Making Retirement Work
When public pensions were first introduced across the world's advanced economies, most people did not live long enough to collect benefits, and more younger workers paid into the system. Unless able-bodied retirees are required to contribute more, the status quo will become economically and politically unsustainable.
MILAN – In most developed countries, a retirement of leisure is one of the great socioeconomic innovations of the past century. But it is quickly becoming a luxury that few countries can afford, particularly in Europe. The retirees enjoying a second youth may not want to hear it, but it is past time that governments made public pensions partly conditional on community work.
Overly generous pension benefits are destabilizing public finances, compromising the intergenerational social contract, and fueling support for far-right populist movements. Across Europe, potential debt obligations due to unfunded pensions range from 90-360% of GDP. In Italy, some retirees receive pensions that are 2-3 times higher than their working-age contributions would entail. And across the European Union, the median income of people over 63 is almost as high as the median income earned by active workers.
Moreover, as a result of early-retirement policies, around 30 million pensioners across the EU are under 65 years old, which is to say that about 25% of all European retirees are not old at all. Making matters worse, the official retirement age has not been adjusted to account for longer life spans. When German Chancellor Otto von Bismarck introduced the world’s first public pension system in 1870, the eligibility age was 70, and the average life expectancy was 45. Today, the average European retires at 65 and lives until he or she is at least 80.