The Creeping Public-Pension Debacle

LONDON – If developed countries acted rationally, and in the interest of electorates that understood how their tax money is spent, they would set their public-pension retirement age at or above 70. But most developed countries have retirement ages below this mark, and, despite some progress, it will be decades before they catch up. In the meantime, Western welfare states will remain financially unviable, economically sickly, and politically strained.

Demographic aging is the social and economic equivalent of climate change: it is a problem that we all know must be addressed, but which we would rather leave for future generations to solve. The impulse to put things off for a later day is understandable, given current economic and political troubles; but when it comes to public pensions, procrastination comes at a high cost – even more so than in the case of global warming.

In 1970, the average effective retirement age for French male workers was 67, which was roughly the same as male life expectancy at that time. Now, the effective retirement age in France is just below 60 (the official retirement age is 65, but in practice public pensions can be drawn much sooner), even though male life expectancy is nearly 83.

It is no wonder that France spends the equivalent of nearly 14% of its GDP annually on public pensions. Early retirement is even costlier for Italy, which tops OECD rankings of public-pension spending, with an annual outlay equivalent to nearly 16% of its GDP.