Government debt in 20 industrialized countries stands at $44 trillion.
But it’s actually a lot more than that, according to a new report. After factoring in public pension and other retirement liabilities, the debt levels nearly triple to a staggering $122 trillion.
That’s the math according to a new report from Citigroup Inc report called, “The Coming Pensions Crisis,” which analyzed government pension liabilities from 20 countries that are members of the Organisation for Economic Co-operation and Development .
“It is really a ticking time bomb,” said Charles Millard, Citi’s head of pension relations and former head of the Pension Benefit Guaranty Corporation, the U.S. safety net for private-sector pensions.
To put the unstated debt levels in perspective: The additional unstated $78 trillion in retirement-related debt is equivalent to a single year of global economic output.
Citi researchers measured government pension liabilities, a combination of Social Security and public-sector pension obligations, finding the average country was carrying retirement debt of 190% versus gross domestic product—well above a 100% threshold that many experts consider concerning.
“Imagine you thought your mortgage was $440,000 but then the bank called up and said it was $1.3 million. That’s really what we’re facing,” Mr. Millard said.
Among the 20 countries analyzed, Australia’s retirement situation was on surest footing, with pension liabilities at less than 50% of GDP. Poland’s pension liabilities are more than 350% of GDP, the highest.
Unfunded pension or retirement liabilities aren’t budget costs which must be paid off today. But the debts place strain on government budgets, as they balloon in size.
One potential solution would be to borrow a strategy employed by the Netherlands, where they use a “Collective Defined Contribution” system. The system resembles a 401(k) account, though instead of individuals choosing the investing strategy, the funds are pooled together and managed by money managers.