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The EU Working Longer Agenda

Fritz von Nordheim European Commission DG EMPL D3: Social Protection

Europe’s Ageing Demography ILC–UK event

hosted by The European Economic and Social Committe 74 rue de Trèves, Brussels

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From Dividend to Deficit in Demographics

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The demographic challenge

-2.000.000

-1.000.000

0

1.000.000

2.000.000

3.000.000

1996 2006 2016 2026 2036 2046 2056

20-59 60+

60-69

Year-on-year change in the adult population, EU27

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The power of longer working lives

EU-27 old-age dependency ratios, 2010-2060, under four exit

assumptions (working ages from 20 to 59 through 69)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2010 2020 2030 2040 2050 2060

20 to 59 / 60+ 20 to 63 / 64+ 20 to 66 / 67+ 20 to 69 / 70+

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Demographic vs economic dependency ratios

Source: Josef Wöss / Erik Türk - Austrian Federal Chamber of Labour

EU-27 / 2050 (“EU 2020plus scenario”)

demographic dependency ratio: 50%

economic dependency ratio: 79%

EU-27 / 2010

demographic dependency ratio: 26%

Economic dependency ratio: 65%

Yellow: employed population

Red: unemployed, pensioners

Grey: other inactive

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Employment rates by gender, EU15,1970 & 2005

0

10

20

30

40

50

60

70

80

90

100

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+

% o

f ag

e g

rou

p p

op

ula

tio

n

Men 1970 Men 2008 Women 1970 Women 2008

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How we arrived here: –The imbalancing of

years in work and retirement 1960-2000

• Relative share of work in life / duration of working life reduced through combination of:

• 4-5 years Later Entry (longer education & training)

• 4-5 years Earlier Exit (longer retirement)

• 5-6 years Longevity Growth (longer retirement)

• Was it individual preferences or policy conditioning that drove changes?

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Where we are now: 15 years of improvements

Major reversal of retirement trends since 2000:

• Exit ages rising

• Empl rates 55-64 rising – primarily 55-59

• Empl rates of 65-69 rising

• Holding up in crisis

Causes:

• Key Helping hand: Changes in age, sector, gender and educational level composition of older workers

• Pension reforms – closing of early exit routes

• Changes in Age Management in work places & LMs

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Employment rates 55-64, 2013

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N/W->S/E gender bias in OW Empl rates

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Gender bias in underemployment of 55-64 In 2011 total employment rates for workers aged 55-64 ranged from 31.2 in SK to 72.3 in SE, i.e. varying by more than a factor 2.

The rate for the EU-27 was 47.4.

Eight countries had rates below 40 (BE, EL, IT, LU, HU, MT, PL, SI).

For females the rate ranged from just 13.8 in MT to 68.9 in SE, i.e. varying by a factor 5. The rate for the EU-27 was 40.2. • Five countries had rates below 30 (EL, IT, MT, PL, SI).

Barriers to female older workers’ employment are found in

• pension systems (e.g. lower pensionable age for women), • work-life balances (e.g. insufficient access to child & eldercare) • workplaces & labour markets (e.g. poor age & gender

management).

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Gender employment gap of 55-64 reducing 2000 to 2010

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Exit ages 2001-2009

52

54

56

58

60

62

64

66

IE*

LV

*

CY

SE

UK

PT

DK FI

EL** EE

NL

DE

ES

EU

27 IT

AT

CZ

LT

FR

HU

MT

SK

BE

*

LU

*

PL

SI*

**

2001 2009

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Employment rates 55-64 rising - even in crisis

Source: Eurostat, labour force survey

0

10

20

30

40

50

60

70

80

90

2013 2007

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10y N->S Gradient in Working Life Duration

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Where we are heading: Scenarios 2010-2060

The double challenge:

• structural longevity growth of +6-7 years

• transition from baby-boomers to baby-busters

The end of the unique demographic dividend

Greying of the labour Market: only will 50+ grow

Demography not fate –

But coping will depend on our ability to employ a much larger share of 50-69 year olds

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Reforms have improved pension sustainability (change 2010-2060 in percentage points) - 2009 and 2012 AR

-4

-2

0

2

4

6

8

10

12

14

16

LV PL EE IT DK PT FR SE EL BG UK

EU27 EA AT D

E CZ HU FI LT NL ES RO IE N

O SK MT BE SI CY LU

2009 AR 2012 AR

+1.5 p.p. (2012 AR)

+2,3 p.p. (2009 AR)

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Decomposition of the increase

in pension expenditure Dep. effect Empl. effect Coverage effect Benefit effect

PensExp = Pop>65 x Pop (15-64) x PensNo x PensExp/PensNo

GDP Pop(15-64) EmplNo Pop>65 GDP/EmplNo

8.9

-2.6

-1.0

-2.7

-0.6

2.0

8.7

-2.9

-0.9

-2.8

-0.6

1.5

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Dependency ratio Coverage ratio Employment effect Benefit ratio Interaction effect Total

EA EU27

(%) of GDP)

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Challenges to future pension adequacy

Projected

change in

replacement

rates of

statutory and

supplementary

pension

schemes

between 2008

and 2048 (in

pp.)

-35

-25

-15

-5

5

15

25P

T

SE

PL

FR IT

CZ

DK

EL

DE FI

MT

HU

SK

LV

BE

LT

LU

NL

AT IE ES

UK

EE

CY

BG SI

RO

Change in gross replacement rates between 2008-2048 owing to total Statutory pension schemes (percentage

points change)

Change in gross replacement rates between 2008-2048 owing to Occupational and other supplementary pension

schemes (percentage points change)

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Balancing Adequacy & Sustainability

4th Key message of 2012 Pension Adequacy Report :

• The greater sustainability of public pensions in most Member States has, to a significant extent, been achieved through reductions in future adequacy.

• The challenge is therefore to devise means by which people can recoup the decline in replacement rates.

EU policy Goals:

• Early retirement actuarially punished,

• Working longer sufficiently rewarded &

• Cost-effective schemes for retirement savings available 20

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The impact of working longer

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Ageing or Exit Age problem?

Adult life spent in retirement EU27

2010 2060 2010 2060

54.5 66.7 38.6 60.3

21.6 21.6 23.6 23.6

62.5 64.3 61.7 63.8

18.9 22.7 22.7 26.0

31.7 34.7 37.4 39.3

2.0 1.3

Requested exit postponement in years

(to keep % life spent in retirement

constant)

Men Women

Average entry age

Employment rate of older workers (55-64)

Average exit age

Life expectancy at the time of w ithdrawal

% of adult life spent in retirement

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Interdependence of pension and employment policies

• Tax/benefit incentives affect late-career labour supply

• With pensions increasingly based on career average contributions, future pension adequacy will depend on the ability of labour markets to provide opportunities for longer and less interrupted contributory careers

• The success of pension reforms that raise the pensionable age and possibly link this or the benefit level to longevity gains depends crucially on their underpinning through work place and labour market measures that enable and encourage women and men to work longer.

23

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Pension adequacy depends on longer & less broken working lives

• There are clear limits to how much age management practices at work can be influenced by incentive structures in pensions.

• Tackling the pension adequacy challenge will require determined efforts to promote longer and healthier working lives through employment and industrial relations policies.

24

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Linking the pensionable age to longevity

• Benefit versus Age linking?

• Retirement not resulting from individual decision about income optimisation, consequence of complex set of factors in work places and labour markets and constrained by collective agreements

• Adjusting pension norm with narrative: ”as we live longer we work longer” and reach ” a better balance between years spent in work and retirement”

• Implicit: Working to higher ages becomes permanent agenda for the labour market

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Implicit agenda of linking

• Collective pension norm: age moves w. longevity

• Tabels turned: SP off-loading onto labour markets

• Fixing pensions through longer working lives

• Taking adjustments in duration of working life

• Challenge moved to social partners in WPs & LMs

• Required: Changes in age management in work places and labour markets to encourage and enable women and men to work to higher ages

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Key challenge of longer working lives

Creating ‘late-career’ labour markets the main challenge.

Nowhere in Europe a labour market for people aged 55+.

Longer working lives are fully possible through RETENTION

with the same employer.

But if people 55+ lose their job the chances of finding

another are so remote that longer working lives through

REHIRING almost is non-existent.

27

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Scenarios for a Greying Labour Market

Pensionable age as Collective Norm or Individual preference?

Pensions from social protection to income smoothing (from collective to individual responsibility)?

Working to a certain Income more than a certain Age?

Or Auto-piloting as pension design ideal - not everyone having to learn to navigate his own retirement plane!

New Collective norms of retirement and pensionable ages: 'As we live longer we work longer' ??

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Scenarios for a Greying Labour Market

• A multi-tier structure in longer working lives: The emergence of a labour market with End-of–Career-Jobs

• Retiring from 1st career at 60 or 65, but continuing in 2nd career until 70 or 75 with less responsibility/hours

• Working Until & Working After the Pensionable Age •

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Scenarios for a Greying Labour Market

•

Overcoming paradoxes of protection / seniority pay: – more retention but no hiring of OW – more pay but no jobs for 55+

From open ended to fixed term contracts; from seniority to productivity based pay..?

Cannot manage work organisations without standard age, where one retires from a career span – retirement invented for reason:

Need new norms for when1st careers end and the pensionable age begins, with both moving up with rise in life expectancy at 65….?

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Thank you for your attention