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Retirement Age Should Rise to Cut Public Debt, Says OECD

Every time life expectancy rises by three years, governments should delay retirement age by two years, says the Organisation for Economic Co-operation in a new report.

In a report published this week on ageing populations, the Organisation for Economic Co-operation and Development (OECD) said that Britain’s state pension age should increase to avoid a debt crisis.

Due to the pandemic, it’s said that government debt in advanced economies will be 25 percentage points of GDP higher next year than it would have been – and this will only continue to rise unless there are big reforms.

In order to stabilise public debts, an ageing population means that governments in advanced economies will have to raise considerably more money over the next few decades.

The OECD has said that every time life expectancy rises by three years, governments across the world should delay retirements by two years to split the benefit between work and retirement.

In its report, the OECD said that if government raise pension ages in this way it could offer the economy the boost it needs to raise living standards by 3pc over the coming decades. In addition, this would also reduce government debt burdens by the equivalent of 1.5 percentage points of GDP.

Britain has already begun increasing the state pension age, levelling the age for men and women, with plans to move from 65 years to 68 by the late 2040s.

However, “average effective retirement ages are not projected to keep up with projected gains in life expectancy anywhere in the OECD,” said the think tank, which covers its 38 member countries, most of which are wealthy.

Life expectancy for men in the UK is set to rise by almost three years over the next 25 years, according to the Office for National Statistics, indicating that the state pension age should rise another two years.

The organisation’s analysts warned that without changes such as encouraging older generations to keep working and increasing the female participation rate, rising costs from healthcare, pensions and debt servicing will amount to 8pc of GDP for the average country.

To support public debts to stabilise and encourage older workers to stay in employment, however, is not as simple as that. For starters, unconscious bias around age is rife and this could be a huge barrier to effectively raising the retirement age and seeing a positive economic impact.

“Our research reveals that over-55s want to work and progress, but feel shut out, forced out or overlooked when it comes to their later life careers,” says Lyndsey Simpson, CEO of 55/Redefined.

“By 2050, the under-55 working-age population will have shrunk by around 20 per cent in Western countries. Pair this with the impact of the pandemic which is disproportionately and adversely affecting older individuals, and we’ve got a serious shortfall in the workforce. The population of over-60s in the same timeframe will grow by 40 per cent, so forward-thinking firms that tackle ageism and capitalise on the value of older workers now, will be the winners.”

Our report, Shut Out, Forced Out and Overlooked. Ageism at Work: Attitudes on Employment Over the Age of 55, reveals that three-quarters of business (72 per cent) need help to tackle ageism. In the report, we published guidance for employers looking to attract, retain or retrain the over-55s, the top five recommendations include:

1. Be bias active - Understand the level of bias that exists already in your organisation against age and deliver training and insight whilst acting to address misplaced stereotypes or the unintended consequences of focusing on other diversity areas.

2. Flex appeal - Encourage people to stay in the workforce for longer, by creating new flexible roles that appeal to this over-55 talent pool. These could be permanent roles at three or four days per week, through to rehiring retired professionals for key periods of the year on flexible contracts.

3. The will to skill - Invest in technical training and reskilling of this age group - current and new employees. Investigate if you can create schemes targeting this age group or hiring cohorts of over-55s for in-demand roles that require technical or industry training.

4. Change tack - Stop hiring on previous experience and technical fit, instead focusing on soft skills, behaviour, motivation, and cultural fit criteria. Support hiring managers to make this transition by creating new ways of recruiting and assessing talent that help encourage inclusivity for all.

5. Engage the age - Get to know your existing over-55 workforce and be proactive in asking them what they want and how best you can support them to remain engaged in work for longer.

You can download a full copy of the report here