EUROPE – The Organiation for Economic Cooperation and Development has called for “urgent measures” to shift European pensions policy towards encouraging later retirement, saying that the current trend of early retirement is affecting the wider economy.

The OECD said in research entitled “Increasing employment: the role of later retirement” that the trend for early retirement over the past few decades has distorted the labour market - which leads to a labour market shortage along with lower output and living standards.

“The problem will become even larger with ageing populations, as there will be more people in the relevant age groups affected by these distortions,” the OECD said.

“Future demographic trends reinforce the need for governments to roll back existing incentives for early retirement,” it says.

It called for measures to shift the trend away from early retirement, such as removing tax incentives.

“Further measures are urgently required to make pension systems neutral with respect to the age of retirement and to tighten eligability conditions for unemployment benefits and disability pensions and to remove tax incentives for early occupational pensions,” the OECD report said.

According to the OECD, a delayed retirement age would mean reduced pensions expendure – though the effect is linked to the degree to which pensions levels are linked to contributions. It acknowledges that retiring later may involve costs as older workers may need to be retrained and workplaces adjusted to meet their needs.