• How will the financing of pensions and healthcare evolve globally between today and 2030? What will be the role of governments, the private sector and individuals? 

• What are the most promising strategies today for improving sustainable financing of healthcare and pensions in ageing societies?

• How can governments, the private sector and individuals be mobilized to action and their interests aligned to achieve collaborative efforts that yield transformational changes to pensions and healthcare financing?

Selected Driving Forces

Social drivers

Demographic shifts are regarded as a major driver of the scenarios, as population structures change with the ageing trend. While the future demographic structure of most nations is regarded as fairly stable across all scenarios, the impact of this structure varies from country to country and has different effects in different contexts. Urbanization is likewise considered to have major impacts on the future of pension and healthcare financing and is also regarded as fairly stable across all scenarios.
 
Another important social driving force is the role of families in social welfare, which has the capacity to shift substantially based on trends in social cohesion, the mobility of people and the relative availability of formal and informal sources of care. A final major social driver, which can be considered a deep cause of “changing attitudes of individuals, employers and families towards retirement and health,” is the level of knowledge regarding financial and health issues among individuals. Experts consider this key to determining behaviour in terms of savings, investment and preventive health measures.

Technology and innovation drivers

Medical innovation and/or new technological applications could increase either the cost or the efficiency of healthcare intervention. In addition, participants considered innovation in financial services as important given the changing needs of pension and healthcare systems in different scenarios.

Economic drivers

Economic performance (at both the global and country levels) and capital market performance (of all kinds of assets, such as pension fund portfolios, that can be used to create wealth and finance retirement) are key influencing factors, both in terms of available public funding and the potential effects on politics and society. Considered of particular importance, and represented as a separate driver at both the global and country levels, is income and wealth inequality.

Environmental drivers

The influence of climate change and environmental degradation was raised by participants as a critical driver, as were changing patterns in infectious and chronic diseases.

Political drivers

Pension and healthcare reforms are two key drivers of public policy at the country level, as governments can drastically change regulations and incentive structures. In addition to the changing role of governments in social welfare, other political drivers considered at the country level were labour markets and education reforms.

Three global scenarios of the future of pensions and healthcare.

Inevitably, the next two decades will bring new surprises. The three global scenarios developed in our World Economic Forum workshops are not predictions or forecasts; rather, they define uncertainty in the future and make it explicit, broaden perspectives and trigger insights that enable people to make better decisions.¹ Most important, they enable employers, policymakers and other key stakeholders to test current or considered actions against plausible future pictures of pensions and healthcare.

The three scenarios (key features of which are described in Exhibit 2 ) are positioned along two key axes. On the vertical axis, the first critical determinant is the path of economic growth between today and 2030, which could − and probably will − vary considerably by country. On the horizontal axis, the second critical determinant is social and political attitudes toward responsibility for the provision and financing of social services. This spectrum ranges from a shift toward individual responsibility to a movement toward collective accountability.

The Winners And the Rest

A world where growth is strong, inequality burgeons and there are opportunities for many but opportunities for many more are lost

Global Content

• Emerging economies drive strong global growth, averaging 4.5% to 2030
• Robust capital markets provide consistently solid returns
• Diverging returns on capital and labour lead to burgeoning inequality
• Resentment grows due to rising income and wealth inequality between the highly educated and the less educated
• Broad sociatal support for a capitalistic model with a strong focus on individual responsibility and grasping economic opportunities exists

Pensions and healthcare in general

• Tax-rich governments repeatedly postpone fundamental pension system reforms, supported by strong economic growth
• Public social security in many developed countries is considered as a (bare) minimum safety net; the well off focus on private market pension and healthcare solutions
• The gap in sophistication between public and private healthcare grows; new medical technologies are aimed primarily at high earners
• Unskilled workers and poorer countries see few improvements in pension and healthcare, in both quality and coverage

We Are in This Together

A world where people reassert their common destiny and stakeholders work together to address the challenges of ageing societies

Global Content

• Global downturn in early 2010s provokes a backlash against extreme income and wealth inequality
• Global economic growth averages 3% to 2030
• Global sentiment of solidarity and togetherness as opposed to individualism develops
• Strong focus on intergenerational equity is apparent
• The effects of climate change and a pandemic demonstrate global interdependence
• International action simplifies and increases harmonization in tax and pension systems
• E-government and Internet activism fuel resurgence of local civic engagement
• Developed countries step up structural aid to tackle world poverty

Pensions and healthcare in general

• In developed countries, pension and healthcare reforms are enacted in the name of sustainable, adequate security for all
• International cooperation helps manage effects of ageing societies, e.g. migration and macro-swaps
  Back-to-basics health approach emphasizes prevention and healthcare effectiveness
• Back-to-basics health approach emphasizes prevention and healthcare effectiveness
• Medical improvements focus on mass market
• Governments focus on enabling community-based care
• Many developing countries implement pension and healthcare reforms, yet lack the financial means to significantly improve coverage and quality
• Public-private initiatives extend pensions and healthcare coverage to the poor

You Are on Your Own

A world where economic turmoil forces rapid and radical reforms, but where painful changes may ultimately prove constructive

Global Content

• Prolonged recession and stagflation hit public finances
• Financial crises and serious natural resource constraints hold growth to approximately 2% into the 2020s
• Governments take aggressive action to reduce public spending and reluctantly adopt a “social security provider of the last resort” approach
• Liberalizing reforms leave many people resentful
• In late 2020s, growth recovers as the benefits of liberalization kick in
• Younger people adopt aggressively self-reliant mindset and take strong individual responsibility for finance and health

Pensions and healthcare in general

• State-funded, universal care systems end in many countries; governments focus on minimal social security for the most needy only
• The traditional concept of “retirement” is replaced by the “lifestyle planning” paradigm. Many people remain employed/active in their 70s and beyond
• Children of baby boomers are considered the “lost generation” as they must finance their own pensions and those of the previous generation
• Strong focus on financial and health education empowers people to take individual responsibility
• Despite efforts, quality of basic public healthcare systems steadily deteriorates
• Private healthcare becomes an “expensive necessity” and oversubscribed; the focus on prevention becomes strong

The most promising 11 strategies are derived from researchers’ analysis of a broad range of more than 50 strategic options (activities or actions). These strategic options were identified through interviews and workshops with leading experts as well as further research for improving sustainable financing of healthcare and pensions in ageing societies, ranging from existing − but underappreciated − to highly innovative strategies. These 11 high-impact strategic options are presented in Exhibit 3. The process for evaluating and prioritizing all strategic options is summarized in Exhibits 5.

Retirement-focused

Hybrid

Healthcare-focused

Key Strategic Objectives

Selected High-impact Strategic Options

Control and transform demand

1. Promote work for older cohorts
For many people, better health in old age means productive employment is now possible and desirable well into their 70s. Coordinated action to change public policy, business practices and personal behaviour can promote lifetime employability and active aging.
  

2. Shift delivery of healthcare to a patient-centred system
Instead of a reactive focus on curing disease, patient-centered healthcare systems have a proactive focus on maintaining good health. Such a fundamental reorientation of healthcare systems can help reduce the incidence of preventable chronic diseases in old age.

Stimulate consumer empowerment

3. Promote wellness and enable healthy behaviours
Lifestyle factors and behavioural choices play a major role in determining the level of health in old age. Making people aware of the health consequences of their choices must, however, be accompanied by creating physical and social environments that are conducive to healthy behaviours.
  

4. Provide financial education and planning advice
Financially literate individuals are more likely to plan responsibly for their old age. Improving awareness and understanding of private pensions and retirement saving products enables people to make informed choices and take effective action to ensure an adequate retirement income.

Strengthen funding and savings

5. Encourage higher levels of retirement savings
As public pensions increasingly offer lower replacement rates, retirees’ standards of living depend more on their level of complementary private benefits. Incentives and opportunities need to be provided to expand participation in, and increase contributions to, private pension systems.
 

6. Facilitate the conversion of property into retirement income
Reverse mortgages (or “lifetime mortgages”) allow elderly individuals to release equity in their home without the need to sell the home and move to a smaller property. Borrowers can choose to receive the loan in the form of a lump sum, a series of payments or a lifetime annuity.
 

7. Stimulate micro-insurance and micropensions for the poor
As an extension of the microfinance movement, micropensions are a combination of micro-insurance and microsavings products that have retirement income as their primary objective. They target poorer households, and the amounts contributed may be very small.

Optimize capital allocation

8. Enhance pension fund performance
Pension fund performance is one of the key drivers of retirement benefits in capital-funded pension systems. It can be enhanced by measures to optimize the design of investment strategies and improve the quality of pension funds’ governance and administrative efficiency.

Improve efficiency and cost effectiveness

9. Realign incentives of healthcare suppliers
Better health in old age is compromised by waste and inefficiency in healthcare systems that reward doctors and hospitals for services provided rather than health outcomes achieved. Pay-for-performance measures can improve efficiency by realigning incentives of healthcare providers.

10. Ensure that cross-border healthcare delivery benefits all stakeholders
Cross-border healthcare delivery includes patients travelling overseas for treatment and patients interacting electronically with a healthcare provider in another country. It has the potential to be developed in ways that can benefit patients and countries of all income levels.

Enhance risk management and risk sharing

11. Promote annuities markets and instruments to hedge longevity risk
Longevity risk is the uncertainty surrounding future improvements in mortality and life expectancy. Annuities protect individuals against this risk. The functioning of annuity markets can be improved by further developing longevity indexes and issuing longevity-indexed bonds.

source: Mercer, 2009

Step 1: Based on the three global scenarios (see Exhibit 2 ), generate an initial list of more than 50 strategic options through extensive interviews and workshops with a broad cross section of stakeholders. Strategic options are activities or actions for improving sustainable financing of healthcare and pensions in ageing societies. The comprehensive list of more than 50 strategic options is listed in Appendix 2 of our second publication.

Step 2: Analyze, expand and refine the strategic options based on categorization (using six categories).

Step 3: Prioritize and create a short list of strategic options based on the criteria of effectiveness and degree of innovation and/or underexploration. The short list is further fine-tuned based on the criteria of robustness and suitability for multistakeholder collaboration. The definitions of these four decision criteria are presented in Exhibit 5 – Step 3.

The most important consideration in selecting the final short list of 11 strategic options was synergies within the set of strategic options: While the 11 strategic options can each stand alone, part of their strength lies in their complementarity as a set of multiple 11 highimpact options.