Elderly, Japan
An elderly woman waits for the traffic light to cross the street in Nagano, Japan Behrouz Mehri/AFP

A report by the World Economic Forum (WEF) has warned that by 2050 the combined pension savings gap of eight major economies could reach $400tn (£279.7tn), which is about five times the size of the current global GDP.

The report, entitled "We'll live to 100- How Can We Afford It?" equates the savings gap to the required money amount in each country for granting each person with 70% of their pre-retirement income as pension.

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According to the report, the US currently has the largest savings gap, with the current deficit of $28tn expected to rise to $137tn by 2050. The UK, Japan, Netherlands, Canada, Australia, India, and China are other seven major economies that would contribute to the $400tn deficit.

The study puts the UK pension savings gap at £25tn by 2050 if action is not taken soon.

"The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change", said WEF Head of Financial and Infrastructure Systems Michael Drexler.

The WEF report also proposed five policy measures in order to address the current challenges to the pension system.

Firstly, the retirement age should be extended to 70 by 2050 in countries where the average life expectancy is projected to surpass 100. Moreover, pension systems and other saving schemes need to be made more accessible, and financial literacy initiatives need to be widened to classrooms and vulnerable groups.

The report further added that there needs to be greater transparency in the pension systems of each respective country, where a citizen can weigh the costs and benefits of each option. Lastly, pension data needs to be aggregated and standardised in order to provide people with a clearer understanding of their respective financial status.

"Because retirement outcomes unfold slowly over decades, emerging problems are very hard to see and are virtually unchangeable once they occur", Robert Prince, Bridgewater Associates co-chief investment officer remarked.

"Good outcomes require effective approaches and good decisions applied consistently over decades. Ineffective actions taken over decades will put a weight on society and economies that will be virtually impossible to lift once it occurs"

The report was jointly compiled by the World Economic Forum and consulting firm Mercer.