Saturday, January 11, 2014

United Kingdom: Study Calls for Upping Retirement Age, Saying Pension System Creates Incentives for Early Retirement

A report issued by the Institute of Economic Affairs says that recent United Kingdom government commitments to continue to increase state pension expenditure in real terms are both unaffordable and irresponsible, and that the government must accelerate the introduction of a later retirement age and urgently reform labor market regulations to enable people to work longer.

According to "Income from Work—The Fourth Pillar of Income Provision in Old Age" by Gabriel Sahlgren, the current state pension system is "incentivising" early retirement, and that employment protection legislation raises unemployment at older ages, including before state pension age. Furthermore, later retirement benefits the individual through improved health and higher incomes, and benefits taxpayers by reducing the costs of ageing populations.

The report makes ten recommendations to "ease the state pension time bomb," including:
  • accelerating the rise in retirement age, suggesting that, from November 2018, the state pension age for men and women should increase by two months every quarter, which would get the pension age to 68 by January 2023;
  • linking retirement with life expectancy from January 2023;
  • exempting older workers from employment protection legislation, which would encourage employers to take on older workers and also enable greater labor mobility and flexible working patterns; and
  • introducing a pilot scheme to exempt older workers from age discrimination laws.
Source: Institute of Economic Affairs Press Release (January 8, 2014)

Reaction: "Actuaries Buck Consultants have disagreed with the ‘dramatic’ rise in state pension age proposed by the Institute of Economic Affairs, saying changes must be balanced to protect those close to retirement." See The Actuary (January 14, 2014)

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