Millions of people globally will have no choice but to work into their seventies to ease increasing pressure on pension systems as life expectancy rates continue to rise, the Organisation for Economic Co-operation and Development has said.
OECD countries are moving to increase statutory retirement ages, curb early retirement and offer employees incentives to work longer to boost the sustainability of their pension systems, the Paris-based organisation said in its Pensions at a Glance 2023 report.
“Governments have several tools available to further promote the employment and employability of all workers, at first by boosting support for reskilling and upskilling,” OECD secretary-general Mathias Cormann said on Wednesday.
“[But] older workers still struggle to keep their skills up to date, have limited access to good-quality jobs and risk having an inadequate old-age pension because of short and unstable working careers.”
In a post-pandemic world, older workers and retirees are also facing risks to their pension funds because of continuing inflation and higher interest rates, consultancy Mercer said in its CFA Institute Global Pension Index report in October.
This increases the cost of existing government debt and the ability of some countries to continue with their current level of services. Growing geopolitical uncertainty, including the Russia-Ukraine war and the Israel-Gaza conflict, is also affecting retirement investment returns, Mercer said.
Earlier this month, the UAE’s General Pension and Social Security Authority increased monthly pension contributions to 26 per cent, from 20 per cent previously, for Emirati employees who joined the workforce from October 31.
The increase in retirement contributions follows the GPSSA’s announcement in November that a new Federal Decree Law, No 57 on Pension and Social Security, had been introduced.
The new law aims to “benefit from an Emirati’s experience for the longest period of time in order to serve public interest and reconsider calculating the retirement pension, so that its value increases as the employment years increase”, said Hind Al Suwaidi, acting executive director of the GPSSA's pensions sector benefits management department.
Emiratis working in government and private sectors are eligible for pensions and other benefits after reaching the retirement age of 49 or having worked for a minimum of 20 years, according to the UAE government.
In the OECD, normal retirement ages are set to increase in 23 of the 38-member countries, reaching an average age of 66.3 years for men and 65.8 years for women who are starting their careers today, the OECD said.
However, in Denmark, Estonia, Italy, the Netherlands and Sweden, the retirement age will rise to 70 years or more if life expectancy gains materialise as projected and legislated links with life expectancy are applied, it added.
By 2050, the average share of the population aged 65 and over across all OECD countries is expected to increase by 10 percentage points to 27 per cent, from 18 per cent in 2022.
The labour force participation of older workers in OECD countries has also increased sharply, with the employment rate of 55 to 64 year olds reaching a record 64 per cent in the second quarter of 2023, almost eight percentage points higher than a decade ago.
Addressing the challenges of a rapidly ageing population requires promoting the employment and employability of older workers, an issue that has become more urgent since the pandemic as most OECD countries are facing labour shortages, the report said.
Unfilled job vacancies in the OECD reached record levels in 2022 and remain high in 2023, it added.
“With large numbers of baby boomers retiring in the coming years, it is becoming even more important to promote the labour market participation of underrepresented groups in general, and older workers in particular,” the report said.
However, pension reform alone cannot fully address the impact of population and increased life expectancies on the sustainability of pension systems, Mr Cormann said.
“By providing targeted support for training and ensuring healthy working conditions, countries can improve the employment prospects of older workers,” he added.
“This will help ensure that pension systems remain financially sustainable, while delivering decent incomes in retirement.”