Governments around the globe will need to gradually increase their retirement ages in order to keep their pension systems sustainable, according to a new report from the Organisation for Economic Co-operation and Development (OECD).

The OECD estimates that over the next 50 years, life expectancy at birth is expected to increase by more than seven years in developed economies. The long-term retirement age in half of OECD countries will be 65, and in 14 of those countries it will be between 67 and 69.

According to the OECD’S Pensions Outlook 2012, increases in retirement ages are under way or planned in 28 out of the 34 OECD countries. These increases, however, are expected to keep pace with improved life expectancy only in six countries for men and in 10 countries for women.

“Bold action is required. Breaking down the barriers that stop older people from working beyond traditional retirement ages will be a necessity to ensure that our children and grandchildren can enjoy an adequate pension at the end of their working life,” said Angel Gurría, OECD’s secretary-general. “Though these reforms can sometimes be unpopular and painful, at this time of tight public finances and limited scope for fiscal and monetary policy, these reforms can also serve to boost much-needed growth in aging economies.”

Other recommendations made by the OECD in the report include implementing auto-enrollment, reforming tax reliefs to encourage private pension savings and setting the minimum contribution rate in DC plans at an appropriate level in order to generate sufficient income at retirement.

While the OECD has found that making private pensions compulsory does help to increase retirement savings, such a move might not be the answer for every country. It warns that such action could unfairly affect low earners and be perceived as an additional tax. Rather, the OECD suggests that auto-enrollment in plans could be a suitable alternative. Italy and New Zealand have already introduced auto-enrollment schemes, and the U.K. is set to roll out its system in October 2012. However, the OECD reports that the systems have produced mixed results: there has been a major expansion in pension coverage in New Zealand, while Italy’s auto-enrollment has had only a small effect.

Tax reliefs
The OECD recommends reforming tax reliefs in order to encourage private pension savings. Since low earners and younger workers are less likely to have private pensions, the OECD suggests that facilitating matching contributions or giving flat subsidies to savers—such as in Germany and New Zealand—could give these individuals more incentive to contribute.

DC contribution rates
The report argues that it is critical to set the minimum or default contribution rate in DC systems at an appropriate level. Contributions to these systems need to be high enough so that, together with public pensions, they generate sufficient income at retirement. Australia has increased its contribution rate to 12% from 9%. However, the rates still remain too low in countries such as Mexico and New Zealand (6.5% and 3%, respectively).

Download the report.

Copyright © 2021 Transcontinental Media G.P. Originally published on

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