It is well reported that the UK and US have an ageing population which over time will put severe demands on the economy as fewer people make a direct contribution in comparison to those in retirement taking pensions and requiring health care.

In the UK, the state pension is a simple sausage machine whereby National Insurance contributions are collected one week and part of this collection is distributed as state pension the following week. As the number of contributors reduces and those receiving increases, the burden falls upon the state.

In addition, we have a large bank of unfunded public sector final salary schemes. With increased life expectancy, the real burden of provision is dramatic.

M&G reported in their recent blog the details of an IMF (International Monetary Fund) paper which tried to quantify the problems facing countries with an ageing demographic. It assumed that the countries don’t make any provision to deal with these problems but the conclusions were still startling.

Due to spiralling debts and deficits, half of the worlds richest countries would be junk investment grade within the next 20 years. 80% will be sub-investment grade in the next 30 years. This means the credit rating of the company is severely affected.

The report calculates costs to Governments of the ageing population is 10 times larger than the amount the Governments around the world have put into the current banking crisis. These figures are massive and thought needs to be given by individuals on how they structure their investments and retirement planning.

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