Reform needed as global spending on pensions rises, says report

By:

Simone Rensch

5 Dec 17

Further reforms are needed to cope with ageing populations as global public spending on pensions has risen by about 1.5% of GDP since 2000, the OECD has said.

To ensure decent pensions governments around the world should postpone the age of retirement by an average of two years over the next four decades, the Pensions at a Glance report released today said.

Although, it noted that the rate pensions were growing was projected to “slow substantially” in the future. No time frame was given on when it was likely to slow or by how much.

“The challenges of financial sustainability and pension adequacy mean that bold action from governments is still needed,” said OECD secretary general Angel Gurría.

“The world of work is changing fast and policy makers must ensure that decisions made today take this into account and our pension and social protection systems do not leave anyone behind in retirement.”

Under currently legislation, by 2060 the normal retirement age would increase in roughly half of the OECD countries, by 1.5 years for men and 2.1 years for women on average. The retirement age would range from 60 years in Luxembourg, Slovenia and Turkey to 74 in Denmark, according to the latest estimations.

Only five of the OECD’s 35 members will have standard retirement ages below 65 by 2060.

The cost of public pensions is one of the largest social expenditures governments have, accounting for 18% of total spending on average in 2013, the report said.

Greece spent the largest proportion of national income on pensions among OECD countries in 2013, with 17.4% of GDP. Other countries in Europe were also seen to have high spending on public pensions, including Italy at 16.3% and Austria, France and Portugal at about 13% to 14% of GDP.

Iceland and Mexico spent 2.0% and 2.3% of GDP on public pensions, while Korea spent 2.6% of GDP largely due to its system not being “mature yet”, the OECD said.

Turkey is putting 8.1% of GDP into public pensions, despite being the second youngest OECD country in demographic terms – more than Denmark, the Netherlands, the UK and the US; all countries with a higher share of people over the age of 65 than in Turkey.

The UK’s public pension spending was 6.1% of GDP. In the UK the state pension age is currently 65 years for men and is gradually rising to 65 years by November 2018 for women.

Increases of the state pension age to 66 years by October 2020 and to 67 years between 2026 and 2028 have been legislated by the UK government.

The report found that one-third of OECD countries changed pension contribution levels over the past two years, while another third modified benefit levels for all or some retirees and three countries legislated new measures to increase the statutory retirement age.

But because people are living longer, they are also in retirement for longer, if retirement age stayed the same. The OECD urged policy makers to postpone retirement to be “sufficiently rewarding while not overly penalising people who retire a few years before the normal retirement age”.

The international accounting standard for social benefits, including for pensions, was released for consultation last month by IPSASB. An alternative view was issued with the suggested standard.