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Do politicians really have the stomach to reform pensions?

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  • Do politicians really have the stomach to reform pensions?

European politicians can certainly talk the talk of getting older people to work longer, but will they ever be able to walk the walk?

Common political wisdom says the easiest way to win an election is to mobilise the grey vote - preferably by appeasing current or incoming pensioners with higher retirement benefits, lower tax rates on payments or changes that guarantee a spouse a bigger slice of the first-pillar pension savings' pie.

So when Swedish prime minister Fredrik Reinfeldt earlier this week told a national newspaper that Swedes should expect to work until 75, opposition parties branded it a "provocation" - one that Reinfeldt has continued at a summit with Nordic and Baltic leaders.

Opening the Northern Future Forum this morning, he berated the current trend of concentrating on the short term - with leaders distracted by the ongoing sovereign debt crisis and stalling growth - rather than on the effects of globalisation and shifting demographics.  

He spoke of the increasing quality of education and healthcare that had contributed to life expectancy rising globally from just 46 in 1950 to nearly 70 today, with EU states seeing people live closer to 80 years on average.

"This is a fantastic development," he enthused, before highlighting the problems it posed for a country's social welfare system. "It is also true that our education, health and pension systems have not adapted to this development - let alone our attitudes and social norms."

Reinfeldt argued that many people would work longer if they were able to change to a less demanding position, one that was both less physically demanding and required less of a time commitment.

"So we have a challenge here, but we also have great opportunities," he said. "The opportunities will appear, if we are prepared to question our habits and give up our prejudices."

These words are bound to resonate with leaders in most Western countries that, unlike Reinfeldt's prized example of Iceland, do not have a 50% employment rate among the 65 to 69 year olds.

Germany, for one, spent the better part of a decade encouraging early retirement in the face of stubbornly high unemployment following reunification, only to completely reverse its tactic once employers realised they would soon be facing a chronic shortage of workers.

Now many larger companies are considering employing in-house medical staff to guarantee their workforce stays mentally and physically fit for as long as possible - or risk not being able to replace them upon retirement.

Other countries, such as France, have a long way to go before seeing their workers even continue in employment as long as 65, having only increased the retirement age from 60 to 62 last year and only following a protracted battle with unions.

Similar battles were fought in the UK over the increase to retirement ages in public sector schemes, which remained at 60 in many of the more physically demanding jobs despite a decade of steep longevity increases.

So it is true that old habits - which die hard - will have to change, but it is also true that any changes to retirement age will take a government willing to consider the long-term benefit over the short-term political gain.

One can't help but think that the European Union's interest (one reportedly shared by UK prime minister David Cameron) in automatically increasing retirement ages in line with longevity lies not only in depoliticising the issue, but also in removing the risk of punishment come election day.

Failures in pensions policy have long been attributed to short-sighted governments. It remains to be seen if Reinfeldt will remain true to his word and make the hard but required decisions and whether others in Europe follow suit.

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