Thursday 25 April 2019

Comment: No need to be rigid over the age of our retirees

Giving people more freedom over when to stop working means risking that they will not earn enough to fund a long retirement, and end up falling back on the State’s safety net. Stock image
Giving people more freedom over when to stop working means risking that they will not earn enough to fund a long retirement, and end up falling back on the State’s safety net. Stock image

Ferdinando Giugliano

The last decade has seen most countries in the rich world raise the retirement age in order to improve the sustainability of their pension systems at a time when people are living longer, healthier lives.

The policy is moving in the right direction, but it has one key flaw - current policies are too rigid. The average retirement age for men across OECD member states is set to go up to 65.8 years from 64.3 years today.

There are two reasons why governments in advanced economies are forcing workers to retire later. The first is the overall increase in life expectancy. The second is to correct the mistake most governments made in the 1970s and 1980s in introducing early retirement schemes in an attempt to bring more youth into employment.

This combination had made pension systems across the rich world unsustainable, forcing governments to shut down early retirement routes and raise the pension age. The trouble with the new approach, however, is that it often fails to give workers adequate flexibility over their retirement choices.

The OECD finds that the flexibility to retire fully before the statutory pension age is strongly restricted in more than half of the member states.

As the OECD study notes, giving people the freedom to retire when they want would benefit both individuals and the State.

There are several challenges facing politicians who want to let people retire earlier. Giving people more freedom over when to stop working means risking that they will not earn enough to fund a long retirement, and end up falling back on the State's safety net.

There should be a minimum level of pension contributions before a person is allowed to retire to avoid this. (Bloomberg)

Irish Independent

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