Reengineering Retirement_Economist_12-12-2002

Reengineering Retirement_Economist_12-12-2002 -...

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Economics focus Re-engineering retirement Dec 12th 2002 From The Economist print edition Fixed retirement ages make no sense for ageing populations A SPECTRE haunts finance ministers in the world's rich countries. Looming ever closer is the retirement of the big baby-boom generation born after the second world war. In France, where the retirement age is 60, the demographics start to turn sour as early as 2006. In most other countries, with a retirement age of 65, the date of reckoning is 2011. As the outlook deteriorates, so too will these countries' public finances. Fewer workers will pay contributions into pay-as-you- go state pension systems; more people will be drawing a pension from them. The shock to state pension systems is not caused only by past fluctuations in fertility—the ageing of the baby-boomers, as they become pensioners, and their replacement by a smaller generation of younger workers. It also arises from the rapid advance in life expectancy at older ages. Although naturally welcome, this is extremely costly, so long as retirement ages remain fixed. Company pension plans, for example, have been undermined not only by falling stock prices in the bear market, but also by rising liabilities as a result of increased longevity. As if this were not enough, the effective retirement age (a weighted average of the ages when people actually withdraw from work) is often a lot lower than the official retirement age. For example, the effective retirement age for men in Germany is 60.5, whereas the official age is 65. Only half of 55-64-year-olds in the OECD group of rich countries are in work, compared with
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This note was uploaded on 03/02/2010 for the course BUAD 350 taught by Professor Safarzadeh during the Spring '07 term at USC.

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Reengineering Retirement_Economist_12-12-2002 -...

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