62, 67 or 74 years - which age is right for retirement? This question causes heated debate across Europe and at times furious protest. But even if these somewhat extreme reactions strike us as people resisting the inevitable adjustments required of an ageing and shrinking population, the protesters actually have a point. A discussion narrowly focused on rising the retirement age is not the answer to demographic change, because it does not reflect the realities of people’s lives.
Diversity and Differences
Fact is: Our lives have become much more complex over the last 50 years and we urgently need to adjust our social protection systems to meet these changes. That we are living longer in good health is only one such change. As important, is the increasing diversity in people’s work biographies. This is apparent even when looking at people who have already reached retirement age. There are huge differences – mainly between men and women – but also between countries. In West-Germany, the dominant work-pattern for women now aged 65 is only 15 years of full time employment over their lifetime, whereas in the UK we see more part-time work. For men the same age, however, the majority still look back on a hardly interrupted full-time working life. But these men are fast becoming a dying breed. People now change employers often and need frequent re-skilling. Career-shifts, including self-employment and phases of unemployment, are becoming a much more common feature of peoples work histories.
And work is not the only area that looks patchier than in former times. Relationships, marriage, family formation, childbearing – key events that shape the course of life – are happening in completely different ways than before. These changes in peoples life-patterns are an ongoing process, and one that will always be connected to jobs and career and, consequently, to the pension-situation. We can already see that many women who worked part-time whilst raising children will not receive sufficient pension in the future – especially if they have been a single mother for some time. This is just one example showing that current pension systems in most European countries are still tailored to the 20th century ideal of the fully employed male bread-winner married to a housewife who takes care of the family. We finally need to replace this nostalgic narrative with one that reflects the diverse realities of our times.
The redistribution of income and work
Here the European Union should take the lead and encourage the member states to create sustainable social protection systems that take these realities into account. They have to be especially sensitive to periods when people – whether intended or unintended – find themselves out of the labour market. Instead of offering protection which is biased towards the end of life, we should create systems that allow for a redistribution of income and work, both within a person’s lifetime, as well as across members of society. To achieve this, one option would be a unified social insurance scheme that is available throughout the whole course of one’s life. In times of education, childbearing, family-care, unemployment or other periods when income is low, you could receive credit, which you would pay back in times of employment and higher income. This social insurance scheme would be financed both by individual contributions and credits from the state.
It might sound a bit too good to be true, but actually certain social policies in some countries – for example pension schemes in Sweden, or support for higher education in Germany – are already operating along these lines. The challenge now is to integrate and unify the different sources of support that are available at different points in life: student-loans, unemployment benefits, parental leave support, public pension. Currently they all operate according to different rules and regulations. A unified social insurance scheme could save a lot of administrative costs and would provide more security for everyone.
More flexibility
Contributions would still be calculated in a way to allow for a full retirement towards the end of life, but that would only be one option. Ultimately it would be up to individuals to choose when they need to draw from this fund. One possibility could be during the current “rush-hour of life”, where, for example, 15% of the British women between 40 and 49 are working, looking after children and taking care of elder relatives at the same time. If they could get some help at this point, women might find it much easier to combine work and family – and more men might be willing and able to share these family obligations. Then, who knows, maybe even the birth-rate might increase again? However, if people are offered more security throughout their increasingly long lives, they may not mind being more flexible about their actual retirement age. Because after all, 62, 67, or 74 are just numbers.