Introduction to the Symposium : The Graying of the Developed World - - The Actuarial Challenge

Taxes to support old age income systems, endless political discussions, the media, and direct observation all remind us that our nation grows older. The implications for organizations in both the private and public sectors of this aging are profound. Time for adapting to the new realities remains, but the degrees of freedom available for the remodeling lessen with each passing year. Two graphs, both widely repeated in discussions such as this, convey the scope of the challenge for the U.S. and the world. Figure 1 is taken from the 1996 Report of the Trustees, Old Age Survivors and Disability Insurance (OASDI). A crude calculation based on Figure 1 demonstrates the impact of aging. A bundle of income and service benefits to beneficiaries with a value that, for the average beneficiary, is a constant fraction of the average real income of working lives will require a transfer rate in 2030 and beyond that is approximately 150% of the transfer rate in 1990. Higher per-capita real income, perhaps driven by investments made possible by increasing savings, is a happy scenario, but even then the relative economic position of beneficiaries would decline without a higher transfer rate. Figure 2 is taken from Averting the Old Age Crisis: A World Bank Policy Research Report. The figure provides evidence that the U.S. is not alone in growing older. The fact that the bars in Figure 2 extend farthest to the fight for the Organization for Economic Cooperation and Development (OECD) countries is the reason for directing this symposium to the economically developed world. Ultimately, however, the challenge is worldwide. China is an especially interesting case. Approximately 20% of the world's population is in China, and it is one of very few nations that recently has had a GDP growth rate in excess of 10%. Taken together, these facts imply that whether one is discussing economic, political, or military affairs, China deserves attention. Reduced fertility, achieved by means that have offended human rights advocates, and improved mortality have combined to give China's age distribution a middle-aged bulge. The demographic crunch will come to China with a lag of 15 to 20 years after it occurs in OECD nations. Some have attributed the remarkable growth of the GDP in China to bringing on stream human and physical resources underemployed during the communist years. According to this view, the challenge will come when resources are fully employed, and basic changes in management and technology must be made to boost productivity. This view would influence the role of investments in developing nations, such as China, at a time of dissavings in the developed world.