The challenge of the retirement age

The biggest impact of the boomers will be to eliminate the term retirement and invent a new phase of life… the new career path”.

Rosabeth Moss Kanter, Professor of Business at Harvard Business School

Protests have recently been filed in France as a result of a reform that seeks to modify the retirement age. The reform seeks to increase the legal minimum retirement age from 62 to 64 from 2030, also increasing the years of contribution required to obtain a full pension from 42 to 43 until 2027. These protests exemplify one of the hottest topics of debate worldwide: The need to modify (or not) the age at which retirement is accessed.

When the previous retirement age was established in France, life expectancy was slightly less than 70 years, which implied an average survival in retirement of approximately eight years. To date, even considering the drop of one year due to the pandemic, the expected survival after retirement is 20 years.

The French pension model operates in the same way that the Mexican one worked until before the reform of the Afores. It is a pay-as-you-go model in which current workers finance pensioners with their contributions and is complemented by a minimum pension, guaranteed by the State.

The problem is that according to estimates, pension spending in 2032 will represent close to 15% of GDP and that while in 1954 there were four active workers to “finance” a pensioner, by 2040 there will be only 1.3 workers.

For most people, this change is understood as affecting their acquired rights. The problem is, however, the viability of the world pension systems. The fiscal limits of the states and the impact on wealth generation of rapidly aging economies create a rigid level of action for governments.

Mexico faces a problem of a different nature, given that with the reform it went from a pay-as-you-go system to a system of individual accounts. However, structural deficiencies persist, such as the amount of contribution, which, although it will improve with the new reform of this government, will generate greater fiscal pressure in the following decades. In addition, the fact that the retirement age (65 years) presents a significant difference with life expectancy (75) persists, which will grow rapidly in the following decades.

Today this, like many other phenomena, presents the dilemma between the technical solutions required by the problems (economic, social and even political), with the resistance of different social groups that evidently (and justifiably) have short-term interests, frequently contrasted with the needs that as a society have for the future.

In addition, this is almost always influenced by political groups that, in an effort to obtain short-term support, are capable of committing promises, which they objectively know will not have future viability, but which earn them support in the present.

The problem is so complex that it is difficult to think of technically viable and politically executable solutions, therefore, it is equally or even more important to think about how to face the pension challenges today and rethink the economic activity of people over 65 who, in economies increasingly information-oriented and under new skills generation models, they can continue to be productive and generate economic well-being for themselves and their families and support the economic growth of the countries.

raul@martinezsolares.com.mx