Recent reforms will still be insufficient to cover increased pension costs in the future, despite increases in retirement ages in half of OECD countries, according to a new OECD report.
Pensions at a Glance 2011 says that by 2050 the average pensionable age in OECD countries will reach 65 for both sexes. This represents an increase of about 1.5 years for men and 2.5 years for women. But life expectancy is rising even faster, outstripping the increase in pension ages by about 2 years for men and 1.5 years for women. This means that in all but five OECD countries the time spent in retirement will continue to grow.
Recent reforms are a step in the right direction to rein in public pension spending rising as a result of population ageing. The size of the working-age population in the OECD will peak around 2015 and decline by over 10% in 2050. But governments should consider the impact of benefit cuts on the most vulnerable. Pension reforms in OECD countries since the early 1990s have reduced future benefits on average by 20%.
Public pensions are the cornerstone of old age incomes today, accounting for 60% on average. The other 40% is made up almost equally of income from work and from private pensions and other savings. As public benefits are reduced through reforms, these other two sources will need to fill the gap.
The study found that only five of the 34 OECD countries have increased their official retirement age enough to keep the percentage of time split between working and retirement roughly balanced. For 23 OECD countries, if no further changes are made, pension spending will grow from the current average of 9.2% of gross domestic product to 18% of GDP simply through the ageing of the population, the report concludes.
