Flexible retirement is a double-edged sword for governments, according to the OECD.

Calls for more flexible retirement rules were resurfacing in the public debate as a response to pressures from population ageing and financial stability concerns, as well as a resistance to higher pension ages, the economic body said.

From a government perspective, flexible retirement could increase people’s wellbeing and may entice some people to work longer, in turn helping to increase workers’ future pensions and boost economic growth and tax revenues.

It could also bring risks, however, such as individuals underestimating their financial needs in retirement and finding themselves at risk of old age poverty.

Reporting on its latest ‘Pensions at a Glance’ analysis, the think tank for developed country governments said its findings indicated that, in many OECD countries, flexible retirement is possible and not discouraged.

However, despite stated interest in more flexible forms of retirement, individual take-up has been low, it noted.

‘Low adoption of flexible retirement due to barriers outside the pension system’

According to the OECD, in Europe about 10% of individuals aged 60-64 or 65-69 combined work with drawing pensions, representing about one in five and one in eight pensioners, in the respective age groups. The average share of workers older than 65 working part-time in OECD countries had been stable at 50% over the past 15 years, it added.

Low adoption of flexible retirement was due to barriers outside the pension system, such as age discrimination by employers and limits to people’s autonomy in deciding when to retire, the OECD said.

To resolve this, governments must complement pension policy measures with wider labour market policies to make flexible retirement work, it said.

“The challenges of financial sustainability and pension adequacy mean that bold action from governments is still needed,” said OECD Secretary-General Angel Gurría. “The world of work is changing fast and policy makers must ensure that decisions made today take this into account and our pension and social protection systems do not leave anyone behind in retirement.”

UK bottom for replacement rate, Denmark ‘top’ for retirement age

Elsewhere in the OECD’s report, it found that:

  • The net replacement rate from mandatory pension schemes for full-career average-wage earners entering the labour market today is equal to 63% on average in OECD countries, ranging from 29% in the UK to 102% in Turkey
  • The pace of pension reforms has slowed in the last two years as improving government finances relieved some of the direct pressure to reform
  • Under legislation currently in place, by 2060 the normal retirement age will increase in roughly half of the OECD countries, by 1.5 years for men and 2.1 years for women on average, reaching just under 66 years. The future retirement age will range from 60 years in Luxembourg, Slovenia and Turkey to 74 in Denmark, according to the latest estimation

Increasing the retirement age is a source of tension in many countries, however. In Italy, political parties are promising to lower the state pension age and increase pension benefits, while in the Netherlands the country’s largest union opposes the government’s decision to raise the state pension age to 67 in 2021. 

The full OECD report can be found here.