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OECD calls for rapid rise in retirement age

Governments must move quickly to raise the retirement age beyond 65 and scrap the barriers that keep older people out of the workforce if national pension systems are to remain both adequate and financially sustainable, the Organisation for Economic Co-operation and Development has warned.

By Norma Cohen, Economics Correspondent
Published: March 17 2011 10:01 | Last updated: March 17 2011 10:01

In a report released on Thursday, the OECD says that life expectancy in much of the industrialised world has already risen much faster than the planned increases in the age at which most citizens are allowed to draw their pensions from the state.

The OECD’s “Pensions At A Glance 2011” report noted that by 2050, the average state retirement age would reach 65 for both men and women, a rise on average of 1.5 years for men and 2.5 years for women. But life expectancy has already risen by an average of 2.0 years for men and 1.5 years for women, so that even existing reforms are insufficient.

“Further reforms are needed that are both fiscally and socially responsible,” said Angel Gurria, OECD secretary-general. “We cannot risk a resurgence of old-age poverty in the future. This risk is heightened by growing earnings inequality in many countries, which will feed into growing inequality in retirement.” Currently, only a handful of countries – including Denmark and Sweden – plan to link retirement ages to future rises in longevity.

The OECD’s warning comes as its own data show that growing numbers of people beyond the age of 65 are participating in the workforce, even as youth unemployment soars. The report notes that countries with higher workforce participation rates for older workers also have higher workforce participation rates for younger workers. “Keeping older workers in the labour force does not reduce job opportunities for the young,” the report concludes. Perhaps because of the view that older workers were taking places that should have gone to younger people, some OECD member governments reduced state retirement ages between 1950 and 2010. They fell in 10 countries for men and in 13 for women. However, because many people leave the workforce before they are able to draw a full pension, governments must do more than simply raise the age of eligibility.

The report says that member states must do more than raise the age at which state pension benefits become available. Many state systems contain rules which act as a disincentive to remain in the workforce before retirement age is reached. Among these are rules which allow early retirement with no reduction in benefit for those who have been employed for a minimum number of years, and retirement systems which do not award additional benefits for those remaining at work for longer than the required minimum. Governments also needed to do more to combat age discrimination against older workers and to implement programmes designed to help older workers learn new skills.

The study found that only five of the 34 OECD countries have increased their official retirement age enough to keep the percentage of time split between working and retirement roughly balanced. For 23 OECD countries, if no further changes are made, pension spending will grow from the current average of 9.2 per cent of gross domestic product to 18 per cent of GDP simply through the ageing of the population, the report concludes.