Decoding the Global Pension Crisis
11/7/2013 12:00:00 AM
In his new book, “Global Pension Crisis: Unfunded Liabilities and How We Can Fill the Gap,” Johnson’s Richard Marin explains causes and cures for global pension shortfalls.
Shortly after joining the faculty of Johnson in 2008, Richard Marin, '75, MBA '76, observed that the curriculum at the school and other business schools did not include classes that focused on pensions. Marin, clinical professor of management, started looking into pension research to prepare a course on pensions for MBA students. That research and his growing knowledge of the looming crisis in pensions led him to write his new book, “Global Pension Crisis: Unfunded Liabilities and How We Can Fill the Gap.”
The book is grounded in Marin’s corporate experience, which included 36 years in banking. Some of his former roles include chairman and CEO of Bear Stearns Asset Management, member of management committee at Bankers Trust Company, and founder and partner of the venture fund Beehive Ventures. His generalist career spans areas such as corporate finance, derivatives, retirement service, and private banking, and investment management.
"In my very broad-base career on Wall Street over almost 40 years, pensions have woven their way into almost everything that I ever did," Marin told MBA student and faculty members at a November 4 discussion of the new book. During the session, Marin presented a number of points on the causes of and solutions for the growing retirement funding crisis.
The Baby Boom bubble is about to burst
The people born in Post-World War II baby boom are going to retire from workforce and cause an immense financial burden on younger people. Yet only a part of the bigger global problem: "When you look at the demographics of the world, we have an extraordinary number of people moving into retirement now," said Marin, "No megatrend will define the next 40 years more than this. It's going to determine how much growth there is in the world, where the growth will come from, and the prosperity and failure of states and cities across the U.S."
Global pension crisis is a species-defining event
"If you look at the ontology of defining species, [a species is defined by] how well it cares for its old and provides for its young," said Marin. The global pension crisis has the potential of causing inter-generational warfare. "This will be a classical Sophie's choice," he added, "is your grandparent going to go hungry? Or is your child going to lose the opportunity to live a decent life?"
We are severely underfunded
By calculating pension funding as percentage of GDP, the retirement period (retirement age minus life expectancy) and old-age dependency ratio (the number of the elderly as a share of working-age people), Marin showed that the net retirement funding gap from 2010 and 2050 is about 98 trillion dollars.
How will governments address the looming problem? The retirement age will certainly go up to keep up with the increased life expectancy, Marin said. And the norm for workers may be a phased retirement through part-time work. More countries are also likely to consider privatization of pension systems, such that the wealthy will find them attractive investments, he said.
— Yuezhou Huo ’15 is an intern in Marketing and Communications at Johnson.