Changes in the world of work and life expectancy
In the latest edition of Pensions at a Glance, appearing every two years, the OECD reports on how countries are dealing with changes to people’s working lives and statutory retirement ages. Demographic change and a constantly changing world of work have led to all countries reviewing their existing pension systems.
This ranges from part-time and full-time employment through to marginal employment and non-standard employment. The nature of work has become more diverse and increasingly complex in terms of the new world of work and its demands. This also applies to social security. But this is more than just the difference between an increasing number of pensioners and a declining number of workers making contributions.
In recent years, countries have changed their contribution rates, modified benefits for pensioners and implemented new measures to increase the statutory retirement age in order to deal with these challenges and to ensure the financial sustainability of their pension systems. However, according to the OECD’s report, there is still not enough being done.
The report also looked at the normal retirement age, which will increase in half of OECD countries by 2060. Retirement ages must continue to increase in order to ensure adequate pensions. Increases in life expectancy must also be taken into consideration. Increased life expectancy means that the time spent in retirement will increase relative to working life.
Further reforms are needed to deal with the effects of ageing populations, increased inequality among older people and the changing nature of work. The report states that rigid retirement ages are not necessarily beneficial in ageing societies. Instead, innovative and affordable pension models need to be found. Simply raising the retirement age itself is not a cure-all.
A flexible retirement age is one option that has already been implemented in several countries. This allows, for example, people to receive a pension and continue to work within certain additional earnings limits. This type of pension scheme was introduced in Germany in 2014 by the Flexirentengesetz (Flexible Pensions Act). However, it must be said that currently only about 10% of Europeans between the ages of 60 and 69 combine work and retirement in this way.
One thing is certain; the younger generation who contribute to the system now or in the future will be at a higher risk of inequality in old age. This is something that many countries should keep in mind when considering pension reforms.
More information can be found here.