(June 11, 2012)—Governments must raise retirement ages and encourage the expansion of private pension coverage so as to adjust for increasing longevity and volatile markets, contends a report by the Organization for Economic Co-operation and Development (OECD).
Advancing life expectancies, coupled with a demographic bubble that will lend a geriatric tilt to many developed (and developing) countries, necessitate major structural reforms, the report said. It counseled for the official retirement age to be formally pegged to life expectancies, as in Denmark and Italy, so that increasing life expectancies do not outstrip the age at which the state allows individuals to retire. The report also advised that governments promote private sector pension growth so as to buttress public pension coverage.
“Bold action is required. Breaking down the barriers that stop older people from working beyond traditional retirement ages will be a necessity to ensure that our children and grand-children can enjoy an adequate pension at the end of their working life,” OECD Secretary-General Angel Gurría said in a release. “Though these reforms can sometimes be unpopular and painful, at this time of tight public finances and limited scope for fiscal and monetary policy, these reforms can also serve to boost much needed growth in ageing economies.”
The report warned that a “pension gap” has emerged in countries such as Germany, Ireland, South Korea, Japan, and the United States in which public pensions are relatively sparing and private pensions are voluntary. Widespread “pensioner poverty” could result without moves to shore up public benefits or extend private coverage. Although the report shied away from recommending that private pensions should be made compulsory in every country, it suggested that instituting opt-out plans—in which workers are automatically enrolled and must deliberately choose to exit, should they so desire—were a prudent step toward addressing this challenge. It also urged tax reforms that would incentivize private saving. For countries with national defined contribution systems, minimum or default contribution rates must be established at sufficiently high levels, the report stated.
To see highlights of the report, click here.