Retirement ages need to keep pace with increasing life expectancy to make sure pensions are affordable and provide enough to live on, says a new report.
Life expectancy from birth is anticipated to increase by at least seven years in leading economies, according to the Organisation of Economic Cooperation and Development (OECD).
Retirement age in 14 of OECD countries, including the UK, will fall between 67 and 69 years old, while people will retire at 65 in the other 20 countries.
In a review of pensions, the OECD says 28 of the countries are reviewing state pension arrangements, but are only expected to keep pace with improved life expectancy only in six countries for men and in 10 for women.
Unpopular and painful pension reforms
As a result, the OECD is urging governments to consider linking retirement ages to life expectancy, as in Denmark and Italy, and make greater efforts to promote private pensions.
“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 grandchildren can enjoy an adequate pension at the end of their working life,” said OECD Secretary-General Angel Gurría.
“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 OECD Pensions Outlook 2012 found political reforms over the past decade have cut future public pension payouts, typically by 20% to 25%.
People starting work now can expect on average a net public pension of about half their net earnings in OECD countries, providing they retire after a full career at the official retirement age.
In 13 countries that have made private pensions mandatory, pensioners can expect benefits of around 60% of earnings.
Pension tax relief reform
Where public pensions are relatively low and private pensions voluntary, such as Germany, Ireland, Korea, Japan and the United States, many can expect major falls in income on retirement , leading to pensioner poverty.
“Later retirement and greater access to private pensions will be critical to closing this pension gap,” says the OECD report.
“The report wants governments to reform tax reliefs to encourage private pension saving, as low earners and younger workers are much less likely to have a private pension. To boost confidence in private pensions, governments also need to improve their oversight of funds to ensure that charges are kept low and risks minimised.”
Highlights of the report are available at www.oecd.org/daf/pensions/outlook