Higher Retirement Age: Pension Reform to Patch Budget Hole

Social experts came together on Monday to demand a pension reform in light of the current budget woes. Wifo chief Gabriel Felbermayr advocated for raising the retirement age to 67. As a private individual and WU professor, he goes even further and would link the retirement age to life expectancy. In his opinion, measures could also be taken in the short term, such as pension adjustments below inflation.

Experts Push for Higher Retirement Age

The experts had come together as part of an initiative by the "Action Generational Justice", whose representative Georg Feith has long been advocating for corresponding measures. His motto, which he announced at a joint press conference, is: "It's the demography, stupid!". What he means by this is: in 1980, there were still 4.5 workers for every pensioner, last year there were three and by 2050 there will only be 1.7.

From this alone, the experts see a need for reform and measures should be taken swiftly, they agreed. The basis of the discussion was a study by Wifo expert Thomas Url, which compared the steps other countries have taken in recent history to get their systems back on track.

Ideally, Link Retirement Age to Life Expectancy

As Url explained, only two countries rely on higher contributions, namely Ireland and Spain. In the latter country, the additional contribution income is used to fill a fund that can step in during demographically difficult times.

Most countries, however, turn the retirement age screw. Thus, the retirement age in Denmark is expected to rise to a proud 74 years by 2070. In Greece, it should still be 72.5 years. Here Felbermayr warns. In Greece, it took a state bankruptcy to reform the pension system, but then "very dramatic steps" had to be taken. Sweden, on the other hand, has also linked the amount of pension adjustment to demographic development.

Social expert Wolfgang Mazal argued that reforms for future generations would become even more difficult or harsher due to the increased interest burden. No one would be interested in this, because no one would want to drive the system against the wall.

Future Adjustments Should Be Below Inflation

Governments tend to avoid tackling the issue of pensions because they could be punished in the next election. According to Url, however, there is some evidence that there are "lower political costs" through an automatic mechanism. Because such adjustments of the retirement age would then usually be small steps.

Felbermayr pointed out that adjustments to benefits have also been made in the past five years that could not actually be afforded in the budgetary environment. From the point of view of the Wifo chief, there is a lot to be said for making the next adjustments below inflation after years of an increase above the inflation rate. If this were maintained for a few years, it would already bring a lot.

After all, federal subsidies would increase by 60 percent in the coming legislative period. But at the same time, the budget would also have to be consolidated.

Expansion of Company and Private Pension Demanded

The Wifo chief also advocated for a better differentiation of the pension system, i.e. expanding the company and private pillar. Felbermayr calls this a "smarter mobilization" of private savings. He does not want to accept that higher unemployment makes pension reform more difficult. It would be more important not to reduce the funds for active labor market policy.

One person who has a lot of experience with pension reform is the former section head and former head of the old-age security commission, Walter Pöltner: "Every year the same procedure", he said. All sorts of reports with data material would come in and all would pass by politics "unnoticed". Pöltner is skeptical that the government negotiators will be open enough for an insight into the problem situation.

(APA/Red)

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