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Issues concerning the life expectancy and the retiring age within the current retiring pension systems
Colomeischi Tudor
Abstract:Thepaperanalyzesissuesrelatedtotheprogressintimeoflifeexpectancyonbirth,aswellastheretiringageincountries within The Organization of Economic Cooperation and Development. The impact that life expectancy has over the retiring age ascertaining,aswellastherelationshipbetweenlifeexpectancyandappointingtheretiringpensionlevelwithinthecurrentretiring pensionsystemsareapproachedinthispaper. Keywords:lifeexpectance,peopleaging,retiringpension,retiringage,retiringpensioncontributions

1. LIFE EXPECTANCY ON BIRTH AND AT THE AGEOF65

Theeconomicandfiscalpressuresofthepublicretiringpensions systemswillbecomemorerigorousinthenearfuture,sincethe demographic progress will induce a massive aging of people, startingwith2020.TheBritishHelptheAgedorganizationhas announced that on world level, in 2011, almost one of yen peopleisover60yearsold.In2005,suchreportwillbeofoneto five[14]. Agingofpeoplesignifiesaglobalphenomenon,whichhasbeen representedbytwoveryimportantdemographictendencies:the growthoflifeexpectancyandreducingthefertilitydegrees.

Figure 1 emphasizes the life expectancy on birth, at the level of 2006, for both men and women, in states within the OrganizationEconomicCooperationandDevelopment,andnot only. One might see that the average life expectancy on world level was of 76.1 years for men and 81.8 years for women. The highest life expectancy was of 86.2 years for women in Japan and80.2yearsformeninIsland,whiletheaverageforcountries within the Organization of Economic Cooperation and Development was of 76.1 years for men and 81.8 years for women.Attheoppositepole,SouthAfricawasplaced,withalife expectancyof49.9yearstomenand53.2yearstowomen.

Source:www.oecd.org Figure1Lifeexpectancyonbirthtowomenandmenin2006(onyears)

Colomeischi T. is with University of Suceava, 13 University Str., Suceava, Romania,

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Figure 2 illustrates a comparison between the average life expectancyonageof65,during20052010,andduring20452050, forbothwomenandmen.Onemightnoticethattheaveragelife expectancy to 65 years within the Organization of Economic

Cooperation and Development will increase from 19.88 years during 20052010 towards 23.5 years during 20452050 to women; and, from 16.36 years during 20052010 to 19.5 years during20452050tomen.

Source:www.oecd.org Figure2Averagelifeexpectancyof65yearsoldtowomenandmenduring20052010ascomparingto20452050(onyears) Concerning Europe, 500 millions people of over 65 years old pension, but supplementary conditions over the contributions havebeencountedin1990,whiletheirnumberwillreachto1.4 are being established. There are states where instead of the milliardsin2030.Thelifeexpectancywillincreasewithalmost5 retiring age establishing, an interval when people can start to yearsupto2050,asrelatedtoyear2000.Thus,startingfromthe receivetheretiringpensionisestablished.Inothercountries,as currentlifeexpectancyofagedpeopleof65yearsold,meaning ItalyorTurkey,retiringisascertaineddependingonthenumber 15.5 years to men and 19.5 years to women, the mentioned ofyearsofcontributions,ortheageofenteringinwork,whichis increase of 5 years will bring an increase in costs of 2530%. considered the age of 20. Also, Sweden and Finland have not TakingintoaccountthatmanygenerationsbornaftertheSecond definednormalagesofretiring,butonlytheageof65,starting World War are about to retire from work activities, the aging with which people have access to the benefits included within phenomenon of people has determined a high preoccupation theretiringpensiondiagrams,basedontestingtheresources. Almost half of the member states of the Organization of withintheEuropeanstates. Economic Coordination and Development (abbreviated by 2.THEAGEOFRETIRINGANDTHELIFEEXPECTANCY OECD)havestartedtointroducehigherretiringages,orplanto apply this in the near future (18 such countries as regards The retiring age signifies the most visible parameter of the womenand14countriesasregardsmen).Recentincreasesofthe retiring pension systems. Increasing the age of entering in retiring ages have proven tobe much debated, because oftheir retiringfromactivitiesofworkhasproventobeoneofthemost visibilitywithinpoliticiansandelectors. debatedmeasuresoftheretiringpensionreform.Itisdefinedas AsFigure3illustrates,upto2050,theaverageageofretiringof beingtheageatwhichpeoplecanstarttoreceivecompletelythe the OECD member states will reach almost 65 years to both benefits and in generally, the legislation of a country is clearly sexes,thusemphasizinganincreaseofalmost2.5yearsformen mentioned. Although, in some cases, the anticipated retiring is and4yearsforwomen,ascomparingto2010 possible, without an actuarial reduction of the retiring .

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Sursa:www.oecd.org Figure3ProgressoftheaverageretiringagewithinOECDandduring19502050 As main tendency within the progress of the average retiring age,onemightnoticeareductionofitinthesecondhalfofthe past century, reaching to an average of 62.5 years for men and 61.1yearstowomen,ontheassemblyoftheOECDcountries.As result, the legislations in force have foreseen an increase of it withatleast65yearsforbothsexesin2050. Animportantissueisrepresentedbytherelationshipbetween the retiring age and the life expectancy, where the last one is estimatedtoincreasefasterthantheageofretiring.Theanalyses performed have shown that the life expectancy has been and seems to be continuously affected by the changes produced in theretiringage.Since1960anduptotheendofthelastcentury, the life expectancy at retiring has increased from 13.4 to 17.3 yearsatmen,andfrom16.8to22.1atwomen,withintheOECD countries.Forwards,itisexpectedthatlifeexpectancyatretiring to reach in 2050 at 20.3 years at men, and respectively at 24.6 years at women, despite the anticipated growth of the retiring ages,alreadyforeseeninthelegislationinforce. One might notice the graphic drawn in Figure 4, where an almost continuous increase of the life expectancy at retiring is illustrated, at which the reduction of the retiring ager has contributed(byatleast40%)upto1993.Startingwith1993and uptopresent,thishasincreasedslower,by1.6atwomenand1.8 yearsatmen.

Sursa:www.oecd.org Figure4Progressoflifeexpectancyattheretiringageduring19602050 Atthelevelof2010,theaveragelifeexpectancywasof18.5years at men and of 23.3 years at women. The highest life expectancies at men (over 20 years old) were met in countries with the retiring age lower than age of 60 (Belgium, France, Greece, Italy, South Korea, Luxembourg), issue also valid in the situation of women (Belgium, France, Greece, Italy, South Korea, Austria). Concerning such view, it is estimated that up to 2050, a lower increaseofthelifeexpectancyatretiringwilltakeplace.Only five countries of OECD Hungary, Great Britain, Italy, South Korea and Turkey have increased enough the retiring age, in order to get steady or even to reduce the life expectancy at retiring for both men and women, while Austria, Australia,

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Czech and Slovakia have been able to accomplish this for increase of the life expectancy. The rights of individual retiring womenonly. pensionsarebeingcalculatedtoall34statesoftheOECD,under various scenarios, starting from slow growth up to the fastest 3. RELATIONSHIP BETWEEN THE LEVEL OF RETIRING growthinlongevity. PENSION AND THE LIFE EXPECTANCY WITHIN THE The estimations carriedout in the past asregards the increase CURRENTRETIRINGPENSIONSYSTEMS of the life expectancy (and especially at the retiring age) have beenproventobemoreoftenwrong,beingunderestimated.The Increasing the retiring age signifies one of the measures of modificationsof parameters and of the calculation rules have a reformdedicatedtoretiringpensions,asanswerattheideathat success on short term, being necessary to apply the reform people live longer. About half of the countries of OECD, and measures more and more often. Though, of the reforms of the related to the retiring pension compulsory commissions, have last ten or fifteen years have automatically taken into had elements that carry out a direct relationship between consideration,inthecalculationoftheretiringpension,boththe retiring pensions and the changes occurred during the lifetime. increasesforeseenofthelifeexpectancyandtheuncertaintythat Suchrelationshiphasbeenmainlyaccomplishedasresultofthe isoversuchestimations.Inthisway,thefastdisseminationof such adjustments basing on life expectancy seems to be the following: 1. replacingorcompletingthepubliccommissionsorretiring most significant news of the retiring pension politics of the pensions with compulsory diagrams of defined lastyears. Themarketoftheretiringpensionshasbeendominatedinthe contributions; 2. transformingthepublicplansofretiringpensionsbasedon lastcenturybytheDBtypediagrams,wherebenefitsdepended incomesintobasicaccountsdiagrams; uponthenumberofyearsofcontributionsandinaway,bythe 3. Relationshipsbetweenthelevelofbenefitsorconditionsof individual incomes. This was valid for both the public qualificationsfortheretiringpensionsandthelifetime. commissions of pensions, as well ad for the plans of private Moreover,amajorchangehasbeendetectedatDBtypesystems pensions, provided by the employees. In the last twenty years, uptoDCtypecommissions,withintheoptionalprivateretiring the retiring pension systems have become more and more various on world level. Table 1 illustrates different types of pensiondiagrams. Such changes have determined major implications towards the automated connections between the retiring pensions and the wayofsharingtheexpenditureswiththepensions,relatedtothe lifeexpectancy. Table1Varioustypesofautomatedconnectionsbetweentheretiringpensionsandthelifeexpectancy Mandatory Basic Benefits Qualification DBtoDCshift DCplans diagrams linkedto conditionslinked withintheoptional ofvirtual life tolifeexpectancy private accounts expectancy provisions Australia Canada Chile Denmark Estonia Finland France Germany Hungary Ireland Israel Italy Mexico Norway Poland Portugal SlovakRepublic Sweden UK USA Source:OECD(2011)PensionsataGlance,ISBN9789264096288

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Themostsignificantreformwasrepresentedbytheextensionof privateDCtyperetiringpensiondiagrams.Tosomecountries, as Chile, Estonia, Hungary, Slovakia, Mexico, Poland or Sweden, thesehavebeentotallyorpartiallyreplacedthepublicDBtype diagrams. In other states, such as Australia, Israel or Norway, the requirement of contributing to a DC type plan was attached to state retiring pensions already existing. In this way, ten countries of OECD have for the time being compulsory diagramsofDCtype.Denmarkhasalargeareaofcoveringthe occupationalplansthatareDCtypequasicompulsory. Incountrieswherethevolunteeroccupationalplansare widely spread, the employers have been tempted to change their orientation from DB to DC (or to a mix of both). The phenomenon has started in USA in the 70s, continuing in Canada,IrelandandGreatBritain.InSweden,thetwooccupational quasicompulsorydiagramsoftheprivatefieldemployeeshave become since 2006 entirely of DC type. In Germany, the new retiring private pensions have shown that DC type diagrams have become more important within the optional private commissionstoagedpeople. AsregardstheDCtypediagrams,atthemomentoftheretiring, thetotalcontributionsandtheprofitablenessoftheinvestments should be converted into an amount accumulated into a commonretiringpensionpayment,namedannuity.Calculating theannuitywillbebasedonestimatingthelifeexpectancyofthe retiree,atthemomentofretiring.Inthisway,thereplacingratio ofincomeswillbeautomaticallylowerwhilepeoplelivelonger. Theamountaccumulatedintheretiringpensionaccountwillbe the same, but it should be enough for a longer period of time, eitherifitisusedunderannuitiesorinanyotherway. Thediagramsofvirtualaccountsalsoincludethecalculationof an annuity. At withdrawal, the contributions accumulated and the virtual debt are converted into a periodical payment. The conversionratio,aswellastheannuityratio,willdependupon the life expectancy, being similar to the DC type systems. Four countries have adopted the system based on virtual accounts: Poland,Italy,NorwayandSweden. PassingfromDBtypeplanstoDCtypeplansortodiagramsof virtualaccountsisknownunderthenameofsystemicreform, sinceitmodifiesthearchitectureofthenationalretiringpension systems. By contrast, some countries have developed parametric reforms, which have introduced the connection withthelifeexpectancy. In Germany, the life expectancy relationship is more complex due to the basic diagram of points, where contributions of one year with average incomes will value one point. The points accumulated at withdrawal will be transformed into a flow of retiringpensionpayments,uponbasisofavalueofthepension point. Adjustments made in time for the retiring pension point value will reflect the financial sustainability of the diagram, measured especially by the rate of systems dependency: the numberofretireesrelatedtothenumberofemployees. Alternative strategies of the reform have been met, different fromtheautomatedadjustmentsoftheretiringpensionswith the life expectancy. The reform of 2004 of Japan has brought a reduction of benefits in life expectancy, by reducing the state retiring pensions of the new retirees, by 0.9% per year, up to 2003. These adjustments, intended to get financial steadiness of theretiringpensionsystems,asregardsthefastagingofpeople, havebeenbaseduponthehypothesisofaconstantincreasedof thelifeexpectancyof0.3%peryear.Consideringthatthereisno

mechanism by which such adjustments should be modified, if thelifeexpectancyhasdifferentincreaseascomparingto those anticipated,theconnectionwiththelevelofretiringpensionwill benotanautomatedone. Itisquitesurprisingthatsomestateshaveadoptedformallythe mostobviousformoftherelationshipbetweenretiringpension and the life expectancy: the growth of the retiring age, while people live longer. In Denmark, the retiring age will increase from65to67,until2007.Instead,ItalyandGreecewillmakethis startingwith2015,andrespectively2020,allowingtheretiringat anyageofthosehaving40yearsofcontributions. TheRetiringPensionCommissionofGreatBritainhasproposedan increasestartingwith2020oftheeligibleageforretiring,ableto maintain constant the life expectancy at retiring. The previous Government has proposed a preannounced program of the sampledincreasesoftheretiringage,fromageof65totheageof 66,startingwith2024,andthen,fromtheageof67in2034tothe ageof68in2044.Thereisnoautomatedrelationshipwiththe lifeexpectancyinsuchsituationeither. Franceestablishedarelationshipbetweenthenumbersofyears of contributions necessary to retiring, as well as the life expectancy modifications, having as result the gradually increasingfrom40yearsofcontributions(during20032008)up to41.5yearsin2013.Suchconnectionisnotsostrongasinother situations, its aim being of maintaining constantly the relationshipbetweentheretiringpensionperiodandtheperiod of the career. In such way, the supplementary years of the life expectancywilldetermineanincreaseoftheactivitiesperiod. CONCLUSIONS Life expectancy will increase with almost 5 years up to 2050, related to year 2000. In this way, starting from a current life expectancyhopeofpeopleof65yearsold,at15.5yearstomen and19.5yearstowomen,thementionedincreaseof5yearswill call an increase of costs related to retiring pension payments with2530%.Takingintoconsiderationthatthegenerationsborn after the Second World War are about to retire from activities, the aging phenomenon of people will determine a higher preoccupationwithintheEuropeanStates. Almost half of the countries within OECD have started to introducehigheragesofretiring,orintendtocarryoutthisidea in the near future (18 such countries for women and 14 such countries for men). Recent increases of the retiring age have proven to be often under debates, because of their visibility amongpoliticiansandtheelectors. Many of the reforms of the last ten or fifteen years have automatically taken into consideration, in the calculation of the retiring pension, both the increases foreseen of the life expectancy and the uncertainty that is over such estimations. Therefore,thefastdisseminationofsuchadjustmentsbasingon life expectancy seems to be the most significant news of the retiringpensionpoliticsofthelastyears. Tudor COLOMEISCHI Chair Lector of Accounting, Finance and Science Computer, Economic Study and Public Administration Faculty, Stefan cel Mare University from Suceava. She is a doctorand at Univesity from Bucharest. Shes experiencedinresearchcontracts,shespartoftheresearchteam in 3 contracted projects. He is a member in 2 international professional organizations and scientifically referee in the editing committee of 2 journals rated by REPEC, Socionet,

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