RTE news this evening (2007/08/08) reported that the Irish Government was considering removing the mandatory retirement age of 65.
Historically, the concept of a mandatory age for retirement has its origins in the 19th Century. Germany was the first country to introduce a state-funded retirement pension in 1889. Otto von Bismarck set the retirement age at 70 (although this was later dropped to 65 and in Germany now stands at 60 for women and 65 for men, with women being raised to 65 in 2012).
So from the retirement age of 70 all Germans were entitled to their old age pension paid by the state until their death. The average life expectancy of a German male in 1889 was (apparently) 72 with the majority making it not much further than their late 60s. Some sources I’ve looked at give a range of averages between 66 and 72 so I’d welcome some definitive statistics here rather than peddle myth and misinformation.
In any case the social brotherhood of workers only had to fund each other’s pensions for a ball park period of 2 – 3years.
This of course means that many people never got to claim their pension because, as every primary school child will tell you, the average is made up of the sum of all ages in the population divided by the number of people in that population. So the economics of Bismarck’s Social Security pension were fairly harsh.
Now, our life expectancies are much longer. The choices are to either remove the mandatory requirement to retire at 65 and make it an optional age (ie the state will provide your pension at any time after you are 65) or raise the retirement age to a level that Bismarck would approve of. The legend is that when setting the retirement age Bismarck simply asked his civil servants at what age did most people die and then added a year or two.
The Irish Central Statistics Office publishes statistics on Life expectancy in Ireland (funnily enough). From the most recent factoid available the following points are worth noting:
- In 1926 an Irish male infant was expected to live only 57.4 years (or 7.6 years short of the 65 year retirement age).
- Over the last 75 years, life expectancies have increased by 20% for men and 40% for women.
- The life expectancy of an Irish male after retirement at 65 in 2002 was 15.4 years, with women living a further 18.7 years. It is likely that this has increased yet again.
Compare this last figure to the approach of Bismarck to the German Social Security system.
If he was Minister for Finance in Ireland today (Biffo von Bismarck if you will) and he was to ask his civil servants at what age do most people die, the answer would be between 80 and 84 years on average. He’d push for the median age (the age in the middle of the dataset from which the average is calculated), which I’d guesstimate to be about 85.5 based on the detailed table of life expectancies that can be found here (I’ve worked off life expectancies for people over 65).
He’d smoke his pipe (I can’t find any pictures of Bismarck with a pipe, but he has that look about him – pipe smoker.) He may or may not inhale. He’d scratch his head and probably set a mandatory retirement age of….
….(sound of large calculator whirring and crunching numbers)
….(sound of figure being pulled out of thin air)
This figure would be picked because it would give, on average, a pension payment for 2 years to retirees but the majority of people who aspired to retire would most likely expire before that age was reached. Which is exactly the logic that was applied in the foundation of the world’s first social security retirement pension.
Ultimately, the objective of Bismarck’s pension scheme was to provide an insurance against the physical disability of old-age that affected the largely manual heavy labour of the time. In this information age much of our work involves mental capability and is less reliant on physical ability.
In that regard I would argue that the best approach would be to raise the retirement age slightly (perhaps back to Bismarck’s original 70 years) and then make it optional for people to retire at that age or to keep working and contributing until they feel that they no longer need to, want to, or could be bothered to. Many jobs today do not require the same level of physical capability that would have been needed even fifty years ago – we are now knowledge workers in an Information economy… the capability of the brain and the ability to continually learn and improve skills are key. A co-worker may benchpress more than me, but we don’t move data in wheelbarrows.
One of the visions of retirement is it provides more time in your twilight years to spend time with grand-kids or pursuing hobbies. Web2.0 technologies increasingly provide the means for people to turn hobbies into niche businesses or to be flexible in how they provide their skills to potential employers. I suspect in my retirement years we will see an army of ‘silver surfers’ engaging in shorter engagements on their own terms allowing them to mix the benefits of retirement (more time with grand-kids or pursuing hobbies) with the benefits of working in industry niches that excite them and provoke passion. In these roles the minds that would otherwise have been put out to pasture will provide valuable coaching and mentoring for the younger workers without necessarily requiring full time employment – unless they wanted it.
A flexible model is required that might allow a person to choose a time after a certain age when they will stop working or cut back, and a framework will be required that will allow people to take their full pension allocation or a reduced amount while they continue to work, with the freedom to claim their full pension if they choose not to work for a period of time.
I’d love in 40 years to be able to work for 3 months on a project for an economic rate, paying taxes and paying pension contributions, while drawing 50% of my normal pension (or similar) and then to take 6 months off to do as I wish while drawing down my full State pension to cover basic costs and then go teaching (for a salary) for a few months. All of this would require legislative changes in terms of tax treatments and such like but the day of the flexible retirement will come soon.
One alternate model might be a ‘graduated retirement’ that the retirement age could be either kept at 65 or set slightly higher and that those who wished not to work after retirement could do so and would be paid the basic pension, but those that wanted to continue working could take a reduced pension payment (say 75% of the basic amount) with the balance being paid into a reserve account. As the worker would continue to pay state pension contributions while working (which would increase the ‘pot’ for paying the basic pension to all), the reward would be that once they decided to cease working they could draw down from their ‘reserve’ account to increase the level of their State pension once they had stopped working.