Greenspan warns US must address retiree benefits

Alan Greenspan yesterday called for early initiatives to address the economic effects of the retirement of the baby-boom generation to smooth the transition to a new balance of workers and retirees.

"The decade-long acceleration in productivity and economic growth has seemingly muted the necessity of making such choices," the Federal Reserve chairman told the Fed's annual symposium in Jackson Hole, Wyoming, which this year focuses on ageing populations. But history discouraged the notion that growth would continue to increase, he said.

"If we have promised more than our economy has the ability to deliver, as I fear we may have, we must recalibrate our programmes so that pending retirees have time to adjust through other channels," he said. "If we delay, the adjustments could be abrupt and painful."

Productivity growth offered the greatest potential to help boost the economy to a level allowing future retirees to maintain their living standards without over-burdening working people, Mr Greenspan said.

But he warned that recent elevated levels of productivity growth were unlikely to continue.

"For a country already on the cutting edge of technology, to maintain this pace for a protracted period into the future would be without modern precedent," Mr Greenspan said.

Better health for those over 65 and a greater share of services in the economy should lead to longer working lives.

"Policies promoting longer working life could ameliorate some of the potential demographic stresses," he said.

Rising pressures on retirement income and ever scarcer experienced workers could eventually reverse the trend towards earlier retirement, Mr Greenspan said, while expanded immigration could also increase the US working-age population.

The US would need higher savings rates, he said, adding: "Critical to national saving will be the level of government, specifically federal government saving."

The growth rate of the US working-age population is expected to slow from an annual pace of about 1 per cent to 0.25 per cent by 2035.

The percentage of the over-65 population is expected to rise from 12 per cent to about 20 per cent by 2035.

Mr Greenspan said that Medicare, the US medical programme for the elderly, would soon present more difficulty for US policymakers than Social Security, the federal pension system.

Because this is a defined-benefit system "the scale of the necessary adjustments is limited", he said.

"The shortfalls in the Medicare programme, however, will almost certainly be much larger and more difficult to eliminate." - (Financial Times Service)