ECONOMY

The key to solving Greece’s pension problem is in gradually raising the retirement age

The main issue for the Greek pension problem is the retirement age, which sets the duration of people’s working life. This age limit cannot be imposed by decree. It needs a consensus between workers and employers. For workers, the aim of shortening their working life and increasing their free time is best done through technological progress and economic development. Aging has not hampered the drop in the retirement age. Thus raising the retirement age is widely seen as a violation of a vested right, developed after many years of lowering it. This is all fair and understandable. Nevertheless, the conditions leading to the drop and the reasons justifying the reversal of the trend must be taken into account. From the end of World War II until recently, rapid economic development, at a much higher rate than the aging of the population, created additional resources that raised the living standards of workers and pensioners and expanded their free time. For now and the foreseeable future, economic development will occur only slowly, while aging will increasingly accelerate. The pensioner/worker ratio will increase faster than income production per worker, hence living standards will stagnate and workers will refuse to support pensioners. If a higher retirement age is not accepted, effectively reducing the number of pensioners per worker, social partners will have to choose between increasing contributions or taxes – that is, compulsory transfer of income from workers to pensioners – and cutting the size of pensions or increasing savings. Increasing contributions will have many negative, economic and social effects and will slow down economic development, while cutting already small pensions will contribute to a socially unacceptable rise in poverty. Raising the retirement age does not mean reducing the total time for enjoying pensions, at least while the age limit rises at a slower rate than does life expectancy, which continues to grow at a remarkable rate. Life expectancy varies among workers’ categories, including whether they are men or women, which leads to examining the relationship between «working» and «retirement» life and of the variation of retirement ages across social groups depending on their respective life expectancy. Companies, too, are voicing their opposition to prolonging working life. Their objections rely on businesspeople’s prejudice regarding the abilities of those who are aging. If the age of retirement is relatively low in Greece, this can be attributed to Greeks’ wish to retire early and to the behavior of companies which avoid employing older people. The latter run a higher risk of getting fired than do younger people. This is blamed on low productivity and the higher costs of employing older people. These trends put older people’s job security at risk, making any attempt to expand the average working life more problematic. Obviously, it is pointless to raise the retirement age unless the labor market is organized accordingly, so as to offer some employment guarantees for older people. The solution should be found in adjusting the relation between productivity levels and the costs of employing older people. Another question is whether raising the retirement age will increase unemployment. The answer is generally negative, as raising the retirement age is done gradually, to give the labor market time to adjust and to be fair to those approaching retirement. After all, unemployment is not managed through reducing the supply of jobs. Prolonging working life is the best way to avoid big deficits and higher social contributions. It runs into many problems, but there is no miraculous solution to the problems of an aging population. Minimizing the costs requires the best possible combination of all possible measures, such as raising the retirement age limit, increasing social contributions, cutting pensions, boosting saving and moving toward some form of a capitalization system. (1) Constantinos Delis is professor emeritus at the University of Piraeus.