The OECD says the average retirement age would have to reach 66 or 67, from 63 now, to “maintain control of the cost of pensions” from longer lifespans.
Compounding the problem is that birth rates are falling just as the bulge of people born in developed countries after World War II retires.
Populations are aging rapidly as a result. The higher the percentage of older people, the harder it is for a country to finance its pension system because relatively fewer younger workers are paying taxes.
In response, governments are raising retirement ages and slashing benefits. In 30 high- and middle-income OECD countries, the average age at which men can collect full retirement benefits will rise to 64.6 in 2050, from 62.9 in 2010; for women, it will rise from 61.8 to 64.4
In the wealthy countries it studied, the OECD found that the pension reforms of the 2000s will cut retirement benefits by an average 20 percent.
Even France, where government pensions have long been generous, has begun modest reforms to reduce costs.
“France is a retirees’ paradise now,” says Richard Jackson, senior fellow at the CSIS. “You’re not going to want to retire there in 20 to 25 years.”
The fate of government pensions is important because they are the cornerstone of retirement income. Across the 34-country OECD, governments provide 59 percent of retiree income, on average.
The outlook worsened once the global banking system went into a panic in 2008 and tipped the world into the worst recession since the 1930s.
Government budget deficits swelled in Europe and the United States. Tax revenue shrank, and governments pumped money into rescuing their banks and financing unemployment benefits. All that escalated pressure on governments to reduce spending on pensions.
The Great Recession threw tens of millions out of work worldwide. For others, pay stagnated, making it harder to save. Because government retirement benefits are based on lifetime earnings, they’ll now be lower. The Urban Institute, a Washington think tank, estimates that lost wages and pay raises will shrink the typical American worker’s income at age 70 by 4 percent — an average of $2,300 a year.