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CCH® PENSION — 04/7/11

Recent Increases In Retirement Ages Will Be Insufficient To Cover Increased Pension Costs

from Spencer’s Benefits Reports: Life expectancies around the world are rising faster than increases in public pension retirement ages, resulting in larger pension costs as more time is spent in retirement. This was the conclusion of a report by the Organization for Economic Cooperation and Development (OECD) entitled Pensions at a Glance 2011.

The report studied the retirement systems in 43 countries as diverse as Argentina, Australia, Brazil, China, Finland, France, Germany, India, Indonesia, Russian Federation, Saudi Arabia, South Africa, Sweden, the United Kingdom, and the United States.

The report found that “by 2050 the average pensionable age in OECD countries will reach 65 for both sexes. This represents an increase [from 2010] of about 1.5 years for men and 2.5 years for women.” But, the report added, “life expectancy is rising even faster, outstripping the increase in pension ages by about 2 years for men and 1.5 years for women. This means that in all but five OECD countries the time spent in retirement will continue to grow.”

The life expectancy at birth (combined male and female) in the United States in 2008 was 79.1 compared to an average of 78.9 in the OECD countries. The difference in life expectancy at retirement in the United States versus the OECD countries is slightly more pronounced—83.9 versus 83.1. The report found that the percentage of those older than age 65 in the U.S. population still working was 21.1% compared to an average of 23.6% in the OECD countries. However, public pension spending as a percentage of gross domestic product is only 6.0% in the United States in 2008 compared to an average of 7.0% in the OECD countries.

“Public pensions are the cornerstone of old age incomes today, accounting for 60% on average,” the report noted. “The other 40% is made up almost equally of income from work and from private pensions and other savings. As public benefits are reduced through reforms, these other two sources will need to fill the gap.” The report disclosed that low income workers in Germany, Japan, the United Kingdom and the United States, receive public pensions worth around half of their preretirement earnings.

“Reforms that reduce public pension spending should protect the most vulnerable–low earners and people with interrupted careers–from the full force of benefit cuts, as has been done in Finland, France and Sweden. Australia and the UK have increased benefit levels for low-income retirees.”

According to OECD secretary-general Angel Gurría, “Further reforms are needed that are both fiscally and socially responsible. 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 through into greater inequality in retirement.”

For more information, visit http://www.oecd.org/els/social/pensions/pag.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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