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8 January 2019

EU: latest developments in pension policies and the labour market participation of elderly workers

The end of 2018 saw the launch of an OECD report presenting data and analysis of developments in pension policies in OECD countries. It finds that the ageing of the population and financial sustainability issues have put pressure on policy makers to raise the retirement age. Whilst people are living longer and healthier, labour market participation of older workers is still problematic. Therefore, more attention has to be paid to active retirement policies.

The OECD published in December 2018 its Pensions Outlook 2018 which examines how pension systems are adapting to the need to improve retirement outcomes. Every two years, the Outlook provides an analysis of the latest developments in pension policies in OECD countries, covering both public and private pension systems, as well as an assessment of trends in retirement income systems. The document provides the most up to date reference statistics, while also focusing on designing funded pensions and assessing how different pension arrangements can be combined, taking into account various policy objectives and the risks involved in saving for retirement.

The first chapter assesses the role of supplementary pensions provision, followed by a second chapter that looks at how countries can improve the design of financial incentives. In the third chapter, policy guidelines on aligning charges and costs of providing funded pensions are discussed. This edition (summaries available in English and 20 other European languages) also draws lessons from nationally significant investment institutions on strengthening the governance, investment policies and investment risk management of pension funds. It provides guidelines on improving retirement incomes bearing in mind behavioural biases and limited levels of financial knowledge, and discusses the implications of mortality differences on retirement incomes across different socioeconomic groups.

According to the opinion website Equal Times, the pension debate continues to stay high on the agenda throughout the EU. The site refers to estimates of the Commission’s Ageing Report, with 65.3% of the total population in the EU27 (Britain is no longer included due to Brexit) currently of working age (15 to 64) and 19.5% aged 65 and above. In 2070, this ratio is expected to be very different: the 15 to 64 age group is projected to make up 55.9% and the 65s and above, 29.2%. Thus, there will be fewer people of working age and more pensions to pay, a scenario that has pushed member states to seek solutions designed to ensure the sustainability of the system. With the exception of Poland, most countries have raised the legal retirement age, with some planning to link it explicitly to increases in life expectancy.

In a blog published in late 2018, the question was raised of whether generous pension benefits are destabilising public finances, compromising the inter-generational social contract, and fuelling support for far-right populist movements. The blog piece argued that in most developed countries a retirement of leisure is one of the great socioeconomic innovations of the past century. But it is quickly becoming a luxury that few countries can afford, particularly in Europe. The author considers the older voters’ infatuation with populists as a cry for help.

The increase of the retirement age or a cut of pension benefits can have huge consequences. The longer that older workers remain in the labour force, the more exposed they are to technological unemployment or occupational diseases. And the Greek experience during the euro crisis has shown that cutting benefits can force retirees to reduce their consumption, causing recessionary pressures. These are all arguments to work towards more attention for active retirement policies. Such a policy could encourage older people to take up new challenges. Moreover, staying active during retirement may also help to improve overall quality of life, maintain social networks and help prevent loneliness.

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