Technological Changes, the Reversal of Age Pyramids and the Future of Retirement Systems


The design of optimal retirement systems requires a good understanding of social, economic and demographic trends that are by-products of profound technological changes with the power to completely reshape our environment, our needs, and our way of thinking. The essay summarises the theory of technological waves, and focuses on the impact of these waves on the family, demography, the social structure and our health. We emphasise the growing cost of the age-related processes that mainly affect well being during the retirement period, and the need to counterbalance them with early preventive treatment.
We then examine the future retirement system. The current retirement systems, which are in the form of nationalised social security, and union pension funds, are products of the past and urgently need major revision. Although retirement may not seem to be the most urgent of issues in developing economies, it needs to be addressed without delay as it is the key to financing the other more immediately pressing problems of these economies. The future retirement system will take the form of mandatory privatised plans, to be supported by some form of governmental social security system which will take care of special cases that cannot be handled by the private sector.

1. Introduction

In the heated public debate of recent years on the problems of social security, pension plans, retirement systems and the ageing population, the financial viability of social security systems in modern economies (and especially in the U.S.A.) has been the focus of particular attention. Whatever the arguments in the debate, our environment is clearly changing rapidly and dramatically, and currently popular solutions to the retirement problems are very soon expected to become obsolete and unsuitable. If we are to stop ‘fighting the last war’ and get ready for completely new challenges, we have to ensure that the solutions remain valid and relevant for people over a relatively long period, and this requires a good understanding of the future economic and social trends.
The purpose of this essay is to briefly examine these future trends, and the ways they are going to affect the required retirement systems. Moreover, as they are by-products of the profound technological changes that are taking place in the world, it is essential to understand the relationships between technology, the environment, the changing needs, and the desired solutions.
Toffler’s seminal book Future Shock (1970) opens with the following statement:“In the next three short decades, between now and the twenty-first century, millions of ordinary, psychologically normal people will face an abrupt collision with the future. … Not merely an individual, but an entire society, an entire generation… are suddenly transported into this new world”. We are already at the beginning of the twenty-first century and most of the trends that Toffler (1970, 1980), Kahn (1976), Kahn and Wiener (1967) and others predicted 30 years ago are being realised and shaping our new reality.
Technological waves have the power to completely reshape our environment and to create “shocks” as the product of the greatly accelerated rate of change. Technological waves are affecting every aspect of our lives: the family structure, the social and political structure, the economy, the way we live, work, eat, spend time, consume, learn, travel and communicate. They affect the demography, and at the same time they affect our needs, desires, and way of thinking. As a result we need new instruments to deal with the new environment. The old tools are quickly becoming obsolete and unfit.
The difficulties in predicting the future environment are obvious and the failures of past forecasts have been many. Nevertheless, as the predictions made in this essay are based on trends that have already started, and on driving forces that are already in action, we feel quite confident about the statements made.
In our examination of the links between major technological changes and important factors related to future retirement systems, the term retirement system will refer to the insurance against all risks of life: premature death, disablement and old age. Due to mortality changes the old age risks are becoming the dominant factor. It will be shown that major changes are taking place in a variety of areas such as employment patterns, financial instruments, saving patterns, life expectancy, demography, societal forms, dependency ratios, family structure, etc. We will examine their effects on the current social security systems and other retirement programs and offer possible future trends of the retirement systems around the world. To a great extent the article continues the ealier works of Orio Giarini (1975, 1980), who coined the concepts of the “Four Pillars” and the Service Industry through the Geneva Association. These concepts were developed further by many other researchers, among the prominent ones are Kessler (1988) and Giarini and Liedtke (1997).
In the first section, we briefly summarise the technological wave theory. The second section focuses on the impact of these waves on the family, demography, the social structure and health issues. The third section deals with mortality and the longevity risk. The fourth section deals with the impact on savings and the economy, and with the future retirement system, showing that the current retirement systems in the world, which are the product of the past waves, are now obsolete and urgently need a major revision. We demonstrate that although retirement does not seem to be an urgent issue in developing economies, it needs to be addressed by them without delay, as it may be used as the key to financing other more immediately pressing problems. We argue that the future retirement system will take the form of mandatory privatised plans, to be supported by some form of governmental social security system which will take care of special cases that cannot be handled by the private sector.

Yehuda Kahane: Professor of Finance and Insurance and actuary, Faculty of management, Tel Aviv University. Founder and former dean of Israel Academic School of Insurance (now Netanya Colledge). E-mail:

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