Retirement reformLive poor, die young
The gap between the life expectancy of the rich and poor is increasing
AN OFT-TOUTED answer to the problem of an ageing population (endorsed by this newspaper as well) is to increase the retirement age. One consequence of this proposal, however, is to exacerbate inequality. The poorer sections of the population tend not to go to university so have longer working lives than the better-off. And they have lower life expectancy as well, so they will also enjoy shorter periods of retirement.
This problem is getting worse, not better, as the latest OECD report on pensions makes clear. Here are the figures for the US, UK and France, comparing the change in life expectancy at age 65 for different social groups. (Note, they are defined differently in the different countries; the US divides people into white collar and blue collar, the French have cadres at the top and ouvriers at the bottom.)
Highest group Lowest group
US 1992 17.8 16.2
2006 20.2 17.5
UK 1984 15.1 13
2004 18.4 15.8
France 1980 15.3 12.7
2004 19.8 16
As you can see, the gap has widened by around a year in France and the US (over a shorter period) and by around half a year in the UK. Some of this may be down to access to healthcare (in the US, in particular), to variance in diet, and to the different stresses caused by different jobs (office work versus manual labour).
So what is to be done about this? The French approach is to require a minimum number of years of contributions for qualification for the state pension; thus those who start work earlier can retire earlier. However, at 41.5 years, this period seems too short (it is set to rise to 43 years by 2030). Some occupational schemes (eg police and firemen) allow for early retirement although this approach is a bit broad-brush; chasing down criminals might be tough at age 63 but having a desk job in the police or fire service need not be.
Another option would be to keep a standard retirement age but allow for disability benefits to be paid to those who cannot keep working in their 60s. Of course, this would do nothing to reduce the costs and might increase them as disability simply became a substitute for retirement. In Britain, the number of people claiming incapacity benefit rose more than sixfold between 1970 and 2011, even though a separate survey asking people to assess their own health showed no change over the same period.
When it comes to private pensions, in theory it is possible to pay higher incomes to those with lower life expectancy (this does happen for smokers or those with life-threatening diseases). Whether this could be extended is doubtful on legal grounds; the European Court ruled in 2011 that male and female annuities had to be equalised even though women, on average, live longer. People in the US don't tend to buy annuities in any case and in the UK, the government has just abolished the requirement to buy them even though surveys show they have the kind of qualities retirees seek.
The authors of the OECD report say only that
linking pension parameters to life expectancy might be regressive when the potential impact of differences across socio-economic groups is accounted for. Yet adjusting these links to correct for these undesirable features is a very complex issue.
Well, yes. But we may have to try.