Trends in Pension Eligibility Ages and Life Expectancy, 1950-2050
Voltaire, the French writer and philosopher, advised a friend to “go on living solely to enrage
those who are paying your annuities”, before suggesting rhubarb and sobriety as the means to such an end. The rapid ageing of the population around the world is unlikely to be a result of heeding this advice. But it provides a major challenge to the affordability of pensions and the financial sustainability of retirement-income systems. This problem has been reinforced by a long period during which increases in life expectancy were continually under-estimated by experts.
This paper begins by exploring trends in the evolution of one key parameter of the pension system: the age of eligibility for mandatory pension benefits. The “retirement age” is the most visible parameter of the pension system and one which sets a clear signal for people in making economic decisions. As such, increases in pension age have often proved among the more contentious elements of pension reforms, compared with other changes to retirement-income provision. This paper presents a new dataset of the evolution of pension eligibility age covering a period of a century. It looks backwards to 1950 and forwards to 2050, examining the phased increases in pension ages that many OECD countries already plan.
Section 1 of the paper discusses some of the issues in defining pensionable age, which is not always as clear cut a concept as one might imagine. Section 2 presents the key results on pension ages in OECD countries. The main finding is that average pensionable age in OECD countries dropped by nearly two years during the second half of the 20th century to 62.5 for men and 61.1 for women. Legislation already in place will increase it almost to 65 for both sexes by 2050.
Section 3 then examines the relationship between pension age and life expectancy, both observed in the past and forecast into the future. The analysis shows how the expected duration of retirement has been, and is likely to be, affected by changes in pension age and by the near-continuous growth in life expectancy observed in the past. Most projections show continued increases in life expectancy in the future. Between 1960 and the turn of the century, life expectancy after pensionable age is shown to have grown from 13.4 to 17.3 years for men and 16.8 to 22.1 years for women on average in OECD countries. However, life expectancy after normal pension age is projected to reach 20.3 and 24.6 years (for men and women respectively) in 2050, despite many OECD countries having already legislated for phased increases in the pension age in the future.
Section 4 of the paper concludes with a summary of the results and an exploration of the
implications for pension policy.