Retirement age and pensions: A comparison of 3 different systems (2023)

Retirement is something we often think about in the back of our minds. We all hope that the proverbial pot at the end of our rainbow has enough wealth to carry us through our golden years without compromising too much on our lifestyle.

France: a system based on solidarity, but you have to wait until the official retirement age to unlock it

The French pension system issystem pay-as-you-gowhich provides pension benefits to eligible individuals on the basis of their contributions during their working life.The system is based on the principle of solidarity, meaning that those with higher incomes pay more and receive a lower percentage of benefits, while those with lower incomes pay less and receive a higher percentage of benefits.

Compared to other OECD countries (Organization for Economic Co-operation and Development), France has one ofthe lowest poverty rates among pensioners, only at the level of 4.4%. This places France among the best countries for low poverty rates among pensioners, with only Iceland, the Netherlands and Denmark having lower rates.

France recently made headlines when people demonstrated against itraise the retirement age from 62 to 64;. Tourists got more than they bargained for as French citizens took to the streets of Paris in protest. The streets were flooded (the garbage collectors were on strike), there were mass protests across the country, and the police increasingly clashed with the protesters.

Although it was not approved by parliament last month, the government used a constitutional loophole to push through a bill that would raise the official retirement age from 62 to 64.statutory retirement ageit will gradually increase by three months each year until it reaches age 64 in 2030.Minister of Laboursays the law is due to come into force in September and promises to improve the employment rate of over-50s to help cushion the financial impact of raising the retirement age.

The Macron government argues that the pension system needs to be overhauled to make it financially sustainable as the population ages. However, the French government's pension advisory body (Conseil d'Orientation des Retraites) has not only concluded that there is no crisis, but trade unions and the opposition have proposed alternative financing, including for the wealthy, who will have to bear the burden of financing the pension system. People are also very unhappy with how the vote was pushed through parliament without a vote declaring it illegitimate. As the cost of living rises, people feel they are being taxed heavily and should therefore be entitled to a comfortable life in retirement.

The French labor minister has said that if nothing is done, the pension shortfall will be greater13 billion dollars per year by 2027. However, opponents of the project explain that it is only 0.4% of GDP in 2030 (and 0.8% in 2050 - before the decline - in the worst case). The government claimed the planned increase in the retirement age would offset the deficit by 2030 with a huge surplus to help people in certain demanding jobs take early retirement.

France has some unique characteristics compared to other OECD countries when it comes to pensions. The statutory retirement age is the minimum age, which determines the age of 62 at 64, but also the number of contribution years, currently set at 42, which will soon be raised to 44 in the reform (so you may have to wait until 67, if you don't reach 44 before). This differs from many other countries where private pensions (almost non-existent in France) can be obtained before the statutory retirement age.

UK: State pension not paid until age 66 (soon 67, then 68), but private pension starts at 55

The UK pension system is a combination of state and private benefits.

public pensionis a fixed benefit paid to eligible persons on the basis of their contribution to national insurance during their working life. The current full state pension is203,85 £in a week (SEK 10,600. a year) for people who have paid social contributions for 35 years.

Private pensionerprovided by employers or individuals and can take many forms, including defined benefit and defined contribution schemes. Automatic enrolment, introduced in 2012, requires employers to automatically enroll eligible employees and contribute to an occupational pension scheme, but this is not mandatory and employees can opt out. Individuals can also contribute to personal pension schemes, either directly or through a financial adviser.

The current statutory retirement age for state pension is66 years for both men and women. It can vary depending on when you were born and can range from 67 to 68 years old. But people can start accessing their ownprivate pension fund from the age of 55.

The statutory retirement age isis continuously reviewedensure that the retirement age is in line with life expectancy and that the amount is sufficient to ensure a comfortable standard of living. Life expectancy increases over time. In 1948 it was 78.5, and in 2017 it jumped to 87.8, but has since fallen in recent years. Therefore, it is necessary to carry out these regular checks and changes.

According toMercer CFA Institute Global Retirement Index 2021, the UK received a B rating, which translates to "A system that is well structured with many good features, but has some improvements that set it apart from a Class A system". However,Critics believe that this Mercer ranking is based on "monetary contributions, system durability and perceived level of trust".. They believe it does not take into account "the cost of living, or whether it allows for a decent retirement, or whether a significant number of retirees are in poor health or are among the poorest in the general population."

Even though poverty is at its lowest level in about 20 years18% of pensioners live in poverty. The poverty level increased from 14% in 2013-2014.

Some groups were identified as most at risk: 38% of private renters and 36% of those in the social rented sector compared to just 14% of home-owning pensioners. some ethnic minority groups such as 33% Asian/Asian-British and 30% Black/Black British pensioners compared to 16% white pensioners. There is also the added gender difference of being olderwomen are disadvantaged than men.

These discrepancies are not only due to the pensioner's insufficient income, but also to this group being subjected to additional costs such as special care needs, higher heating costs due to poor insulation of houses, etc.

According toAge Great Britain, the government must resolve these discrepancies with external organizations to implement reforms to eradicate poverty later in life.

A state pension should ideally provide an income that covers all basic needs, but also help people combine their private savings to make retirement more financially comfortable.

Japan: legal retirement at 60, but many choose to work much longer

The pension system in Japan issocial security systemwhich provides old-age, invalidity and survivors' pensions to eligible persons. the system ismainly financed by employer and employee contributionsas well as state subsidies.

There are two main pension schemes in Japan: the Occupational Pension Insurance Scheme for private sector workers (and the National Pension Scheme for the Self-Employed) and the Public Pension Investment Fund (GPIF). This scheme is also a defined benefit scheme, but is generally considered more generous than occupational pension insurance.

Japan's population is aging rapidly, putting enormous pressure on the country's pension system. In 2020, Japan had approx29% of the population is over 65 years old. That number is expected to rise to 35 percent by 2040, according to the National Institute for Population and Social Security Research. Japan also has a high life expectancy – 87 years for women and 81 years for men. This means that women are more affected by poverty in old age than men.

The real retirement age is much later than the official 60 years

The old-age pension age for the basic pension is basically 65, but you can choose to draw your national pension at ageany age after 60. However,Many people in Japan retire much laterfor various reasons such as financial security, job satisfaction and the desire to remain active in society (whichplays a very large role in Japanese culture!). Therefore, you will often not hear about the minimum pension age, butupper age limit to continue working in Japanwhich is currently up to 70 (companies must allow older workers to continue working until they reach the maximum legal age).

The actual average retirement age in Japan varies by industry, occupation and personal preference. Research from the Ministry of Health, Labor and Welfare shows that approxaverage retirement agefor men it was 69.9 years and for women 68.6 years. However, there is an increasing trend among Japanese workers to continue working into their 70s and beyond.

The Japanese government is encouraging people to work beyond retirement age to cope with the country's aging population and shrinking workforce.

The monthly amount of the state pension in Japan depends on various factors, such as the number of contribution years and the amount of income earned in those years. According to the Ministry of Health, Labor and Welfare, from September 2021average monthly public pension paymentit was about 70,000 yen (about 634 USD). However, this amount may vary depending on individual circumstances.

An important factor that explains the desire to work beyond the statutory retirement age for many Japanese is also the very low public pension payment.

Movement towards age 65 in the public sector

In the public sector, the government has already taken action and decided to raise the retirement age.All national and local civil servants can now only retire when they reach the age of 61. The previous retirement age was 60. This increase was used to accommodate itlabor shortagepartly by a declining population and workforce. The government also hopes that by raising the retirement age, the older and more experienced workforce will be able to share their knowledge with younger workers.

This first phase, implemented in April, is a gradual transition, with the retirement age expected to reach 65 in 2031. The Public Service Law, which was passed in 2021, also stipulates that employees approaching the age of 60 will not be employed in senior positions and that 60-year-old civil servants will begin to receive a 30% reduction in salary.

So far, this only applies to the public sector – the private sector can follow suit.

A re-employment strategy is being implemented to bring back an age group that retires at the earlier age of 60 and only receives a state pension at the age of 65.

Japan is under pressure to improve its social security system so that retirees can maintain a good minimum standard of living and reduce the burden of caring for future generations.

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