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Last Updated: Friday, 14 May 2004, 06:06 GMT 07:06 UK
Employees 'should work until 70'
By Steve Schifferes
BBC News Online economics reporter in Paris

Workers may have to work until they are 70 to help solve the looming pension crisis, the Organisation for Economic Co-operation and Development has said.

Italy's 'Union of Pensioners' parade in front of Rome's Colosseum
European pension systems are crumbling
The OECD said workers should be encouraged to retire later to offset a 5-year increase in life expectancy.

Improved life expectancy burdens are already stretching pension systems.

For the rich countries, the number of workers for each pensioner is expected to fall from four workers for each pensioner now, to just two in 2050.

Shortfall

The pension crisis is worst in continental Europe, said the OECD - a body which represents the 30 leading industrial countries.

Systems in Spain, France, Germany and Italy could all face significant shortfalls by 2050, ranging from an estimated 4% of economic output in France to 8% in Spain.

And the European problems have been exacerbated by a dramatic fall in fertility, especially in southern Europe, where the average woman only has 1.3 children, far below the replacement rate of 2.1.

That means that there will be even fewer workers in the future to pay for pensions.

'Compulsion needed'

Efforts to reform European pension systems have been stymied by strong opposition from unions.

However, Jean-Philippe Cotis, the OECD's chief economist, told BBC News Online that the delay in starting pension reform would mean that an element of compulsion was now essential in ensuring that workers save enough for retirement.

According to Mr Cotis, the pensions crisis will have to be solved by a combination of higher taxes, cuts in benefits, and a longer working life.

But increasing taxes too much could be counter-productive, because high taxes on labour in Europe are already contributing to high unemployment.

Instead, the OECD is urging governments to increase labour force participation rates. Only half of people over 55 in OECD countries are in the labour force now, and better training, changes in tax and benefit policy, and age discrimination legislation could increase that percentage by at least 10% in some countries.

Scandinavian model

The OECD is also urging countries to try and encourage more women back into the workforce through flexible family policies and subsidies for childcare.

Protesters parade in downtown Rome, during a nationwide demonstration against the Italian government's planned pension system reform
Working women reduce the risk of a pension crisis
It pointed out that the Scandinavian countries, which follow these policies, do not have a pensions crisis.

Iceland is the country where workers stay in the workforce longest, due to the strong financial incentives to retire at 70. And it may not be a coincidence that Iceland is also the country with the highest male life expectancy in the world, the deputy OECD general secretary, Berglind Asgeirsdottir, told the BBC.

High health care costs in the future could also make the problem worse, although there is a fierce debate as to whether the new generation of pensioners will be healthier than past generation as well as living longer.

Private provision

Jean Pierre Garnier, the chief executive of GlaxoSmithKline, told BBC News Online that European countries needed to partly privatise their health care systems to cut costs and end dependence on a single-payer state system.

He said that introducing co-payments by patients and consumer choice was essential to drive down costs and provide further funds which cannot be met by over-burdened state budgets.

For the Anglo-Saxon countries like the US and Britain, the crisis for the state pension system is less severe, but private sector pension schemes are under severe pressure.

Mr Cotis said that in the UK, the low level of state pension benefits means that the state pension system is solvent well into the future.

However, he added, the problem with this is that there may be many very poor elderly people who will have to be supported by another part of the state budget.


SEE ALSO:
France raises trade talks hurdle
13 May 04 |  Business
OECD to wipe out company scandals
13 May 04 |  Business
OECD warns of unbalanced growth
11 May 04 |  Business


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