The Communists will obviously use this situation to their own ends, stirring up the pensioners against the AIE government. This is unfair, as the demographic situation is, to a degree, of the Communists' making (especially the emigration component, but also the low birth rates).
The AIE needs to turn this situation around with a pro-active policy designed to improve the lot of the elderly. Obviously such a policy cannot involve the addition of a lot of new money (the Government doesn't have any), but in any case here are a few ideas to get the ball rolling:
For current pensioners
- Don't force people to retire at a specific age. If they are healthy and want to work longer (even on a part-time basis), then let them. Reward those who defer retirement with (a) lower taxes on their employment income and (b) a higher pension once they do leave the workforce.
- Income-generating state-owned assets effectively represent savings that the state has made over the years (partly) on behalf of the current generation of pensioners. Take the income from these assets and use it to subsidise pensions. If an asset isn't earning income, sell it and invest the proceeds so that there will be a positive return.
- Go through the pensioner database with a fine tooth comb to uncover abuses, e.g. disabled people who aren't, grandchildren pocketing the pensions of long-dead relatives etc. Use the money freed up to increase pensions for those who are really entitled.
- Focus economic policy on growing the economy, so that more tax revenue is raised and this can be used to top up pensions. In my view, this primarily means deregulation and a strong competition policy.
For future pensioners
- All of the above, plus 'severe encouragement' of private savings. Build a savings system which includes a combination of automatic enrollment (with an opt-out) ,regular contributions, tax deductions, and some flexibility in the use of funds accumulated (e.g. for health costs as well as retirement income). Also ensure that those working overseas are able to participate.