Authors: Servaas Houben
Publisher, publication date: The European Actuary, 2018-10
The day before the start of this year’s world cup, Russia announced that it would increase its retirement age for males from 60 to 65, and for females from 55 to 63. This raised some concerns as life expectancy for males is 66 and 77 for females, implying that many Russians won’t live long enough to even claim their pension. However the idea of working until death is from a longevity perspective an interesting one as several research (Dr Hinohara, Oregon State University) showed that working longer results in lower mortality rates and higher life expectancy. The SOA 2000 mortality study even showed that death rates for men aged 50-70 was only half for working men compared to retirees. Is working until death a good solution for increasing our life expectancy while reducing pension benefit payments at the same time?
Worldwide developments in longevity
Despite regional differences, the overall worldwide trend in life expectancy over the past 50 years is very impressive. Even in areas that are known as unstable (Somalia) or shaken by wars (Afghanistan), a steady improvement has taken place: even for the 1990-1993 war damaged country of Rwanda, life expectancy continued its pre-war trend in the 2000s (Worldbank, OECD):
The increase in life expectancy at birth, mainly due to a decrease in child mortality, has resulted in a steady trend in an increase in life expectancy from age 65 as well: starting at 13.7 in 1960 to 19.5 in 2016 for the OECD countries. Many countries have already responded to these changes by increasing their retirement age and some countries have linked life expectancy and retirement age to ensure a healthy balance between working age population and retirees.
Participation rates by age
As people live longer and longer, it therefore seems logical to be working longer as well, as they are able for a longer period to contribute. However, participation rates decline sharply by age from an average of 69.6% for ages 55-59, to 46.3% for ages 60-64 to 20.9% for ages 65-69 (OECD).
So it seems that living longer, does not always imply being able to work longer as well. Governments have apparently implemented measures to increase the retirement age, but there don’t seem to be policies for the participation rates for older employees. What needs to be done to ensure people can participate at a later stage of their lives?
The Russian solution
Increasing the retirement age close to life expectancy like done in Russia, might be a solution for solving the longevity problem while increasing life expectancy in the process. However it seems that even more developed countries seem to struggle to enable older workers to work longer. What can be done for increasing older worker participation?
- Flexible working arrangements: working from home, part time work, or flexible working hours, all contribute to find the best fit and circumstances for older workers to continue to contribute in their working environment. Furthermore, older employees have to become comfortable with accepting a reduction in pay or responsibilities when their productivity decreases over time.
- Life-long learning: as the speed of technological changes has increased, keeping up-to-date with new technology and business practices is becoming more and more relevant. Skills therefore become outdated quicker and employees need to improve their skills continuously or need to consider changing career tracks all together when physical limitations due to old age, or changing market demands, require different skills. Governments can stimulate life-long learning programs by providing tax incentives and ensuring schooling is available for all age groups.
- Mentoring/teaching: more experienced employees can fulfill the role of a mentor by advising younger employees. Also sharing knowledge of past events via teaching provides valuable life lessons for younger people.
- Healthy life style programs: employers can ensure the wellbeing of their employees by providing incentives for a healthy life style: unpaid leave, sabbatical options, cycling to work, or discounted gym memberships can stimulate employees to choose a certain lifestyle. Governments can use tax incentives to make these beneficial for both employees and employers.
From an economic and actuarial perspective the Russian solution is a start: retirement benefits are reduced while life expectancy increases. However, increasing the retirement age is one thing, ensuring older workers can find suitable jobs is quite another. Therefore the challenge with longevity is not just an economic and actuarial problem but a social challenge as well. Flexible working arrangement as part time work, and working from home, and lifelong-learning can ensure working longer will become more attractive for both employees and employers, as the latter can benefit from the experience and life lessons older workers can bring to table. Governments have already implemented policies for increasing the retirement age: should they also set policies and create facilities for social partners, employees and home workers that stimulate people to work longer?
SOA 2000 mortality study, https://www.soa.org/Files/Research/Exp-Study/ rp00_mortalitytables.pdf