Europe grapples with raising the retirement age as life expectancy rises and birth rates plummet
BARCELONA, Spain — Chanting “Retirement before arthritis,” more than a million people poured into the streets in cities across France on Tuesday in protest of government plans to boost the country’s retirement age from 62 to 64.
“It’s unfair to make people work until 64 — nobody is going to hire them,” former public transportation director Anne Brunner, 62, told Yahoo News, adding that, in her experience, after age 55 many French workers are shown the door and few are rehired. “Employers think older workers have too much experience, are too critical and too expensive,” she said.
But the volatile issue of raising the retirement age, which a recent poll showed 66% of the French opposed — as well as ageism in the workplace — are Europe-wide problems as governments grapple with how to fund state pensions when people are living far longer. When many of today’s French retirees entered the workforce in 1980, for example, the typical person in France lived to be 74; now they are living a decade longer.
“The majority of European countries have raised retirement ages,” Mika Vidlund, liaison manager at the Finnish Center for Pensions, told Yahoo News, “and many countries are linking that age to life expectancies.” Due to recent changes in pension policies in Europe, “age 67 is the new 65,” he said. “And some countries are going further.”
In 2010, France saw similar protests when it raised the retirement age from 60 to 62. But those changes are minor compared with the increases in several other European countries. Denmark, for instance, instituted a policy that requires the government to raise the retirement age in concert with increases in average life expectancy, and today its retirement age is 68. Other countries, such as the Netherlands, have a different ratio: For each year of increased life expectancy, another eight months is added to the retirement age.
“What they're essentially doing is fixing the number of years people on average can spend in retirement,” Paris-based Wouter De Tavernier, an economist at the Organization for Economic Cooperation and Development (OECD), told Yahoo News.
The U.S. Congress is also considering bumping up the age at which one can start receiving Social Security, with some Republican members of Congress debating whether benefits should start at age 70.
But as painful as that could be to many Americans, the situation in Europe is much more extreme due to differences in pension systems. For American retirees, pensions from the government — i.e., Social Security — make up, on average, about 30% of a retiree's income, according to the Social Security Administration. In Europe, however, 401(k)s are not as common and government pensions often provide 80% to 90% of a retiree’s pension payments. In France, Spain, Italy, Austria and Poland, state payments on average make up 100% of received pensions, according to OECD data.
Another factor that weighs heavily on the need to raise the retirement age in Europe: declining birth rates.
“This whole issue of increasing public pension expenditures in Europe is the result, on the one hand, of people living longer, and on the other hand, of fewer people being born,” said De Tavernier. “And what matters for pensions is how many retirees there are compared to people of working age.” According to OECD figures, Italy had 24 retirees per 100 people in the job market in 1990, when the retirement age was 60. Now, with retirement at 67, the figure is nearly 40 retirees to that 100.
And while the U.S. government pays about 7% of GDP for pensions, many European governments pay much more, with 16% of Italy’s GDP, for example, going toward retiree payments.
“There are three things you can do when pension expenditures increase,” said De Tavernier. “The first is to cut the amounts of pensions, which is not popular by any means.” The second option, he said, “is to increase taxes or contributions paid by employers and employees, which means people at working age will not be happy — or to siphon money from other programs to pensions,” but that requires cutting spending elsewhere. “And that leaves the third option, which is to increase the retirement age, which is not popular either.” However, he added, “of all the three options, it may be the least painful."
But simply trying to solve the problem by raising the retirement age faces its own challenges.
“On one hand,” sociologist Moritz Hess, a professor of gerontology at the University of Applied Sciences Niederrhein in Germany, told Yahoo News, “the state is telling the older workers, we need you and you need to work longer, because you need to finance the pensions, and then on the other hand, older workers are still facing a lot of ageism at the workplace. And this is a societal contradiction.”
While some older workers are loudly balking at the prospect of being forced to put in more years before being able to retire with full benefits, some younger workers don’t mind working many more years than their parents or grandparents.
“I think it’s only fair for professionals who start working in their mid- to late 20s to work until they are 70, unless they have serious health issues,” Lucie Astill, 42, an administrative assistant at a law firm in Barcelona, told Yahoo News. “I have a mortgage until I am 70, so I have no plans to retire before then. People are healthier now, and it is just unfair to expect the state to support you financially for 30-plus years if you retire at 60.”
Modern European workers also have a plethora of benefits that make the idea of working for five decades far more tolerable. Last year, Astill and her husband both took 16 weeks of paid maternity leave, for instance, and when their child turns 2 and a half, day care in Spain is free of charge. And across most of Europe, workers get four weeks of vacation each year, typically taken in August, compared with just two for the average American. On the downside, Europeans on average pay higher taxes than U.S. citizens.
Astill, for one, questions the model of lumping the majority of a person’s free time at the end of their life, pointing to recently retired relatives who she said are bored out of their minds.
De Tavernier, who is 34, agrees that today’s younger workers in Europe have perks unknown to their parents and grandparents. “One thing that may be overlooked is that we are one of the first generations for whom all kinds of care policies and care-leave schemes, including decent maternity leave, are available,” he said, citing paid time off given workers for child care and even elder care. “Those were not options for previous generations. You could argue that we already are using some [of the retirement] time now, and that we would then have to compensate by working longer.”