Around half of OECD countries have already begun increasing pension ages or plan to do so in the future: 18 countries for women and 14 countries for men. Recent increases in pensionable ages have often proved controversial because of their greater visibility to politicians and voters. By 2050, the average pensionable age in OECD countries will reach nearly 65 for both sexes: an increase of nearly 2.5 years for men and 4 years for women on 2010. However, life expectancy is projected to grow faster than these increases in pension age. Life expectancy at pensionable age is forecast to increase by about 3 years for men and 2.5 years for women between 2010 and 2050.

This chapter examines labour-market behaviour of older workers, their pattern across countries and over time. There was a strong trend to early retirement throughout the 1970s and 1980s. However, this came to an end in the mid 1990s, and during the 2000s, the proportion of 50-64 years olds participating in the labour market has started to creep up. A detailed analysis of pathways into retirement suggest that at least half of men use routes such as unemployment, sickness or disability benefits in half of countries. Women also often leave the labour market to care for family members. Older workers appear to have fared relatively well in the economic downturn that followed the global financial crisis in most OECD countries. This contrasts with previous recessions, where older workers were often the first to lose their jobs and found it hardest to find new employment. A decomposition of governments’ long-term projections of the finance of the pension system shows that these are highly dependent on further increases in participation rates at older ages and effective retirement ages.

Individuals’ decisions about work and retirement depend on the financial incentives embedded in retirement-income systems. This chapter presents measures of the pension incentive to retire, showing how the retirement income system can act as an implicit tax or subsidy on remaining in work. The analysis looks at the main retirement “window” in OECD countries, from age 60 to 65. In addition to increases in pensionable ages (set out in Chapter 1), recent pension reforms in most countries have involved policies to reduce the incentive to retire early and increase the incentive to retire after the normal pension age. However, the incentive to retire early remains strong in a minority of OECD countries. And there are ways in which most countries could further improve their pension system. The chapter concludes with nine policy conclusions that would reward people for working longer.

The financial incentives in pension systems, explored in Chapter 3, undoubtedly play an important role in retirement decisions. But if there are barriers to working longer on the demand side, pension reforms designed to improve work incentives may be less effective. This chapter describes various barriers affecting employers and employees and what might be done to tackle them. There are still ageist attitudes among employers, particularly over the ability of older workers to adapt to change. Legislation against age discrimination and public-information campaigns have been effective in some, but by no means all, countries that have adopted these policies. In some countries, older workers cost too much and early retirement provides an all-too convenient way of adjusting the size of the workforce. Strict employment-protection legislation can make it costly to hire older workers. Employment opportunities of older workers may be limited because their skills have become devalued or they receive little help in finding new jobs. Available employment opportunities may be unattractive because of poor working conditions or unsuitable and inflexible working-time arrangements. Finally, this chapter discusses the issue of jobs for younger and older workers. It finds that there is no evidence that older workers deprive youths of jobs. In fact, the reverse is true.

Increases in pensionable age, described in Chapter 1 above, are only one policy response to the fact that people are living longer. Around half of OECD countries have elements in their mandatory retirement-income provision that provide an automatic link between pensions and a change in life expectancy. This is a result of: i) mandatory defined-contribution schemes substituting for or adding to public pension provision; ii) transformation of public, earnings-related plans into notionalaccounts schemes; and iii) a link between benefit levels or qualifying conditions for pensions and life expectancy. Furthermore, there has been a marked shift from defined-benefit to defined-contribution provision in voluntary, private pensions. These changes have important implications for the way the cost of providing for pensions as life expectancy increases is shared. Increasingly, this will be borne by individual retirees in the form of lower benefits. This chapter measures the degree of uncertainty inherent in projections of life expectancy. Pension entitlements for example individuals in all 34 OECD countries are calculated under different scenarios – from slow to rapid increments in longevity. These calculations are then used to assess the degree to which the additional cost of longer lives has been shifted onto future generations of retirees with longer life expectancy.