World - Why the Retirement Age Is Increasing

Why the Retirement Age Is Increasing
Emily Brandon

Many countries are contemplating or are already in the process of raising the retirement age for their national pension systems. However, in many places, this is simply a reversal of earlier declines in the retirement age. Many governments relaxed retirement-age rules in the 1970s and 1980s, and are now restoring retirement ages to their former levels.

The average global retirement age was 64.3 for men in 1949, but gradually fell to a low of 62.5 in 1993, according to an Organisation for Economic Co-operation and Development analysis of retirement ages in 30 countries with national retirement plans. Now the age at which private-sector workers with a full career can first draw retirement benefits from the main national pension scheme without any reductions is 63. Legislation already in place will increase the average retirement age to 64.6 by 2050. "Earlier pension ages mean higher taxes and contributions to pay for benefits. Voters in some countries may simply have a greater preference for leisure time over work on average," says Edward Whitehouse, co-author of the report. "In some cases, lower pension ages have been introduced or maintained in the mistaken belief that getting older workers out of jobs means more jobs for younger workers."

Life expectancy, however, increased continuously over the past few decades.

The period of time that seniors live after reaching retirement age grew from 13.4 years for men in 1958 to 18.5 in 2010. The OECD analysis of United Nations data projects life expectancy to be 20.3 years in retirement, even after the higher retirement ages are phased in. "Retirement is now something that everybody looks forward to, a long period of leisure at the end of the life," says Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies. "Retirement before 1950 had a negative connotation. It was something that you did to a worn-out machine."

Countries with the lowest retirement ages.

The most strikingly low retirement age is in Turkey. The former retirement age of 60 was abolished and replaced with a requirement of about 25 years of contributions to receive a full pension. The OECD calculated that many workers who begin working by age 20 will be able to retire around age 45. The next lowest retirement age is 57 in Greece, up from 55 in 1959. In Italy, the retirement age declined from 60 in 1949 to a low of 55 in the 1980s and 1990s, and then climbed back to 59 today. Under current law, the retirement age will increase to 65 in Italy by 2030. A few countries now have a national retirement age of 60, including Belgium, Hungary, Korea, and Luxembourg. France's current retirement age is 60.5.

Places with the highest retirement ages.

The countries with the oldest 2010 retirement ages are Iceland and Norway, both age 67. The United States currently has the third highest retirement age: 66. By 2030, the United States and Denmark will also tie as the countries with the oldest retirement age. Both nations have legislation in place to raise the retirement age to 67. However, the United Kingdom is currently projected to overtake all other countries by 2050 with a retirement age of 68.

Different retirement ages for women.

Half of OECD countries have, at some time, had a different retirement age for women than men. When women have a different retirement age, it is always lower than that for men, despite the fact that women generally have a longer life expectancy. The women's retirement age is most commonly five years earlier and averages 3.8 years younger than men. As more women enter the workforce, many of these younger retirement ages for women are being phased out. Experts have many theories about why retirement ages were and are lower for women in some countries. "One case, I have heard is that men tend to marry younger women," says Whitehouse. "There is rather more evidence for the motive that earlier pension ages for women is, in some sense, a reward for taking on caring responsibilities." The United States has never had a different retirement age for men and women.

Pension changes ahead.

When the baby boomer generation retires, it is expected to create labor shortages in many industries. "We are going to be losing a lot of workers and we don't have a lot of people to take their place because the next generation after the baby boom is smaller," says Victor Marshall, a sociology professor for the University of North Carolina at Chapel Hill's Institute on Aging. "We can reduce the future labor shortages by encouraging people to stay in the labor force longer."

It can be extremely difficult for lawmakers to raise the retirement age.

"The political cost for increasing pension age is borne now but the benefits, in terms of lower expenditures, only appear in the future after the government's term," says Whitehouse. Nonetheless, most countries have tinkered with the retirement age at some point since their national pension programs began. Between 1949 and 2010, pension ages were constant for both men and women in only six countries: Finland, Iceland, Mexico, the Netherlands, Spain, and the United Kingdom. It appears that pension ages may be just as volatile over the next 50 years. Eleven OECD countries plan to increase pension ages between now and 2050 for both men and women: Australia, the Czech Republic, Denmark, France, Greece, Hungary, Italy, Korea, Turkey, the United Kingdom, and the United States. Austria and the Slovak Republic will increase pension ages for women to equalize them to those of men. Switzerland will increase the pension age for women, but it will still be one year below the retirement age for men.