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19 January, 2022

Pensions at a Glance 2021 – OECD – December 2021

According to the latest OECD report, Pensions at a Glance 2021, the challenges of aging persist, despite pensions being protected during the COVID-19 pandemic. Although the increase in life expectancy in old age has slowed since 2010, rapid aging rates are projected for the next two decades. The size of the working-age population is also expected to decline by more than a quarter by 2060 in most Southern, Central and Eastern European countries, as well as in Japan and Korea.

Young people have been severely affected by the crisis and their future pensions could be reduced, especially if the pandemic results in longer-term issues and difficulties in developing their careers. Allowing early access to pension savings to compensate for economic difficulties, as observed in some countries such as Chile, can also generate long-term problems. The consequence will be lower pensions, unless higher future savings compensate for these withdrawals.

Measures regarding retirement ages have been limited in the last two years. Sweden raised the minimum retirement age for income-related public pensions; the Netherlands postponed the planned increase while reducing the pace of the future link to life expectancy; and Ireland repealed the planned increase from 66 to 68 years of age. Denmark, Ireland, Italy and Lithuania have increased their early retirement options.

According to legislative measures, the official retirement age in the OECD will increase by approximately two years by the mid-2060s. The official future retirement age will be 69 or older in Denmark, Estonia, Italy and the Netherlands, while Colombia, Luxembourg and Slovenia will allow men to retire at age 62. Women will have a lower official retirement age than men in Colombia, Hungary, Israel, Poland and Switzerland.

According to the report, the biggest long-term challenge for pension systems is still to provide financially and socially sustainable pensions in the future. Many countries have introduced automatic adjustment mechanisms that change the parameters of the pension system, such as retirement age, pension amounts or contribution rates, when demographic, economic or financial indicators change. These self-adjusting mechanisms are crucial in helping to cope with the impact of aging.

Approximately two-thirds of OECD countries use some form of automatic adjustment in their pension plans. The OECD report shows that automatic adjustment mechanisms were sometimes suspended or even eliminated over the years, in order to avoid reductions in pension benefits and increases in the retirement age. However, compared to the alternative of discretionary changes, automatic adjustments can be designed and implemented to generate changes that are less erratic, more transparent and more equitable between generations.

Source: www.oecd.org; Date: 08.12.2021

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