How do we design retirement systems that are financially sustainable and fair?
You will find some answers a new chapter of the Handbook of Labor, Human Resources and Population Economics, written by Tim D. Maurer, together with co‑authors Miguel Sousa Duarte and Svend E. Hougaard Jensen.
Life Expectancy, Retirement Age, and Pension Wealth
Population aging has led several countries to adopt policies that link the retirement age to life expectancy. Although such policies may be necessary to keep public finances sustainable, they risk increasing socioeconomic inequalities. Individuals with lower socioeconomic status tend to live shorter lives, collect benefits for fewer years, and may therefore be disproportionately burdened by increases in the retirement age, potentially undermining the intended progressivity of pension systems. An additional challenge is that the growing accumulation of private pension wealth may reduce the effectiveness of public pension reforms, as wealthier individuals can afford to retire early regardless of changes to the statutory retirement age. This chapter examines these dynamics and presents a range of policy options to best align pension design with demographic, socioeconomic, and fiscal realities.
“While raising retirement ages in line with life expectancy is necessary for fiscal sustainability, policymakers should account for socioeconomic and health inequalities when designing early labor market exit pathways and pension claiming incentives.”