoretical, except in a Sweden, or a Chile, or in Australia, Mexico, Russia maybe, where the initial net debt level starts out very low, or in some cases, it's a question of net assets, not net debt. And the projected growth in benefit spending is also low. Well, sure, maybe. You could finance the age wave by borrowing. China, perhaps, as well, although benefits are projected to grow very rapidly as a share of GDP, economic growth is very rapid, too. So borrowing may be an option. But in most countries, that would be a ruinous choice. The markets would call the experiment to a halt long before the debt burden reaches the levels projected for the Netherlands, the US, much less Japan, or Spain. And I shudder to think at the dire warnings that would be issued by the IMF. So in the end, the bottom line is that most countries are going to have to make substantial reductions in the generosity of their old age benefit systems. But as they do so, they're likely to face intense resistance to reform from aging electorates, half of whom by the 2030s will be age 50 or over in Japan and most European countries. And this resistance is entirely understandable. In the first place, the elderly in most countries are highly dependent on public benefits. Even in the United States, with its vaunted tradition of financial self-reliance, 40% of the income of the median elder comes in the form of a government check. In many European countries, it's 60%, 70%, or even 80%. When I say median, I'm talking about the third quintile of the elderly income distribution. And not surprisingly, many of the countries that have the highest levels of benefit dependence are, of course, the countries that most need to cut benefits. In the second place, many countries, as I mentioned earlier, already have large cuts in relative benefit levels built in to their current law. And many countries we project will experience a flat or declining trend in the relative living standard of the elderly in the future. So you have aging electorates, high benefit dependence, and a decline in the relative living standard of the elderly. Now, we need some good news in the story, right? OK. There are some countries that seem to be doing a fairly credible job of balancing income sustainability, income adequacy and fiscal sustainability. The high performers tend to have modest pay-as-you-go state pension systems, which helps to ensure sustainability, and large funded pension systems and high rates of elderly labor force participation, which helps to ensure income adequacy. Australia, uniquely among developed countries, combines a fairly generous and robust means tested state pension benefit with a large and mandatory funded pension system. Chile, at least since its landmark 2008 reform, where it introduced a non-contributory social pension called the Solidarity Pension to underpin its personal account system. This is part of the World Bank's evolving thinking on the issue also, I believe. Chile now has a similar mix of retirement policies. Canada does rather well on both indices. I might add that the United States would have had not its huge run-up in its public debt, and of course, its extraordinary rate of growth in per capita health care spending pulled it down in the fiscal sustainability index. The outlier here, or the odd country out, is Sweden. Sweden has a very large pay-as-you-go state pension system, a very large welfare state. And Sweden, like Italy, France, Japan, and a number of other countries, has enacted very deep cuts in the future generosity of that system. It's transitioning it from a traditional defined benefit to a notional defined contribution system. But Sweden, unlike these other countries, is actually projected in our index to maintain income adequacy by increasing labor force participation and by increasing funded pension savings. I would add that this contrast between Sweden and the France's and Italy's really points to a crucial lesson. And that's that you can't have adequacy without sustainability without adequacy anymore. You can have adequacy without sustainability. Most developed countries, as well as some emerging markets, will have to make substantial reductions in the future generosity of benefits, but unless they put something in its place, these reforms may turn out not just to be socially inadequate, but to be politically unsustainable. And in deference to the project sponsor, let me cite the UK as an example. Any country that thinks it can divorce the two dimensions of aging preparedness should look at what happened in the UK. Back in the Thatcher era, they re-indexed their state pension from wages to prices. Many policy analysts, myself included, I can see one or two others in the audience, held this reform for its fiscal probity. But as time went on, and of course, benefits declined relative to wages, that's what happens in a price index system. The concern shifted from fiscal sustainability to income adequacy. There was a hue and a cry as people began to realize that they were impoverishing the future elderly. So they reversed course and re-indexed the system to wages. So now the UK scores much better on adequacy than it would have 10 years ago, but it scores much worse on sustainability. Miles, do I have two or three minutes to wrap up here? OK, good. I should, since this is the second edition, at least say a few words about what's changed since the first edition. And I wish I could report that there's been enormous progress on all fronts in most countries. But unfortunately, that's not the case. I think the best we can say is that it's a mixed picture. Very few countries in our projections have actually reduced, made additional reductions in their long-term old age benefit burden beyond those they had made when the first edition came out. And the failure to do that is worrisome because the fiscal room that countries have to accommodate their rising old age dependency burdens has narrowed dramatically as the economic and financial crisis has unfolded. Most of the country rankings are similar, though there are a few stories, noteworthy stories, worth calling attention to. Japan sinks like a stone in the fiscal sustainability index. No country has burnt up more fiscal room probably over the past five years than Japan has. Poland sinks like a stone, minus seven, from 13 to 20 on the income adequacy index. Even as other countries are strengthening funded pension systems, Poland is busy dismantling its system. Meanwhile, China rises five places on the income adequacy index, thanks in large part to the government's ambitious efforts to expand pension coverage to migrant and rural workers. France and Italy also rise substantially on the income adequacy index. But here, having done my doctoral research in Italy and having a French wife, I regret to say that this is not so much due to any absolute improvement of their own, but rather to the relative decline. This is a relative index of other countries. So the encouraging news, such as it is, is that we have seen over the past decade a strong increase in elderly labor force participation in many countries, particularly in Europe, that have traditionally had very early retirement ages. We do also see, from South Korea with its new corporate pensions to the UK with its nest pension, China with its enterprise annuities, in countries around the world, we do see with only a few exceptions an increased emphasis on funded pension provision. And in fact, in all of the gap index countries, funded pension benefits as a share of elderly income are projected to be at least as high, and in some cases substantially higher in 2040 than they were in the last edition. And elderly labor force participation, higher labor force participation and funded pension savings within our framework and other people may have different analytical frameworks, but are particularly important for two reasons. And that is that unless somebody knows some magic way to increase the rate of technological progress and productivity growth, they really are the only two ways that you can in an aging society maintain or improve the living standard of the elderly without imposing a new tax burden or family burden on the young. And as my concluding point, I would like to sort of turn that around and say, but there are limits to that. 60 may be the new 40, but 80 is not going to be the new 60. We're not going to work forever, and many of us will outlive our savings. What you're looking at here is the per capita ratio of the after tax income of the old elderly, 70 and over, to the young elderly, 60 to 69. The young elderly are much more affluent than the old elderly, mainly because they have alternative sources of income support. The old elderly are far more dependent on public benefits. In recent decades, lifespans have increased, health spans have increased. The threshold of any functional definition of old age is drifted steadily upward, yet in almost every country, huge rivers of public benefits still flow to adults in their early and mid-60s who, in most countries, are in effect middle-aged. In the end, you're not going to be able to balance fiscal sustainability and income adequacy unless you rethink the role of the state and retirement provision itself. Not so much as a floor on which to build the other tiers, but more of as a backstop against longevity risk, against inability to work, against outliving one's savings in true old age. So I probably spoke too long. Thanks very much. I'd like to invite the kind of figure of the first resource. Thank you. Which power point is it? OK. Thank you very much. So I will attempt to stick within my 10 minutes of time and see what time it is. OK. Well, thank you for inviting me. I think at the IMF, we've been very happy to see this report come out and also the attention put on these issues. Because one of our main concerns looking forward has been the coming fiscal challenge from age-related spending. And even after we get through the present difficulties of many countries in the fiscal positions, we see this as an important challenge. Let's see. No. OK. My overall comment is that just a few overarching comments on the report and the indexes. We find this really a useful set of indicators for analyzing fiscal sustainability, the adequacy, and the need for room reform. So we really like this report, especially from the standpoint of the adequacy indicators, which you think really it's hard to come up with good adequacy indicators. But we found and also we'll go into this. In some cases, our projections, the IMF, of say the fiscal pressure coming from age-related spending are a little bit different. And we think it would be useful for the report to spend more time just talking about the methodology and what the drivers of spending are and why projections have changed between the reports. Sometimes we thought that the individual indicators are much more useful than the index because it's always difficult to decide what weight to give to these different sub-indices. And finally, then it's sometimes difficult to interpret these ranks from a policy perspective in terms of, OK, what does this mean for what policy reforms need to be done? But this is more minor comments in the sense of looking overall, finding this report very useful. What I wanted to do now is just talk a bit about what's really behind some of our comments and why we at the IMF see these age-related spending as such a big challenge. What we've been looking at is, if we look at pension spending, if our own projections for the next 30 years is on average in these countries, spending is going to go up about 2% points of GDP. But you can see that the challenge differs quite a bit. This is in terms of looking at countries' underlying projections that they submit, say, for the European countries, for the aging report, and also some of our own projections. In some countries, pension spending is projected to come down. You can see those, as Richard mentioned, that have done a lot of reforms reducing the generosity of benefits, such as Poland. You can see a large projected decline in some countries, like Italy, that have taken reforms lately. The increase in spending is going to be a lot lower than the average. But where we, and something I would suggest the report might emphasize going forward, is the challenge from health care spending. We still see this as even more difficult than controlling pension spending. Here, I mean, our average then for the gap countries is 3% points of GDP. And you can look, for example, at the United States, what a large challenge this is going to be. Now, we are looking at age-related, this is at all health care spending, public health care spending. But you can see, for example, in the United States, this is really dwarfs a lot of the questions about pension spending. We project, and similar to the CBO, between now, for example, and 2030, alone, health care spending is projected to go up about four and three quarters percent of GDP. So large increases are coming down the pike for health care spending. And this really, I think, is what threatens to squeeze out room for even ensuring against old age poverty. So we see this as one of the big fiscal challenges. Now, if we kind of compare the gap projections for spalding for the elderly with what we are calling this age-related spending, we can see that, in most cases, there's a correlation here, but there are some differences in terms of where the purple with this CSIS increases, for example, in Poland are much higher than what we are expecting. So it may be useful at some point in time to just compare notes on this. Yeah, and I notice that with the CSIS, I think your methodology assumes some slowdown in health care spending, some convergence to the mean. But from our standpoint, without any policy change, health care spending will continue to increase. There has been a slowdown in health care spending the last couple of years, but some of this recent work we've done shows a lot of that's related to the economic cycle that health care spending tends to slow down during recessions. But as economies recover, there's no reason, and there haven't really been fundamental changes in health care systems, spending will continue to rise. Kind of confirming, Richard's general point of who has more fiscal room and who doesn't, if you just look at from our April projections, it's a lot of ways it's simply related to debt levels. Debt in the advanced countries is much higher than in the emerging economies, and that seems to be the general story also when we look at the sustainability, the indices, it's a story of debt. If we kind of compare, let's say, the GAP report estimates of fiscal room and what I'm looking at is illustrative fiscal adjustment needs. You can see there is some positive correlation, but there's also a bunch of countries where you look in the middle here that where we are indicating they need a lot more that they don't do too well from a sustainability standpoint. This is a measure for the advanced countries we do an exercise of what would they have to do between now and 2030 in order to get their public debt down to, say, 60 percentage points of GDP, so more of a safer, more prudent level, and you can see one story here is that there's, almost everyone needs to take a large fiscal adjustment. If you look there, four, six, eight percentage points of GDP, this also factors in the increases in age-related spending. So this, as you can see, the enormous challenges that Japan has in terms of its expected increase in health and pension spending, plus how much fiscal adjustment they would need for the emerging economies, we take a lower threshold of 40%, but the story is that many countries are gonna have difficulty then accommodating, aging, and protecting the elderly if they also want to bring debt down to a more sustainable level. Now in terms of the key issues, perhaps for the next GAP report, and a challenge we're seeing many countries that Richard alluded to is dealing with lower replacement rates. We've seen a lot of the pension systems are gonna become more sustainable in the future, but that's because they're replacing a generosity in replacement rates, average pension divided by the average wage that's going down. The problem with uniform reductions in replacement rates lead to a higher old age poverty. Let me show you this, I mean, some work we were doing just in looking at historical experience of what happens when countries cut replacement rates and poverty amongst the elderly. So historically this has happened that cutting replacement rates, which a lot of countries are planning on doing, has raised poverty. Now that can be avoided if you change the protect the replacement rate for the lower income workers, but then that has some drawbacks because if you look at our second bullet, but if you protect those replacement rates at the bottom, you're gonna really compress the benefit, the generosity of benefits for those who've contributed above that level, and you're really harming incentives to contribute. More and more we see the pension systems being converted in this way to almost more of a social assistance program. So it's not really about consumption smoothing anymore, it's just about protecting old age poverty. A big challenge also is what are the best options for countries that have weak pension coverage, but also other public expenditure needs. So countries that need to spend more on health and education and infrastructure in order to catch up. So if I look maybe a more indicative here is looking at coverage and replacement rates in 2030, what we predict, especially in the countries that as Richard is talking about, India, China, Mexico, Korea, they have very small share of the population being covered but they also have very low adequacy. So these countries you see as special challenges to both to make sure that the elderly do not fall in poverty. Okay, so just in summary, we agree and containing this age-related spending is really one of the major fiscal challenges going forward and the advanced countries, they need to do this just to bring debt back to sustainable and prudent levels and for the developing countries the big challenge is how do I provide also space for other high-quality spending such as in education and infrastructure. And this decline we're seeing in replacement rates, it's going to erode adequacy and our key questions are what happens to poverty if we cut pensions across the board? But if we don't do that, what happens to incentives if we protect minimum pensions? Now Richard mentioned one way forward and this is what we really agree on is increasing retirement ages and increasing labor force participation then of the elderly. There's really no way out of this without the elderly workers having a longer work lives. Some increases in statutory pension ages have not kept up with increases in life expectancies. The only way out of this is to raise the number of years people work. Richard also mentioned that the role of private pensions can play but one of the big challenges we're seeing across countries is the private pension systems have had relatively high administrative costs and that's causing a huge pushback exceptionally say in Eastern Europe about whether or not this is the right thing to do so I think a very big challenge is how do you provide private pensions or just private savings vehicles at a reasonable cost? So I'll conclude with that. Thank you. First of all let me say it's a real pleasure to be back at CIS participating in a discussion of the GAP project. This is my second go at it. I cannot fail to be just greatly impressed by the tremendous amount of work that has gone into this not simply into the calculations although the work going into calculations must have been prodigious but in the way the authors have very carefully gleamed the important facts and institutional developments from the experiences of the 20 countries that are featured. I generally agree with the report's policy prescriptions in particular the obvious vulnerability of the elderly in emerging market countries and the growing fiscal burden in the G10 countries or industrial countries in general. One thing I really like about the report and have liked about the project is the effort to marry some indicators of income adequacy and fiscal sustainability. I think in many ways that's what makes the report unique. My report, sorry, my comments will focus mainly on the report's discussion of the lessons for policy to promote retirement security. I will, however, make a few comments on the technical side of the report. I also want to discuss the report's findings for the United States, which is the country I now know best having left the IMF some seven years ago. I might make a remark or two about Brazil as well. Just one general comment about the index. It seems to me that the GAP index is best at showing us where countries are going, so to speak, and therefore where perhaps intervention is most necessary. I don't think it is backward looking. It doesn't show what a country has done, although I suppose comparisons, if this were to become a regular event, you could make these kinds of comparisons. All in all, I would describe the report as a wake-up call and a very effective wake-up call. Getting to the main points, an increase in the role of funded systems achieves nothing as far as retirement security is concerned, as if the saving it generates comes totally at the expense of other saving. This is obviously recognized by the report. And the report also recognizes that saving done through funded schemes like the Australian Super and the German Race to Pensions is more likely to be positive on a net basis, not just a gross basis, than savings done through voluntary savings plans like the IRA in the United States. With such schemes, of course, as we know, the most generous fiscal incentives are enjoyed by those who really need them the least. I would, however, like it if Richard, when he gets a chance, could say a little bit more about the net gross question. Is it possible to be more, not precise, but more definite, I guess, about the positive impact on saving? And it really is absolutely essential. The only way you reduce the burden of aging on the young, aside from increasing the rate of labor force participation, is to give the current working generation more capital. If you don't do that, then you haven't achieved very much. Now, extending working life, the report places a great deal of emphasis on the importance, basically, of raising the rates of labor force participation of older people. I agree completely that this has got to be an essential part of a policy aimed at mitigating the burden that aging can cause. That said, I think it's important to recognize that implementing such a policy is easier said than done. And if you look at a country like the United States, it's probably, among all the countries in the world, I suspect, certainly among the industrialized countries, the one where increasing rates of labor force participation among the elderly would be, I think, most readily achieved. But it's not going to be easy. Some economists have argued that older workers will need to accept a decline in their pay because they were underpaid earlier in their career, they're overpaid at the end, and to keep them on will require a declining pay. At the same time, you know, old age discrimination, and I don't know if my views on this are influenced by the five years I spent at the Public Policy Institute of AARP, but old age discrimination is not a myth. And although in this country, there's a law against it, an employer really has to be stupid to be caught out in this particular area. You can basically let people go because they're old without saying as much, you can find a good and plausible reason for letting them go. Interesting, I'll just say this. Some years ago, a former employee of AARP launched a lawsuit charging age discrimination, and I don't know how it ended. Another important issue is basically ensuring that the skills of workers do not atrophy as they get old, or perhaps some sort of lifetime learning contract is necessary, or the kind of continuing education programs that the Society of Actuaries fosters in this country, and that's one I'm familiar with, and undoubtedly others. Another issue that arises, and I think is overlooked, is the risk of disability. Older workers are far more prone to disability, not simply accidents on the job, but disabling disease and illness. This rises with age, but typically older workers, particularly their self-employed, do not have disability insurance. It can be hard to get, they're very expensive, and it's something to bear in mind. The Society of Actuaries commissions surveys periodically asking the retired whether they expect to be working in their older years, and inevitably the percentage who respond positively saying they're going to, yes, be working is substantially higher than the percentage of people who actually do work. The other issue I'd make about this, I don't want to get too microeconomic, but we're all familiar with the slogan about living longer, healthier, and I think that's true for many, probably most of the people in this room. It's not true for everybody, and many people who are not strictly speaking disabled are basically barely hanging onto their job and basically praying for the calendar to bring their 65th birthday or whatever it is, or even 62nd birthday so they can claim social insurance. If there are going to be general raises in the minimum retirement age, I think a lot of these people needs to be considered, perhaps by reconsidering the policy of disability. This is obviously an issue for industrial countries with the bureaucracies that can deal with it, but it is an issue. Just finally, and again with respect to the United States, it happens that older workers haven't, that is workers aged 55, 65 have a younger, sorry, lower unemployment rate than do the average, than does the average worker in the labor force, but when they lose their job, they can be looking at a job search of over 50 weeks. It's just a sign of the difficulties that older workers can face. Turning to the more general issue, I don't quite recognize the portrait of the United States that the GAP index gives us. The U.S. gets a high ranking under the Income Adequacy Index, I think it's number two. There is a view, and I'm sorry, my colleague Sarah may well disagree, but let's say there are many economists who argue that the country's facing a retirement crisis for a large number of reasons. I'm not absolutely sure about this myself. However, Social Security is a great institution and an adequate first pillar, but its replacement rate does drop off pretty rapidly once income hits the middle ranges. The coverage of the second tier is at any given time, no more than about 50% of the labor force. Third, though God knows, huge sums are invested in 401k plans in IRAs, the median holdings of older Americans are not that high and wouldn't generate a very high sustained income. I'd go on and say that OASD has started to run a deficit and something we'll have to give, but I suppose that's covered by the fiscal sustainability calculations in effect. Finally, I can't resist. The GAP is really about, in a sense, technical problems or institutional impediments, I think, to old age security. But look at the political dimension and look at the United States at the moment. I mean, whatever its numbers are, the fact is that this country has a hell of a lot of difficulty with reform. And it's not something, I don't think this is a shortcoming of the report so much as just an observation one has to make, that there is this additional dimension that's not captured by these numbers. A country can be in a real mess and most of the political will to do something about it and it can be in, you know, a moderate mess but not muster that political will. On a related point, just a point on interpreting one particular subindex, the GAP assumes that a country with a lower ratio of revenue to GDP is in effect in a better space or better place than a country with a high ratio. But you can also turn that around and say that the low ratio indicates a political inability to raise revenues to fund while the high ratio as in a place like Sweden indicates that there is a general social consensus. So again, these things are hard to interpret. The fiscal sustainability index gives Brazil a low rank and a number of 30, but it nonetheless places it above France at 23 and Germany at 12, leaving aside France, would the bond markets agree with that relative ranking of Germany and Brazil? Well, that's a good question. I'd merely point out that one way of measuring or getting one indicator of fiscal sustainability basically is the rate of interest at which a country has to borrow. Okay, just a couple specific and technical points and I'll finish. The income disparity between the young elderly and the old elderly. Part of the reason for that may be simply that the elderly are following a strategy of decumulation. Their expenditures may be sustained, but rather their income is not a good reflection of their sustainable level of expenditure. I should say that I've seen a study of the United States that says the decumulation of older Americans is in fact not that significant, but I think it's still a potential issue. The other thing is the report sort of, I would say it rings its hands, but is concerned about declining share of the old elderly and elderly income as a total. And I'm not sure that that's such an issue. I mean, if more people are working, sorry, more people age 60, 65 are working, is that a social issue or a social problem to be concerned with? The income of the old elderly isn't affected. It just happens that the young elderly are earning more. And more generally if the ratio of the income of the elderly as a whole to the labor force will decline if there's a sudden boost in productivity in the economy that's reflected in wages. But again, it's not like the elderly are being immiserated. And I think I've raised this point the last time I was here. So if there is a problem, just let me say of declining income over the course of retirement, one potential way of dealing with it is through the social insurance system. You could offer retiring workers a deal whereby in return for a modest decline in their pension, they would have a higher level of income if they survived to age 80. Something like this was advanced by John Turner in an article that's going to come out in the second issue of the Journal of Retirement, which I added. But all in all, and I'll stop here, I think it's a great report and I hope it gets a lot of good publicity. Thank you. Thank you. First of all, thanks to Richard for inviting me to participate in this. I want to, as Arup is walking out, reiterate the points that he mentioned, namely that we're very happy about GAPI because of this use of evidence and basing the global aging discussion on evidence and trying to put in some objective indicators to these important concepts. And we are very much in agreement with the conceptual framework as relate to sustainability and adequacy. We would only add that when we deal, as we do with many developing countries and particularly low income countries. In addition to sustainability and adequacy, we look quite a bit at coverage rates because these are in many ways going to determine adequacy going forward and to a certain sustainability as well. And I'll come back to this question of coverage. I can't help, I wasn't going to mention this because I'm going to try and focus my comments more on the income adequacy indicator to compliment my colleague, Ben, at the fund who focused a lot on sustainability. But one thing I'll point out, Ben, is that the issue with the administrative cost is one issue with the funded schemes. But a bigger issue in my mind in what's happening in Eastern Europe has to do with the fiscal accounting. The poor fiscal accounting practices that we have for pensions are leading governments to essentially grab money in funded accounts to make their accounts currently look better when in fact, from the perspective of the long term, they're making their systems more unsustainable. And this is something where we would really welcome the fund's leadership to try to establish that kind of methodology to create the standards for fiscal reporting that would give a more honest picture of what's happening with the pension system as is now gradually very slowly happening with the EU, which is coming up with some standards for reporting unfunded pension liabilities. So that's my one little comment on unfunded pension liabilities. I wasn't going to get into it, but I'll try for the rest of my presentation to be a little more complimentary in terms of the topic that we're gonna cover. So again, I congratulate you on this. It's a very useful set of indicators that contributes to the international debate. And I think we at the bank need to do more of this multi-sectoral approach working with our health colleagues in particular on looking at the aging issue. And so we're learning from you in that sense. I, in what I'm going to say next, I'm going to divide my comments into sort of two categories. One is some notes, some observations on the income adequacy index. And second on some of the lessons that you highlight in the last section of the report. And I'm going to focus on what I think is our comparative advantage, which is on the low-income and middle-income countries, developing countries. There are eight of these in your, you call them emerging countries in the report. I've worked in four of them and I know the, at least the pension systems and the other four very well. So I'm going to make some comments along those lines. Now, starting with the income adequacy index. Now the report highlights the, and uses as an indicator, co-residence rates, namely elderly living with other family members. And we've been doing some research on this recently. We've built a data set of some 50 plus countries. And this shows the relationship between the income per capita of the country and the co-residence rates. So it's very, very dramatically clear that poor countries have much higher co-residence rates and vice versa. And this, I'm going to make the case is an important point for the index, not just because it's one of the indicators in the index, but because of the indirect effects it has on some of the other parts of the income adequacy index calculation. Within countries, you can also see if we break it down by quintiles that co-residence rates are higher among the lower income people. So this is nothing surprising. I think we would have intuitively expected co-residence rates of the elderly, elderly to live with their families more in Sub-Saharan Africa and in Sub-Saharan Africa among the poor. We would expect this to be higher as well. But this has, I think, an interesting effect on looking at the income adequacy index calculation. Well, before I get to that, there's quite a lot of literature on the sensitivity of these comparisons of elderly poverty rates to non-olderly poverty rates adjusting for equivalent scales. And these equivalent scales can be in terms of the composition of the household. If there are more children you may weigh them less than the calculation or in terms of economies of scale of the household. And so when we started looking at this, and we've just started, by the way, we start to see that these results are quite sensitive. So this is a little bit difficult to interpret, I'm sorry, but if you look at the, using economies of scale where we assume that half of the consumption is shared, we move from a situation where the elderly, the countries where the elderly are richest is about two thirds of the countries to a case where they're about 11%. This is just very indicative. We've got quite a few other slides of this, but I don't have time to go into it. But what we're gonna look at, I think, is how sensitive the ratio of elderly to non-olderly incomes and elderly to non-olderly poverty rates are in these countries. And I think we'll find that in some cases, Brazil, for example, which we've looked at quite a lot because it's always an outlier, Brazil is very robust. I can change equivalent scales and really they still come out ranked where you have them and where I have them. But in some marginal cases, there are gonna be questions as to whether that ranking may change at the margin if you use different equivalent scales. And so we want to be, because the income adequacy index depends quite heavily on the ratio of elderly income to non-olderly income to elderly poverty to non-olderly poverty, these things may be important to look a little more deeply at. And it won't, if this effect was the same across all countries, then we wouldn't worry about it. But because there are different household sizes in poorer countries, because there are higher co-residence rates in poorer countries, I don't expect that the effect will be the same across the countries. So by the way, this is all also coming from the point of view of wanting to expand the sample of countries that is covered by the index. And we are now getting to the position where at least for the income adequacy index, we could be in a position to expand the number of countries that are where this indicator would exist. Now, I did a little exercise for fun, which was to compare the CSIS indicators with the GAPI indicators with what HelpAge has recently done, which has a, which is another index, which has one component, which is income specific. And it's quite interesting to see that the ordering of the first two columns is really very similar. And I know why, because I've paid attention to both of them. But it's very interesting that they came out in the same way. Now, I made my own ranking in the third column, which is based on a combination of, sorry, so I've taken the eight countries. Yeah, so the, this is the best, Brazil's the best. Right, sorry, I should have said that. It's not labeled or anything. It's from worse to best in terms of adequacy, only for the eight countries, emerging countries that are covered within the 20 countries of the index. So what struck me as having spent a lot of time and thought a lot about India over the years was the Indian case. That India came out so high in both of these studies. I, in my ranking, and I can explain to you it's a combination of intuition and some actual hard numbers underneath it. But for my unpublished ranking, India would come in last. And that's not because, you might suspect I'm looking at it from the absolute levels of income. That's not the reason. It's also not because I think that equivalent scales would have this effect. The reason I think that this is the case is because we had done a paper some years ago, myself and a co-author, on poverty among the elderly in India. And what we found was evidence that there was an important relationship between income and mortality rates of the elderly. And so when we get these results that show that the elderly are relatively, not so poor relative to the non-elderly, we have to think about what's driving that. And it turns out, at least our case that we tried to make to a certain extent was that part of it is that they're dead. They don't survive. The poor elderly die faster by a very large percentage than the rich elderly. And this is gonna come back to our question about the old old and the young old in a second. So the poverty numbers in India among the elderly and their income numbers for the elderly in India really are being affected, I think, by this mortality differential, which really should not be interpreted as the elderly are better off. In fact, they're just not surviving to be counted in the poverty numbers. In fact, the counter-intuitive result is if you were to help and make the system more adequate for the elderly in India, you would see poverty rates among the elderly rise and the average income among the elderly fall because now they would be there to be counted. So this is a particular issue, but it's gonna be something that I would expect to see in many low-income countries. So that brings us to some other considerations for low-income countries, moving beyond just the question of the adequacy index. So as I said, we're very focused, particularly these days. And I was there at the beginning of the averting the old age crisis, and at the time I do would say that the focus was very much on sustainability. We still care a lot about sustainability, but the focus has, to a large extent, changed in many places to a question of coverage and adequacy. Coverage is part of the story. The low-income countries have fewer than one in five people covered by a contributory pension scheme. So, and of course it rises, but even in transition socialist economies at bottom, we're seeing rapid fall in the coverage, particularly in the stands of former Soviet Union and so on. So contributory pension scheme coverage is really falling quite a lot. This shows the relationship between income per capita and coverage in contributory pension schemes. So it's a very close fit. There are no countries that have managed to miraculously jump above their income level in terms of coverage of contributory schemes. And so as a result, and I think the report does say this, and includes one of its recommendations, strengthening the safety nets for the elderly. I think that's a very good thing to say. For me, part of what I see in the last section of the report is that the recommendations and the policy lessons that are coming out are much more focused to the richer countries and the advanced countries. And I'll come back to that in a second. But one of the issues is this coverage rate. And so what is happening is the frustration after 50 years of not being able to expand pension and health insurance coverage by the way in social insurance schemes. That frustration has led to a dramatic shift in the book that's coming out on Latin America next month from the World Bank documents this shift to general revenue financed, either what we call social pensions and in many cases financing of the premium, health insurance premium of the poor. And this is a phenomenon that's beyond Latin America. I worked in this area in India where the health insurance scheme for the poor was set up, financed out of general revenues. And this is a growing trend to stop relying so much on payroll tax financing period. Basically give up on this idea that the formal social insurance model is ever gonna cover all of these folks. And China's another example of that. And within the income distribution, if we look at quintiles, you can see that there's a very strong relationship between the coverage of contributory schemes and income level. So in India, in the bottom two quintiles, basically nobody is covered in contributory pension schemes. Now this graph takes into account the non-contributory pension coverage. So here you see that the relationship is much less correlated. That income level is not nearly as related to this ratio of beneficiaries of pension schemes to the population that's over 65. So what we're seeing is that countries are choosing, like Bolivia would be one example, a low income country with 10% coverage in the contributory pension scheme, but 100% coverage through its non-contributory pension scheme. So yes, I agree that based on the evidence that they're showing and the cases of Sweden and some of the industrial countries, yes, there is a need to extend the working lives. I also, subject to the caveats that Sandy mentioned, think that increased pre-funding of pensions in the right way, done in a right way, that actually does increase net savings, can contribute obviously to maintaining adequacy while still maintaining sustainability. And I think that some of what's being undone in Eastern Europe is unfortunate for exactly that reason. And this concentration on the older old, I think that makes sense in the industrial country context. But on the other hand, these are really middle and high-enriched country recommendations for me, where you have contributory schemes with high coverage and more financial markets that are more developed, but basically where you're relying on contributory schemes much more. But this is being questioned in the lower income countries. And I think the whole Bismarckian tradition of contributory pensions, payroll, tax finance, social insurance is really being questioned at this time in history. You do mention the strengthening of old age savings. Unfortunately, Brazil, which comes out so unsustainably and so generously is a very, it's a good example, but on the other hand, it's a very expensive case. And it has created a number of labor market distortions that are being documented that are not particularly healthy. So we need to think a little bit more about the design of the non-contributory pensions. Brazil's non-contributory pension benefit level has been indexed to the minimum wage in that country for the last 20 years. And as a result, it's much higher than it should be and it's much less sustainable than it normally should be. But that's one of the issues that we need to look at more closely is the design of the non-contributory pension system. The Chilean was mentioned. That's a very interesting case of how the non-contributory and the contributory were elegantly brought together in the 2008 reform. So in the low coverage countries, I think we have to look for adequacy and the report does say this. It's just not emphasized, I think, as much as I would have liked it to be. But as we go forward, as we expand the sample of countries, maybe we can think about these issues more. And I also think we're gonna look at different things such as with the old old in the low income countries, the old old are the rich old, basically. So I'm not so sure I would concentrate on that. And I want actually the labor force participation rates of Ghanaian elderly and Indian elderly and Bangladesh elderly to fall. It's their 90% for the rural elderly and Bangladesh. It's because they have to work until they die. I would prefer that we find some way that they retire. So there are differences in the low income country, higher income country recommendations that I think could be more balanced, particularly if we ever expand the sample to include more of the countries I work in. And as I said, more general revenue financing seems to be underway of both health insurance and pensions. And this means a broader tax base and more efficient revenue collection rather than cutting the existing social insurance schemes. We want India to spend 3% of GDP, not 1% of GDP on health. They spend too little. So just as concluding thoughts, I think the GAPI helps us better understand how countries are dealing with the trade-offs between adequacy and sustainability. The inclusion of the developing countries, I think is good and I hope that we can expand it to include more developing countries. But I've made a couple of these points about the way that we look at the relative poverty numbers and the realities of the low contributory pension and health insurance coverage means we have to look at things in terms of the policy recommendations a little differently in terms of emphasis than we do for the richer countries with high coverage in these programs. So thank you very much and congratulations again, Richard. Thanks for having me here. Slightly over time, so I'll just wait for now. I'll hold and reserve the moderator's corroborated draft first question and open it up to questions for the audience and a good response. I'll take both questions at the time, for three questions in order to answer them. Thank you to the panelists for a rich discussion this morning. I am Bethany Brown from HelpAge USA, part of HelpAge International, which Robert mentioned in his report. We are actually housed in AARP here in Washington, D.C. So it was great to hear a little bit of the perspective from an American perspective from Sandy. I'd like to talk a little bit about the Global Age Watch Index that HelpAge has put together. Richard Jackson is, of course, a great friend of HelpAge and the work that he does has been such a compliment to the work that we do in 65 low and middle income countries around the world. The index that we've put together is an index of 91 countries using data sets from the World Bank together with some data from the UNFPA. We were looking at four elements, income security, health status, enabling environments which includes things like access to transportation and employment and education as sort of the elements of wellbeing that we should be looking at, that policymakers should be looking at when they're thinking about what it means to grow old. And just to clarify a little bit about that income indicator, we looked at four different weighted portions of it since that's what we're talking about here. We looked at pension income, the poverty rate among older people in each country, their relative welfare to the rest of the population and the NGDP per capita. So as we're thinking about income and what that actually means, it's great to see these sorts of rankings and to be able to tease them apart through comparing them. But I think that the logical outgrowth is what are we going to do in terms of policy? What do these things actually mean? And Miles and I were actually at the World Economic Forum round table on social protection last week and that was one of the main topics that we discussed. What does it mean to grow old well? And this is a great contribution to starting to answer that question. So thanks. Thank you. I'm John Turner, Pension Policy Center and I'd like to make a comment about the recommendation to increase funding in pensions in poor countries and use China as an example. In China, I see Robert is already raising his eyes in China, they established funded individual account pensions with a 9% contribution rate, then they proceeded not to segregate the funds and then basically take the money and use it for other purposes. And so that's good that they don't count because they aren't funded. But the point is that the recommendation for funding, you have to take into account the governance capabilities of the countries. And in some countries, funding just doesn't work in China as an example, that the money basically was taken for other purposes and they are not funded and it's actually now it's a large liability that the government has to cover. Lou Enough, thank you all for a great presentation and comments. I just add to the comment that was here and I think Robert referred to it but you can't count some of the funded pensions that were in Eastern Europe and some other developing countries because they're being gobbled up now into the first pillar schemes as we've seen happening. But my question is, did you look at any countries where gradual retirement was being used and have you looked at what could happen with improving the collections process for social insurance and even provident funds because I think provident funds are being kind of poo-pooed these days but I think there's some opportunity there. I recently had some experience in the South Pacific and I saw some innovative things happening with provident funds. Those are the questions. I've always been better at defining problems than finding solutions. See, on retirement days, Lou, to the extent possible, tried to build in estimates of increased labor force participation that might be induced in different countries by increases. Yeah, to the extent possible, we tried to estimate increases in labor force participation due to changes in early or normal retirement ages. As you know, raising a retirement age isn't the same thing as raising labor force participation. But at least we attempted to do that. We tried to take into account the fact that some ostensibly funded systems are not actually funded to take an example very close to home, state and local pensions in the United States. We counted an estimate of the unfunded portion of that actually as pay go because that will be borne unless every municipality in the United States declares bankruptcy by future workers and taxpayers. The governance issue I think is extremely important. It was beyond the scope of the index. But I could not concur more in its relevance. And funded pension systems do not work well in some countries. And they certainly don't work well as complete substitutes for state protection, I would think, in any country. I've probably left six things out, but let me pass if anybody else has. Anybody else from the panel want to contribute to that? I would just say, and I agree with Robert, I don't think you could come up with a governance index or not one that would be very reliable. I was just thinking what sort of governance index would suffice in the current setting of the United States. And I just, the number of years the U.S. has not had a proper budget. The number of times Obamacare has been, sorry, an attempt has been made to vote it down, you name it. But what I think is important is that these findings have to be in a sense interpreted with governance very much in mind. And so, you know, might be more. And we did look at a variety of possible governance indicators from the World Bank and the World Economic Forum, and at the end decided that that was just a step too far. May I just add a word on the whole general issue of funding because, there we go. This is in particular, I guess. I think Robert, you raised some issues too, but in particular Sandy. Yeah, I mean the whole question of net versus gross is, you know, Sandy's absolutely right. If a funded pension system does not represent net new savings, then that does not boost productivity growth. You know, simply taking payroll taxes and channeling them into personal accounts if you're gonna borrow to pay for that transfer is just financial arbitrage. I think there is an additional issue here though. I mean, that all is true, and I'm gonna be corrected by the real economists here in just a moment. I think that all is true in a closed economy. But if funded pension savings can be invested internationally, then you can enjoy the return from investing in younger, faster-growing, higher-productivity economies around the world. Whereas in a PAYGO system, or in a funded system in a closed economy, you're a slave to your own demographics. I'm ready for the review. I'll just make it real quick. I think when the Australian defined contribution system was introduced as super, I guess it's called, I think the contribution rate initially was about 3%. It was subsequently raised to 9%, and now it's going to be raised very gradually to 12% by some date in the future. So I asked myself, okay, the typical worker, say, is now contributing 9% of his or her salary. So they're saving 9% of their salary, and my guess is probably the case that most of it is saved. That is that they weren't saving that much before, and there's not simply a substitution of one kind of saving for another, which would amount to a re-labeling of the financial instruments that were purchased. And I just raised the question. I don't mean to be smart, a smart alec about it, but it strikes me as a very basic and important question to address. What ought to happen if a government introduced this kind of system at a fairly high savings rate, sorry, a very high contribution rate, and it applied to most of the working force, then strictly speaking, what you ought to see is a big increase in aggregate saving, that is, the macro economy should show a big increase in aggregate saving. And if that doesn't occur, then you should wonder what happened. See two further questions. We're up. Hi, my name is Mindy Reiser. I once did some work for ARP. I'm a sociologist and I've worked in the former Soviet Union countries. Once upon a time, Al Gore proposed accounts that people could use for continuing education and training. It got some waves and then disappeared. I'm wondering if anyone on the panel can point to some interesting policies in the wealthier countries that are trying to think about retraining of people who already have some basic level of sophistication, and if so, what the results of such initiatives might be at this point? James Sange, a technical question about sustainability. In the models you'd use, how do you factor in increases in human capital? I.e., let's say a country X loses 30% of its young due to decreased birth rate, but they increase their average education from sixth grade to ninth grade. Are you ahead, behind, or what? A very short answer, we don't. That is a limitation of this stylized model. A limitation that I think is acknowledged in the report. Question around interesting public policies. I don't know enough to really give you a detailed list, but in a way, the resolution of this problem or the mitigation of the problem involves a whole bunch of things. I mean, anything that generally increases human capital at least gives us more to play with. The pie is bigger. Even a policy like the promotion of financial literacy, you can see we believe it encourages people to save more, might not, but that would contribute too. The only point I really wanted to make was that I think the mitigation, what government should be doing is looking into every area of policy and saying, how can we increase saving? Not in a restorative way, but are there ways in which we can increase saving? Encourage people to save more. You're gonna find untapped sources of productivity, increase investment in human capital if there's obvious underinvestment and so on. In some ways, I wanted to return to this earlier question of the funded pension systems. One problem has been that even in the advanced countries, historically, whenever even the pay-as-you-go system started running surpluses, it was impossible to ring fence them. That is, they started being used to finance other spending. And I just wanna say I agree with Sandy saying, I mean, the main, what can you really do to improve readiness for aging? We have to increase the size of the economic pie, that you need more savings, more investment, less consumption now to pay for retirement later. And one of the problems with the funded systems we've seen is that there hasn't been an increase in savings associated with these. And instead, what you had was the, say, the private pension funds were intermediaries that were taking a slice out of the return. So in some ways, all you had was no increase in savings and you had a lower replacement rate for some households because of the administrative costs of the pension fund. So I think that's one of the big challenges is how do you reduce administrative costs, especially for these small countries in Europe? When you have very small systems, how do you get the economies of scale that are necessary? I think Nick Barr is, I think, a big advocate of this kind of looks at the US Thrift Savings Plan as a good model where you can reduce administrative costs, reduce the number of choices people have on the funded pension systems to really help reduce the costs because of one of the insights of behavioral economics, people are not very good about making these choices about their portfolios. You have a well-designed default portfolio and come up with a few simple choices and that can be a way to help reduce these costs of the funded systems. Just put it all in a globally diversified life cycle index fund. Won't be much help for my project sponsor, but yeah, that would, I think, go a long way. Since we've kind of been bashing the US government so much all day, I just wanted to say one positive thing. I've had some interactions with the Thrift Savings Plan people and I just find that to be a very well-run organization with lots of lessons for other countries and the things that they've been doing down to the record-keeping, the information systems and the processes that they're now putting into place. I think it's a real useful example. So some good government goes on here. Great, I'm conscious of the passage of time so unless there's one very quick question. No, because what we follow is people are more than welcome to join the Spanish during which they can catch up with each of the speakers and the outstanding questions asked, but I will just ask Richard now to wrap up after which we'll all be welcome to join us for a bite. When you're involved in this, maybe I'll stand between you and your lunch for a minute. With your indulgence, I'll stand or sit between you and your lunch for just, not more than five minutes, I'll try to even be briefer, just to respond to a few of the very thoughtful and helpful comments raised by my colleagues. So in reverse order, Robert, you're absolutely right. I mean, I agonized to begin with over including emerging markets in this index at all. It is, the nature of the problem is different as I outlined at the beginning of my presentation. It's not just a question of available data. It's not just a data issue. Often you don't need to measure the same things or indicators that mean, appear to mean one thing because that's what they mean in a developed economy don't mean the same thing. That's a big challenge. And there's certainly tremendous room for improvement there. Perhaps I wrote the policy recommendation section in haste and against a deadline, but I'm elsewhere on record full-throatedly endorsing and emphasizing the crucial importance of non-contributory social pensions in emerging markets. And I should have put that more front and center. So I think we're completely on the same page there. Yeah, Sandy doesn't recognize the United States in my index. And I'm actually up to probably a few people in the audience who don't. There are a few reasons for that. I mean, one reason is that the index is forward-looking. We're not looking at where countries are today. And France and Italy may be retirees' paradises, but they're gutting their pension systems. They're putting nothing in their place. So they do dreadfully on our income trend indicators. The one indicator where you would expect the United States to do poorly, it does. And that's the relative poverty rate of the elderly. There are also, you can read the technical appendix, but it also has to do with the way we construct our income measures, which are essentially on a national accounts basis. And so include a lot more income than is generally reflected in the household income surveys. But no, I would have preferred the U.S. to come in and lower on the income adequacy index. But try as I might to manipulate the data. I couldn't get that to happen. Elderly labor force participation. I mean, the question here, and I think Sandy and Robert are absolutely right that we have to be cognizant of the fact that not everybody loves their job as much as we do. And not everybody is healthy and disability free at older ages. But the question is, today, across the gap index countries, between a third and 50% of benefits flow to adults in their 60s, and more than a quarter will still in every, at least a quarter in every developed country still in the year 2040. And we have to ask ourselves if it's a choice between across the board benefit cuts, which end up impoverishing the oldest old, right? Or making deeper cuts or pushing up retirement ages for the younger old and finding some other way of supporting those who are unable to work longer. I think that's what I was trying to get at with my point. I've probably missed six things worthy of response, just to Benedict on the fiscal adjustment point. You're assuming in your projections that countries come back down to a reasonable 60%. We simply, we actually use your projections through 2019. And then we impose debt neutrality. And in other words, countries have to raise revenues where raise or cut taxes and spending so that the debt remains unchanged as a share of GDP. But that leaves some countries with a very high debt level. And indeed, they probably need in Japan or the United States, frankly, much greater fiscal adjustment than we have built in. And the final point on healthcare. Yeah, healthcare is most of the growth. But I'm not at all convinced that any developed country is gonna be very effective at controlling healthcare spending. Given increased technological capability and rising social expectations about care and cure. And I think many countries that have been effective at it, such some of the social democracies in Europe are becoming less effective over time. And so I guess my point is that what matters is the total resource transfer between young and old and that it's gonna be really hard to control healthcare spending on the elderly. The fact that pensions aren't growing as much doesn't mean we should ignore pensions. It may mean we need to look more closely at them. I really thank all of you for participating. And let me thank Prudential PLC and Miles again for their support. I did have some trepidation about following the video with a presentation, but we don't seem to have had much attrition in the audience. So it can't have been that grim and dreadful. Thank you, gentlemen. And we have a buffet lunch waiting us for anyone who can stay. Thank you. Thank you.