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IMF: Cost of aging underestimated by governments

Bill Harvill, a WWII Army veteran, holds the hand of his wife Rose as they undergo physical therapy at the Quincy Veterans Home in Quincy, Ill., on Feb. 17, 2005.
Credit: Scott Olson

A new report from the International Monetary Fund says that advanced economies are underestimating the life-spans of their populations by three years, an error which could create pension shortfalls and increase public debt levels, Dow Jones Newswires reported.

"If everyone in 2050 lived just three years longer than now expected, in line with the average underestimation of longevity in the past, society would need extra resources equal to 1 to 2 percent of GDP per year," a study to be released in the IMF’s World Economic Outlook next week says, Reuters reported.

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According to Reuters:

To give an idea of how costly this could prove, the IMF estimated that if advanced economies were to plug the shortfall in pension savings of an extra three years immediately, they would have to stash away the equivalent of 50 percent of 2010 GDP, and emerging economies would need 25 percent.

"These costs are high enough that they can't be absorbed by any one sector...only by government, only by corporations, only by individuals," Laura Kodres, a senior author of the report, said, according to Dow Jones Newswires. "That risk has to be acknowledged, it has to be assessed and then it has to be shared.”

The IMF said governments should not delay in introducing policy reforms to manage the risk of people living longer, like raising the retirement age, increasing taxes to fund public pension plans and lowering benefits, Reuters reported.

"Delays would increase risks to financial and fiscal stability, potentially requiring much larger and disruptive measures in the future," IMF economists said, according to Dow Jones Newswires.

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