Increases in the minimum age for collecting a government pension are on the horizon, despite widespread opposition, resistance, and protests.
Because of two influential global demographic trends; the aging of the population and increased human longevity, the costs of national old-age pension programs are rising quickly thus making an increase in the official retirement age a necessity.
Human populations are getting older than they have ever been before. To give just one example, the global population’s median age has risen from 20 in 1970 to 30 in 2020, a 50-year increase of 10 years. Countries like France (41) and South Korea (43) and Italy (46), and Japan (48) will all have median ages well above 35 by the year 2020.
In addition, the population’s median age will likely keep climbing in the decades. By 2070, for instance, the world’s median age is projected to approach 40 years. By 2070, the median age is expected to be 55 or higher in several nations, including China, Italy, Japan, and South Korea.
The United States was among the pioneering countries to raise the official retirement age to 67 to receive full benefits, which is now higher than the OECD average. In addition, seven OECD countries have established correlations between longevity and retirement age.
Governments are hesitant to tackle the issue of raising the official retirement age because of the backlash it would receive from the public. National retirement programs are expected to have significant future budget shortfalls, but government leaders typically remain silent on the subject and put off making decisions.
In the United States, for instance, the State Pension Board of Trustees warned in its 2022 annual report that the program would run out of money by 2035 unless changes were made. The United States Congress has yet to propose the necessary legislation to address the projected insolvency of Social Security in a decade, despite numerous political statements from government officials.
Benefit cuts, tax hikes, and retirement age increases are the three central policy levers governments can use to deal with pension insolvency. But if benefits were slashed, many seniors would face financial hardship. Also unlikely to be popular amongst today’s workforce and business communities is a rise in tax rates. Because of this, they are increasing the retirement age may be the least unpopular choice for dealing with future pension insolvencies.
The consequences of an aging population and a rise in life expectancy are inevitable. In particular, these repercussions include a decline in the working-age population as a whole, a rise in the proportion of the elderly, and a corresponding increase in the cost of retirement benefits for the elderly, which threatens the financial viability of national programs.
Overall, increasing the retirement age mitigates the effects of these massive population shifts by increasing the working-age population, giving people more time to save for retirement, and preventing government pension programs from going bankrupt.