Economic Planet | Retirement: when we compare ourselves…

The government’s desire to increase the retirement age in France risks once again sowing chaos in the country. The question of retirement age is a sensitive subject there as elsewhere, but it is not the only factor to be considered to ensure workers the peace they deserve in their old age.

What ensures a good retirement is first and foremost the amount of income that the plan replaces, the operation and structure of the plan and its ability to meet its obligations over the long term, according to the firm Mercer, which has published an annual assessment of pension schemes around the world since 2009.

The 2022 edition of this list examines the pension systems of 44 countries representing 65% of the world’s population from the perspective of generosity, integrity and sustainability.

The best pension plans under Mercer’s fairly comprehensive criteria are those of Iceland, Denmark and the Netherlands. It is interesting to note that in these three countries, the legal age to benefit from a full pension is above 65 years.

Even in Denmark, where the retirement age is 67, it is already planned that this threshold will increase until it reaches 70 in 2040.

The legal retirement age normally evolves with the longevity of the population, which is constantly increasing in industrialized countries. Between 1970 and 2019, life expectancy increased by 10 years to reach 81 years on average in the countries of the Organization for Economic Co-operation and Development (OECD).

The increase in life expectancy threatens the long-term viability of almost all pension systems in countries with aging populations. The ability of public schemes to meet their obligations towards retirees is therefore closely linked to a country’s demographics, economic growth and level of indebtedness. An aging population, slowing economic growth and ever-increasing public debt are the new reality around the world.

This is the reason why a growing number of countries are choosing to raise the legal retirement age.

The type of plan is also an important factor. In France, it is a so-called pay-as-you-go system: the contributions of those who work are used immediately to pay the pensions of retirees. As long as the number of working people exceeds the number of retired people, all is well, but when the proportion changes, the responsibility and the financial burden of the retirement commitments rests more and more on the next generation of retirees. In aging societies like ours, the situation is untenable in the long term.

To ensure the long-term viability of pension plans, options are limited. You can increase workers’ contributions, reduce the benefits paid to retirees or increase the legal retirement age.

Some countries have also chosen to capitalize the contributions of active workers and make them bear fruit on the markets. This creates a reserve that helps meet the future commitments of their pension plans.

This is what Canada did in 1997, when it created the Canada Pension Plan Investment Board, to avoid penalizing future generations too much. Quebec had chosen this path when its Régie des rentes was created in 1966. It is the Caisse de depot that is responsible for making the retirement funds of future retirees grow.

The yield obtained feeds a reserve that lightens the burden of future generations.

Canada ranks 13^e rank out of the 44 countries whose pension plans have been reviewed by Mercer. France occupies the 22^e rank, even if his plan is more generous than its Canadian equivalent, in part because the long-term financial balance of his plan is more fragile.

In 1950, there were five workers to pay the pensions of each French retiree. This proportion should be less than two workers per retiree, according to OECD forecasts. The French government has known for a long time that the wall is getting closer and that a push is needed. This is not the first time that elected officials have tried to restore the generational balance, with little success so far. And this time again, it’s a bad start.