OECD: Retirement age 'may have to rise' to balance the books

Retirement age might have to rise by TWO YEARS to balance the books after Covid stoked debt mountain, says leading think tank

  • OECD said that retirement ages should rise by two thirds of life expectancy gains
  • Means if life expectancy goes up three years, retirement age would go up by two 
  • Think tank said government budgets will feel strain without action on retirement
  • OECD warned public services will creak and debt will increase to costly levels 

The UK’s retirement age will have to increase significantly in the coming years if the nation is to avoid a debt crisis and massive pressure on public services, a leading think tank has suggested. 

The Organisation for Economic Co-operation and Development has warned that retirement ages ‘are not projected to keep up with projected gains in life expectancy anywhere in the OECD’. 

The think tank argued in a new report that developed countries will have to take action to keep more of the population in work for longer. 

It suggested that retirement ages should rise by two thirds of future increases in life expectancy. 

That would mean a two year increase in the state pension age in the UK for every three years that are added to life expectancy.    

The UK’s retirement age will have to increase significantly in the coming years if the nation is to avoid a debt crisis and massive pressure on public services, a leading think tank has suggested

The Organisation for Economic Co-operation and Development has warned that retirement ages ‘are not projected to keep up with projected gains in life expectancy anywhere in the OECD’

The OECD, which covers 38 countries across the globe, said that increasing the retirement age would improve living standards while also reducing debt pressure.      

The UK’s state pension age was 65 for men and women in 2018 but it is scheduled to gradually increase in the coming years and now depends on when someone was born.     

The Office for National Statistics forecast in December 2019 that in 25 years the life expectancy at birth for boys will increase by 2.8 years to 90.4 years and by 2.4 to 92.6 for girls. 

The OECD said that ageing populations will add significant pressure to government  budgets in the years ahead. 

It warned: ‘Without policy changes, maintaining current public service standards and benefits while keeping public debt ratios stable at current levels would increase fiscal pressure in the median OECD country by nearly eight percentage points of GDP between 2021 and 2060, and much more in some countries.’ 

The warning comes in the wake of the coronavirus crisis which saw UK Government borrowing soar to record levels and the national debt climb above £2trillion.

The OECD said that ‘reforms to labour market and retirement policies could help boost living standards and alleviate future fiscal pressures’. 

Life expectancy in the UK is expected to increase substantially over the next four decades, according to forecasts published by the Office for National Statistics

The UK’s national debt has soared to levels last seen in the early 1960s as a result of the coronavirus crisis 

It said: ‘An ambitious reform package combining labour market reforms to raise employment rates with reforms to eliminate early retirement pathways and keep effective retirement ages rising by two thirds of future gains in life expectancy could halve the projected increase in fiscal pressure in the median country, even after taking into account future spending pressures associated with ageing.’

The OECD said that many countries would be able to borrow more cash to pay for some of the projected increases in public spending in the coming decades.

But it warned: ‘This strategy could delay, but not avoid, the need for fiscal consolidation if public debt ratios are to be kept from rising to levels that could impede governments’ ability to stabilise economic fluctuations and make needed public investments.’

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