Block early retirement or face pensions collapse, warns OECD

Welfare systems across the developed world risk collapsing under the weight of an ageing population unless governments take immediate steps to halt early retirement, the Organisation for Economic Cooperation and Development warned today.

In an extensive report on 'Reforms for an Ageing Society', the 29-member association of industrialised nations argued that the current models for welfare systems in its member countries would only remain viable for another five to ten years. At present such state-backed benefits schemes are based on the principle that the working population funds pension and health provision for retired people. Such systems work well when there are significantly more people in work than in retirement. But the model begins to break down when the ageing population becomes too large, which is what is starting to happen today, warned the OECD.

If existing patterns continue, the favourable trends could start to reverse in 5 to 10 years' time. The baby-boom generation will reach retirement age and the percentage of the population in the labour force could begin to fall, the organisation said. If governments want to avoid seeing their welfare systems collapse altogether, pension provision needs to be completely overhauled, the OECD added.

As a first step governments should try to prevent workers taking early retirement and instead try to keep them in the labour market for as long as possible, said the organisation.

Public pension systems, taxation systems and social transfer programmes should be reformed to remove financial incentives to early retirement and financial disincentives to later retirement, the report argued.

The OECD said that older workers represent a rich resource that the developed world often fails to take advantage of. It also argued that many people who have taken early retirement do not really benefit from their increased free time in any case.

The time that older people formerly spent in work is, for the most part, used passively after retirement - often in more television watching and sleep, the report said.

Whether the developed world's retired population shares this somewhat disparaging analysis of its activities is a moot point. But the OECD insists that more must be done to discourage people from retiring early.

A variety of reforms should be pursued to ensure that more job opportunities are available for older workers and that they are equipped with the necessary skill and competence to take them, the report said.

Critics point out that EU-wide employment policy in recent years has concentrated on reducing youth unemployment. One of the ways this has been done is by encouraging people to leave their jobs a few years earlier to make way for new blood. If this trend is reversed, same analysts argue that developed countries could find themselves reducing pension bills but increasing unemployment handouts.

The report, which is available in full on the OECD's website , was formally unveiled today in Turin at a meeting of employment ministers from the G8 group of countries.