The OECD has released a new report on retirement and pensions that conclude that governments can in fact raise retirement ages gradually as life expectancy rises in order to ensure that national pension plans remain both affordable to the government and adequate for the retirees. In fact, the OECD says it is a “must:”

Over the next 50 years, life expectancy at birth is expected to increase by more than 7 years in developed economies. The long-term retirement age in half of OECD countries will be 65, and in 14 countries it will be between 67 and 69.

Italy and Denmark, which have both linked retirement age to life expectancy, are expected to raise the retirement age to 69 by 2050. The other side of the coin, however, is that some countries — Greece and France for instance — have lower retirement ages.

The OECD study, called Pensions Outlook for 2012, also notes that future public pension outlays have been cut by 20%-25% over the past 10 years. In countries where private pensions are mandated, people beginning a career today can expect a pension benefit of about 60% of earnings. In countries with publicly funded pension plans, the retirement benefit is about 50% of earnings.

In countries where public pensions are low and private pension plans are voluntary — think USA — “large segments of the population can expect major falls in income upon retirement.” And that’s assuming that Social Security doesn’t collapse.

In the current financial chaos that is the Eurozone, pensions and retirement ages also figure prominently in the argument over European fiscal union. The Financial Times lays it out simply:

Consider just one of the proposals … : a Europe-wide bank deposit insurance scheme. As a senior Dutch politician who shares the German view, puts it: “We cannot push through a banking union when the French have just cut their retirement age to 60 and we have raised ours to 67.” … The Merkel government is not ruling out eurozone bonds or EU deposit insurance for ever. It is arguing that any such moves can come only as part of a bigger project – the formation of a political union. Anything else will feel like giving southern Europe a German credit card, without setting a credit limit.

The other issue with later retirement ages is that they would keep younger workers from finding jobs unless the economy is growing at a more rapid clip than it currently is doing. If the unemployment rate in Spain were 8% instead of near 25% people would choose to work longer and the government could raise the retirement age gradually and no one would argue. That’s not the case today in Spain or virtually anywhere else in the developed world.

The OECD report is available here.

Paul Ausick

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