Governments in developed nations will have to raise retirement ages gradually to match increasing life expectancy. A fresh OECD report warns that failure to do so will make pension systems unaffordable.
Policy makers in industrialized countries will have to communicate to citizens that retirement ages must be raised to keep ensuring sustainable and adequate national pension systems, the Organization for Economic Cooperation and Development (OECD) maintained in its Pensions Outlook 2012 report on Monday.
The current time of heightened global economic uncertainty called for such a move geared to contributing to fiscal consolidation and boosting growth, the OECD argued.
It said that over the next 50 years, life expectancy was expected to increase by more then seven years in industrialized nations. The report says that increases in retirement ages are underway or planned in 28 out of the 34 OECD member countries, but added that those measures were expected to keep peace with improved life expectancy only in six nations for men and in ten countries for women.
Call to act now
To resolve this long-term dilemma, the OECD suggested formally linking retirement ages to life expectancy as in Denmark and Italy.
"Though such reforms can sometimes be unpopular and painful, at this time of tight public finances they can also serve to boost much needed growth in ageing economies, OECD Secretary-General Angel Gurria said in a statement.
The report pointed out that people starting work today could expect at net public pension of about half their average net earnings, if they retire after a full career - that is after the official retirement age. In countries where additional private pensions are mandatory, pensioners could receive around 60 percent of former earnings.
Conversely, in countries like Germany where private pensions are still voluntary, large sections of the population could face major falls in income upon retirement, often leading to old-age poverty.