Mandatory and Statutory Retirement Ages
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Mandatory retirement age is the age at which people are required to leave their employment by industry custom or by law (Wood et al. 2010; OECD 2017a). According to United Nations (UN), the statutory retirement age is “the age at which eligible individuals qualify to receive full benefits upon retirement in accordance to national laws and regulations” (UN 2015a, p. 113), which is also called the state pension age or social security age in some countries.
There are many reasons for why there is a mandatory retirement age. Mandatory retirement is typically justified by the argument that a worker’s productivity declines significantly after a certain age, and certain occupations are either too dangerous or require high levels of physical and/or mental skill (Carlsson and Eriksson 2017; Drydakis et al. 2017; OECD 2017b). Lazear (1979), for instance, argued that mandatory retirement aided in forming part of an efficient contract between an employer and an employee.
Not every society in the world sets a mandatory retirement age, however. For instance, although it was prevalent in the past, such an age was abolished in some industrialized countries such as the United States, Canada, New Zealand, and Australia some time ago (Wood et al. 2010), and more recently the United Kingdom (Leeson and Khan 2016). Hong Kong has no such age for retirement either (Manulife Asset Management 2014). Nevertheless, many other economically advanced societies, especially many European nations, have such an age (Higo and Klassen 2016; OECD 2017a).
In the most non-high-income countries or societies, the mandatory retirement age is only applicable or restricted to some formal employment sectors of urban populations (Higo and Klassen 2016). For example, in mainland China, the current mandatory retirement age formulated in 1978 is set at age 60 for men in most nonagricultural sectors and at age 55 for civil servant women (white collar) and at age 50 for women of most other nonagricultural occupations (blue collar) (State Council 1978a, b). In Brazil, the mandatory retirement age is set at 70 for all public servants, including legislative and judicial departments (Office of the Presidency of the Federal Senate (Brazil) 2016). In Nigeria, the mandatory retirement age is 65 for workers in the public tertiary sector, 70 for administrative civil servants, and 60 for other public sectors and all private sectors (Shadare and Aliyu 2018). In the Philippines, the mandatory retirement age for both public and private sector employees is 65 – with exceptions for employees who are required to retire before age 56; or 55 in some specific sectors such as the Armed Forces, Police, or Fire Departments (Cervantes 2018).
How Are Mandatory Retirement Ages Determined?
The mandatory retirement is usually enforced by law and/or enacted by industry custom through collective agreements. A minimum permitted mandatory retirement age is commonly set by legislation. For instance, the minimum national mandatory retirement is set at age 67 in Sweden, at age 70 in Iceland, France, and Portugal, and at age 72 in Norway (OECD 2017a). In Japan, an organization’s mandatory retirement age is generally set out through a collective agreement. Some countries permit mandatory retirement, but no minimum age is set by legislation. In Ireland, for instance, the age of mandatory retirement appears in the employment contract as a clause (Wood et al. 2010).
The age at which retirement is mandated is, however, often somewhat arbitrary, so people may view the practice as a form of age discrimination (Carlsson and Eriksson 2017; Drydakis et al. 2017). In practice, when altering the mandatory retirement age, policymakers usually consider many factors, such as demographics, fiscal costs of population aging, health, life expectancy, nature of profession, and supply of labor force (OECD 2017a, b). Furthermore, in many OECD countries, the mandatory age of retirement is largely set by employers or it is firm-specific (OECD 2017a; Higo and Klassen 2016). For example, employers in Finland can legally set a mandatory retirement age as long as it is below the national minimum mandatory retirement age of 68 (OECD 2017a).
Differences in Mandatory and Statutory Retirement Ages and Pensionable Ages
For societies with or without mandatory retirement policies, most (also) set an eligibility age for pension, or pensionable age, which is the minimum age for a general employee to eligibly receive the entitled government retirement benefits or pension from the state, either a partial or a full pension. The statutory retirement age is “the age at which eligible individuals qualify to receive full benefits upon retirement in accordance to national laws and regulations” (United Nations 2015a, p. 113), which is usually called the normal retirement age (OECD 2017a), or the state pension age (Wood et al. 2010).
Usually, the pensionable age is lower than or the same as the statutory retirement age (OECD 2017a; United Nations 2015a), and the latter is usually lower than the mandatory retirement age. However, certain variations exist across countries around the world. For example, in Japan and South Korea, the mandatory retirement age is lower than the age for eligibly receiving pension (Higo and Klassen 2016). In Japan, the mandatory retirement age is mostly set at 60 for men and at 50 or 55 for women by most employers in accordance with the national guideline, whereas the state pension age is set at age 65 and such a state pension age is rising due to population aging (Higo and Klassen 2016). Employers are permitted to retain their mandatory retirement age of 60 by the Japanese Older Person’s Employment Stabilization Law but are required to “re-employ” workers aged 60 and older until age 65 on fixed-term contracts (Puckett 2019). In Ireland, there is no statutory retirement age (Caomhánaigh 2012). In China, these three ages are mostly the same, although the thresholds for different subpopulations are different (see State Council 1978a, b).
It is noteworthy that the effective retirement age, which represents the average actual age at retirement, is different from these three ages. For instance, out of 35 OECD countries, the majority have a higher effective age of retirement than the statutory retirement age (OECD 2019). The average effective retirement ages for both men and women in 35 OECD countries were also higher than the average normal retirement age in each year of the period 1970–2018 (OECD 2019).
Key Research Findings
Mandatory and Statutory Retirement Ages and Pensionable Ages around the World
By 2020, there is no global dataset to collect data on retirement ages that distinguishes among the three major types of age relevant to retirement for each country/area, possibly because the three types of age are the same in many cases. The only global dataset on this issue is the one maintained by the United Nations Population Division, which periodically publishes the statutory retirement age for all countries with available data in its seminal report of the World Population Aging (WPA). The latest version of WPA that includes such data is the 2015 WPA (United Nations 2015a). The dataset/report only uses the term statutory retirement age to refer to statutory retirement age, pensionable age, or mandatory retirement age if applicable, although in some countries these ages are different. According to the 2015 WPA report, there were significant regional variations in statutory and/or mandatory retirement ages (United Nations 2015a). On average, Oceanian countries have the lowest statutory retirement age than other regions, half of its 11 countries with available data having a statutory retirement age below 55 years by 2014, although some countries in the region raised their retirement age in recent years. By contrast, Latin American and the Caribbean countries generally have higher statutory retirement ages for men than most African, Asian, and Oceanian countries.
The 2015 WPA report further indicates that European countries had a lower average statutory retirement age for men than Northern American countries, although most European countries had more aged populations than Northern American countries. For example, out of 41 European countries with available data as of 2014, only three countries (Iceland, Norway, and Italy) had a statutory retirement age for men exceeding 65 years, 22 countries set their statutory retirement ages at age 65, and 16 countries set it at below age 65. By contrast, Canada and the United States set their statutory retirement age for men above age 65.
Globally, the statutory retirement age for men was usually higher (usually by 5 years) than that for women, as noted in the 2015 WPA. Out of 167 countries with available data, 106 countries had a higher statutory retirement age for men than for women. In Asian countries, younger retirement ages for women were common, with two-thirds of its countries having a statutory retirement age below 60 years as of 2014. In Europe, 20 countries set their statutory retirement age below age 65 for women, 13 countries set it at age 65, and two countries (Iceland and Norway) set it above age 65, lower than those for men as noted above (United Nations 2015a).
Reforms of Mandatory and Statutory Retirement Ages
Since the early part of this century, in an effort to prolong labor force participation and to improve the financial sustainability of pension/social security systems, most developed countries have considered reforming their statutory and mandatory retirement ages for both men and women (United Nations 2015a). It was reported that more than 60% of more developed countries and 22% of less developed countries raised their minimum retirement ages in 2008–2013 (United Nations 2015b).
The reforms of these two retirement ages around the world in the past two decades were either to increase the threshold of statutory retirement age or to raise/ban the mandatory retirement age, or both. The United States, for instance, outlawed mandatory retirement in 1986. Canada took over 30 years to abolish mandatory retirement and does not permit mandatory retirement at any age since 2009 (Wood et al. 2010). Japan raised its mandatory retirement age to 61 in 2012 (Japan Institute for Labor Policy and Training 2012) and the mandatory retirement age has been 65 since 2015. For South Korea, the mandatory retirement age was raised to 60 in 2016 and will be 65 in 2033 (Korean Ministration of Government Legislation 2011). Similarly, the mandatory retirement age was raised from 60 to 65 in 2015 in Taiwan (Taiwan Ministry of Labor 2015). Although Singapore set the mandatory retirement age to 62 in 1992, employers are required to offer reemployment up to the age of 65 since 2012 (Manulife Asset Management 2014). No mandatory retirement age has ever been set in Hong Kong, but the Mandatory Provident Fund of Hong Kong allows withdrawals from 65 (Manulife Asset Management 2014).
In mainland China, with rapid population aging and improved health of the Chinese population, there have been calls for a modification of gradually raising the statutory/mandatory retirement age to 65 by 2045 for both men and women (English-language website of China News Service 2018). Nevertheless, in reality, there are very few high-ranking civil servants of the central government or some renowned academic professionals retiring at ages after 65 (The Wall Street Journal 2016).
Reforms of the mandatory or statutory retirement ages are usually accompanied with changes in pensionable age. For instance, while the minimum permitted retirement age increased from 55 to 60 in 1994 and further increased to 65 in 2015 in Japan (Japan Institute for Labor Policy and Training 2012), the state pension age is being increased from 60 to 65 by 2030. In Sweden, a major reform of the public pension system was conducted in 1999; and the statutory age or the mandatory retirement age was increased to 67 in 2001 (Wood et al. 2010). In the United States, the statutory retirement age with full benefits was raised from age 65 to age 66 for cohorts who were born in 1943–1954, and to age 67 for those who were born in 1960 or later (AARP 2018).
Consequences of Reforms in Statutory and Mandatory Retirement Ages
There has been a debate on reforming, especially postponing, the statutory retirement age, or raising/banning the mandatory retirement age as it will bring radical changes in almost all dimensions of society (Baltes and Zabel 2015; OECD 2017a). Three relationships are at the core of the debate. The first is the relationship between youth unemployment and older workers’ remaining longer in the labor force; the second is the relationship between age and productivity; and the third is the relationship between age and compensation (Baltes and Zabel 2015; Carlsson and Eriksson 2017; Higo and Klassen 2016; OECD 2017a).
Some opponents of such reforms argue that changes and postponement in statutory retirement age, or abolition of the mandatory retirement age, might reduce employment opportunities of younger people (Baltes and Zabel 2015; Carlsson and Eriksson 2017; Higo and Klassen 2016; OECD 2017a). However, the empirical research has shown that most European countries with the best practices for older workers are those countries with the highest rates of employment among the young (Caomhánaigh 2012). One recent study from Sweden revealed that increasing the normal retirement age in Sweden did not affect healthcare utilization and mortality among older adults (Hagen 2018). Other studies also showed that in most OECD countries the employment rate among ages 60–64 in men increased from the mid-1990s to the mid-2010s, ranging from 30% in France to 77% in Japan in 2016; and a similar trend was observed for women, despite a lower rate (Börsch-Supan and Coile 2018).
Mostly relying on the notion that a worker’s productivity declines significantly after a certain age (say age 70) is the employer’s excuse to implement the mandatory retirement to avoid reduced productivity (Lazear 1979). However, there is little evidence that the aging workforce has hurt productivity (Burtless 2013). The most important determinants of worker productivity are age, educational attainment, and previous work experience. Older, better educated, and more experienced workers are typically more productive and earn higher hourly wages than younger, less educated, and less experienced ones (Carlsson and Eriksson 2017; Higo and Klassen 2016). In comparison with aged worker cohorts in the past, the current generation reaching ages 60 and 70 is very well educated (Baltes and Zabel 2015; Burtless 2013; Carlsson and Eriksson 2017; Drydakis et al. 2017; Higo and Klassen 2016; OECD 2017a).
Increasing the statutory retirement age or abolishing a mandatory retirement age might also lead to higher employment costs, and hence impact employers’ human resources policies. Specifically, increasing or abolishing the age of mandatory retirement might lead employers to pay disproportionately high insurance and benefits, plausibly owing to seniority wages and/or lifetime employment. The employers might also be involved in other related costs, such as adapting their working environment and workplace to more flexible working conditions for older workers, training older employees, providing flexible work options, and so on.
The abolition of mandatory retirement age and the postponement of statutory retirement age could further affect older people’s retirement plan, leading them to revise their work plans. Coppola and Wilke (2010) found that people affected by the changes of the mandatory retirement policy in 2007 in Germany tended to enter retirement 2 years later than they would have done without the changes. They also found that the effect depends on older people’s level of education and wealth.
Populations are projected to age rapidly in most countries around the world as a result of prolonged life expectancy. Given the formidable challenges and the probability of depletion of pension funds in the foreseeable future – due to the rapid rate of population aging and the sheer size of the increased older-adult populations – most countries have started to postpone their statutory retirement age or raise or ban their mandatory retirement age (OECD 2017a; United Nations 2015a). Although there is a debate on the pros and cons about delaying the retirement age, increasing the statutory retirement age is possibly the preferred or best option for most governments to maintain the sustainability of the pension and/or social security systems given the inevitable trends in population aging (OECD 2017a). In other words, it is not whether there is a need for increasing the statutory retirement age or not; rather, it is how the retirement age will be postponed and with what pace of the postponement.
Postponement of retirement age could significantly increase the sustainability of the national pension/social security system and could improve individuals’ retirement security in terms of having more time to save money, continuing to take advantage of healthcare (and other employment benefits provided by employer), staying engaged, keeping mentally active, and being eligible for more pension returns. Raising the retirement age also likely reduces the young generations’ burden for revenue from increased tax rate upon them if it is without postponement. Thus, the postponement of statutory retirement age or the abolishment of a mandatory retirement age could ensure more fairness and equity across generations, and may have benefits for society to address daunting challenges of population aging (Hagen 2018), although adequacy remains a challenge in some countries (European Union 2018).
By contrast, the implementation of compulsory retirement could eliminate opportunities for many older adults, especially female older adults, to earn an adequate income after retirement (Lawrence 2008), which in turn increases old-age poverty. The age limit on employment remains a barrier for an older adult to work, and it sends the message that one’s ability to work diminishes at an arbitrarily set age, which is a part of ageism (see “Age Discrimintion in the Workplace” and “Ageism Around the World”). Whether an older adult is suitable or qualified for a given job should be based on the individual’s competence and health rather than on his or her age (OECD 2017a, b). Many researchers consider mandatory retirement a waste of economic, social, or even spiritual resources (Lawrence 2008). The European Court of Justice has ruled it illegal to restrict someone from continuing to be employed simply because of their age as long as the individual is able to carry out their duties in all other aspects (Caomhánaigh 2012). In 2013, the European Parliament recommended that European Union member states put a ban on mandatory retirement (OECD 2017a).
However, efforts to increasing the retirement age or abolishing mandatory retirement age are not without resistance from both employees and employers (Ebbinghaus and Hassel 2000; OECD 2017b). Employers often argue that their businesses could be undermined without mandatory retirement because it would be difficult to part with less productive workers. From employees’ perspective, the postponement of retirement age also means the reduced benefits at pre-reform retirement age. This is especially the case for the poor and the disabled who either have to make more years of contribution to receiving their full benefits or have to retire due to an incapability for doing the job. For example, nearly a third of adults ages 63 to 65 in the United States reported health-related work limitations in 2014 (Johnson 2018). Slightly more than 40% of retirees who retired earlier considered health problems or disability as a reason for their earlier retirement (Employee Benefit Research Institute and Greenwald & Associates 2019). A recent French strike in December 2019, the longest strike in French modern history, is an example of demands for protecting workers’ benefits from reduction or more years of contribution from the postponement of retirement age (Wikipedia 2020).
Flexible retirement plans might be an alternative and all-party welcomed solution, which enable individuals, depending on their situations, to receive a full or partial pension while continuing to engage in paid work with reduced working hours or having the right to choose when to retire (Caomhánaigh 2012; OECD 2017a, b). The gender gap in the retirement age reforms is expected to diminish. For example, many OECD countries have set up a plan to close the statutory retirement age gap in their pension reforms over the next few decades (OECD 2017a). Given women’s longer remaining life expectancy and lower retirement age, it would be wise to close the gender gap, which not only could improve the financial sustainability of the pension fund, but also improve the equity. However, because women are often in poorer health than men at older ages, and that women are more likely to be primary family caregivers, to what extent the gender gap in the statutory retirement age should be reserved still needs more empirical research to preserving the values, the diversity, and equal opportunities with no gender discrimination.
In sum, for future reforms and its legislations of retirement age, it should be placed on the basis without undermining benefits or increasing risk of poverty to vulnerable groups, such as the poor, the less educated, and those with health problems, whose life expectancy has not been substantially improved (Isaacs and Choudhury 2017).
The rapid growth of population aging has imposed unprecedented challenges to most countries around the world. A series of reforms has been taken to address such challenges, including bans of the mandatory retirement age and postponements of statutory retirement age. One pressing challenge in formulating reform measures is designing a sound reform scheme that finds a balance between employers and employees, without undermining benefits of vulnerable groups, and improves fairness across generations without imposing undue taxation and debt upon younger generations.
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