The touchy subject of retirement age. Should people be compelled to retire at a certain age, and what age should that be? Many European states and employers impose official or mandatory retirement ages at which employees are expected to retire. However, these age limits were set at times when life expectancy was lower. The present UK retirement age of 65, for example, was introduced when average life expectancy was around 50. Today men can expect to live to an average age of 75, while women can expect to live to over 80.
If life expectancy has increased, should retirement ages be raised to take account of this? Most of Europe’s governments think so. Some 25 European countries have increased their mandatory retirement age from 60 to 65 and some – like the UK – are seriously suggesting that it should be further raised to 70.
Raising the retirement age has a number of attractions. For example it could help to relieve the pressure on Europe’s over-burdened state pension systems. It has been suggested that if the average retirement age were increased by only five years, many European governments would be able to pay for their pension systems.
However, such a move would also put more pressure on Europe’s citizens, who would have to work longer to enjoy their same pension. There is now the unappealing prospect of people working ‘until they drop’.
So should there be a mandatory retirement age at all? Equal opportunities lobbyists have suggested that mandatory retirement age is a form of age discrimination.
And what about early retirement? In the 1980s European governments saw early retirement as a way of reducing unemployment and provided fiscal incentives for people to retire in their 50s. The result is that there is now a severe shortage of older workers In Belgium, for example, only one in four people over 55 is still in work.
Governments are now moving to discourage early retirement by removing tax and other incentives. But is this fair on younger generations? A survey of people aged between 18 and 24 recently found that today’s young people expect to be able to retire early.
So what should be the way forward? We wanted your views. Opinion among the pension fund managers and administrators who responded to our questionnaire was divided on a number of issues – notably on whether enforced retirement is ‘ageist’, or whether people should be discouraged from taking early retirement.
Almost two-thirds (63%) of the managers think that employers have the right to retire their employees on the grounds of their age. Retirement at some stage is inevitable, says the manager of a Swedish pension fund. “You can’t expect to keep your job forever.”
Employers not only have the right but the obligation to retire people who reach their dotage, according to the manager of an Italian pension fund, who says that they should be retired when they reach a ‘substantial’ age. “We have judges or teachers working at 75. They are dangerous. Imagine being obliged by the national health organisation to go to a very old doctor.”
A good company pension is probably the best way to persuade people to retire, a UK manager points out: “Employers should have the right to offer pension arrangements that give a strong incentive to retire based on age,”
There is far less enthusiasm for an official retirement age, prescribed by the state. Fewer than half the managers in our survey (47%) support a state retirement age. The only purpose of an official retirement age is for payment of the state pension, many believe. “There should be a fixed official retirement age at which people are entitled to pension benefits,” a UK pension fund manager says.
People should have the right to defer the payment of this pension, says the manager of a Swiss pension fund. “There should be an official retirement age at which people have the right to retire with a full pension, but also have the right to work longer and postpone their pensions.”
Well over half (59%) of those who think there should be an official retirement age says this should be 65. Only a small minority (5%) says it should be at 60 and a slightly larger minority (9%) says it should be 70. There is also some support for other cut off points – in particular 62, 67 and 75.
When it is appropriate for people to retire may depend upon what type of work they do. The manager of a pension fund in Portugal singles out airline pilots and people doing physically demanding work for an earlier retirement age. Yet in general, people are able to carry on working for longer than previous generations. A sizeable majority (82%) agrees that there is no biological basis for having a retirement age somewhere in the 60s.
A clear majority (89%) believes that a mandatory retirement age should be the same for men and women. However, there are some dissidents. The manager of a Swiss pension fund argues, “as women have a higher life expectancy than men, their retirement age should not be the same”.
If there is an official retirement age, should employees have the right to work beyond it if they are willing and able? A substantial majority (84%) agrees should have that right.
However, a number of managers qualify this ‘right’ to continue working. The agreement of the employer is necessary, they say. Typical comments are “Assuming the employer still wants them” and “Only when both parties agree”. This is the approach that the UK has taken with its latest proposals, which would give employees a ‘right to request’ later retirement.
One UK manager suggests that people should only be allowed to go on working beyond retirement age if they cannot afford to retire – “a system of means testing in reverse”,
Opinion is divided over the question of whether forcing someone to retire at a certain age is a form of age discrimination or ‘ageism’, with slightly over half (55%) disagreeing.
Opinion is also evenly divided over whether people should be discouraged from taking early retirement, with slightly over half (53%) agreeing. One UK manager says people should be free to take early retirement “as long as they have made sufficient provision for income in retirement”.
Another says that people should be dissuaded from taking early retirement “unless they are able to show that they already have a minimum annuity that would preclude them from receiving state assistance”.
Governments are blamed for the present situation. “Presently many countries give a financial incentive to retire early, and we should move towards financially neutral rather than a total pendulum swing towards discouragement,” one manager maintains.
The manager of a Dutch pension fund speaks for many by saying that “governments should not discourage early retirement but it should no longer be fiscally attractive”.
Two in three respondents (64%) say both government and employers should remove incentives to retire early. However a significant number make a distinction between government and employers. “Government yes, employers no, because there might be legitimate organisational reasons for keeping incentives.”
And the manager of an Irish fund warns: “We need to be careful to preserve flexibility because the situation of each employer may require different solutions.”
The design of occupational pensions may also be a factor in encouraging early retirement. The manager of a Swedish pension fund points out that “many pension funds have a structure that takes away most of the incentive to work longer if at all.
“In Sweden, for instance, in the most common pension plan for white collars you do not earn any extra pension should you work after 65 but you have an incentive to leave at 62 without reduction of pensions.”
He suggests that defined benefit pensions are unsuited to current conditions, and that a society that wants to encourage people to continue working would be better served by another structure, such as defined contribution.
Perhaps the solution is to smooth the impact of retirement. There is almost unanimous support (95%) for the idea of some sort of phased or gradual retirement, rather than a single retirement date. This is seen as a more efficient way of handing over the reins to a successor. The manager of a Portuguese pension fund points out that gradual retirement would facilitate “knowledge transfer”. It would mean that people did not have to ’work until they drop’ – hardly a concept fit for the 21st century.