Pension provision in the robotic age

Human society is moving toward a new age in which robots and artificial intelligence play key roles in economic activities. The widespread application of robots and artificial intelligence may dramatically reduce the number of human workers in employment, such that more people will be either unemployed or out of the job market altogether. The employed workers might receive lower wages, because of the competition from the unemployed workers. The lower employment rate and the lower wage income, together with population aging and increased longevity, will present new challenges to the pension provision of the society. The lower employment rate implies that a high proportion of the population may reach their retirement without making any meaningful contribution to the state pension systems. The defined contribution (DC) pension plans or the notional individual accounts, which have been popular with pension providers who try to offload financial and longevity risks to employees, might not be able to address this challenge. Currently, governments and pension researchers are more concerned with the decrease in the potential support ratio (the number of people aged 15-64 per one older person aged 65 or older), because it may lead to insolvency of the pension systems. Although automation, robots and artificial intelligence have caused a noticeable loss of employment in some sectors, they are likely to be the solution to the projected pension funding gap as well. Their application increases labor productivity, which will offset the effects of the decrease in the potential support ratio. When most people are unemployed due to the wide application of robots and artificial intelligence, a guaranteed basic income through general taxation will be a more efficient approach for pension provision than the DC pension plans or the notional individual accounts.