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Ageing population to be burden – Watson’s Orszag

GLOBAL – The ageing population in developed countries will lead to a higher burden due to early retirement, says a new study co-authored by Watson Wyatt’s research head Michael Orszag.

"Our analysis shows that even if labour force participation remains constant, the ageing of the population of OECD countries will result in a significantly higher burden from early retirement in the future," said Orszag.

“The implications of an ageing population are clear,” the report says. “Even in the absence of further decreases in labour market participation of older workers, there will be considerable increase in the economic costs of early retirement in coming years simply because there will be more older workers.”

The research, co-authored with Tryggvi Thor Herbertsson of the University of Iceland, found that “significant shifts” in the retirement behaviour of older workers would be needed to avoid increasing the cost of early retirement.

The authors estimate that labour force participation by workers aged 55-64 would need to rise to around 56%, from the current 51%, to keep costs stable.

"While this is not completely implausible, it does point to the fact that even maintaining the current level of costs as a percentage of GDP is going to require significant shifts in the retirement behaviour of older workers."

The output gap, the ratio of early retirement to gross domestic product, peaked at 7.5% in the mid-1980s, the report says. And it estimates the gap will rise to 9.1% by 2010 unless retirement patterns change substantially.

“The Early Retirement Burden” is available on www.watsonwyatt.com/images/database_uploads/11766/2003_ls04.pdf

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