Monday, February 10, 2014

Abolish the Mandatory Retirement Age?

Have you ever wondered where the mandatory retirement age of 65 came from?  Why 65?  Why not 60?  Or 72?

From a European history class I took way back when, I learned that the age of 65 for retirement was essentially plucked from the air by Otto von Bismark, the chancellor of Prussia, in the 1840s as part of a compromise with European labor unions.  Bismark was trying to unite the many small Germanic states into a greater Germany, and was meeting resistance from the unions.

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Bismark offered a state funded retirement to any worker once they reached the age of 65, which the majority of workers accepted and the unions agreed to.  The kicker in the plan was that the average age when most adult males died in the mid-19th century was 45, so the plan wasn't going to cost the government much money.

Flash forward to today, and most Americans and Europeans are living well into their seventh and eighth decades, relatively healthy and often able - and willing - to work.  Paying for these otherwise healthy and very experienced potential employees puts a tremendous drain on national economies.  And is more often than not, very frustrating to the retiree.

Here's the report:
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Research led by a professor at the University of Southampton recommends the worldwide removal of the fixed or default retirement age (DRA). Professor Yehuda Baruch from the Southampton Management School, in collaboration with Dr Susan Sayce from the University of East Anglia and Professor Andros Gregoriou from the University of Hull, has found that, on a global scale, current pension systems are unsustainable.

Professor Baruch comments: "We have a global problem with funding pensions, which assume people will retire around their mid-60s. Young people are tending to start work later and in-turn start paying tax and pension contributions later. Older people are living longer, often in to their 90s, creating, in some cases, up to 30 years of retirement to provide for. This creates a funding gap.

"Our study advocates the abolition of the default retirement age worldwide by governments and private companies -- allowing people to consider a range of options on how and when to stop work, as well as greater flexibility over their pension plans. This would help ease funding problems."

The UK abolished the default retirement age in 2011, although a small number of organizations can fix their own DRA if they can justify reasons for doing so. However, other countries still have fixed retirement ages. The report authors have used the UK as a case study to examine the benefits and pitfalls of a more flexible approach to retirement.

The researchers conducted financial analysis based on Monte Carlo simulation methodology to interrogate pension and other financial data. Their results suggest that where DRA is in place the pensions system is not sustainable in the long-run and recommend ending its use in other countries, in line with the UK approach.
Professor Baruch says: "We would like to see a situation where people globally can be much more in control of when they retire. For example, they may want to work into their 70s or even 80s, but perhaps want to change the type or volume of work they take on.

"Our study suggests that old age can be seen as holding the prospect of long-term stable contributions to society, rather than a decline or preparation for giving up work altogether -- which can lead to pressure on the public purse."

The researchers conclude that if the default retirement age is to be successfully abolished worldwide, there needs to be a shift in cultural attitudes towards older workers and the perception of their value and productivity -- as well as a change in the labor market to help older workers step into jobs, as well as out of jobs. They also recognize that the effects on different countries will vary, but suggest, overall, a policy of abolition is the best route.
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Story Source:  Materials provided by University of Southampton. "Abolition of fixed retirement age called for by new report." ScienceDaily

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