Annika Akerstrand plans to spend her 55th year on a boat on the Caribbean, as far away from the dark, frigid Swedish winter as her retirement savings will carry her.
“I want to retire when I’m still healthy enough to have some fun,” said Ms. Akerstrand, 45, as she unpacked boxes in her Stockholm gift shop. “My husband is 10 years older and when he is 65, we will do this together.”
Ms. Akerstrand’s hope for a retirement at 55 comes as Sweden appears to be headed in the opposite direction. With life expectancies on the rise, Swedish Prime Minister Fredrik Reinfeldt has said people will need to work considerably longer to sustain their pension income. In comments that caused uproar among the country’s powerful unions, he envisioned a society in which people work to the age of 75, making at least one career change along the way.
The push for later retirements in Sweden, where people already work longer than anywhere else in the European Union, underscores a growing problem that threatens to paralyze the euro zone. Even as debt-strapped nations make deep and painful cuts in public spending, they are bracing for the parallel threat posed by a rapidly aging work force.
Though the problem looms throughout the developed world – including Canada, where the proportion of the population over the age of 60 is expected to rise to 32 per cent by 2050 – it is most pronounced in parts of Asia and Europe.
“Europe is not the only rapidly aging society in the world but it is the region that’s been aging for the longest period of time,” said Jorge Bravo, a section chief in the population division of the United Nations. “What affects population aging most is low fertility and most of the European countries started their fertility decline a long time ago.”
The size and speed of the demographic shift varies across countries and is expected to be particularly dramatic in Germany, Italy and Spain and in the former communist states of Eastern Europe. In each case, rising life spans and lower fertility levels will see the ranks of the elderly swell even as the working population shrinks.
To prevent a crippling burden on public welfare systems, policy makers are pushing for a variety of reforms designed to keep older workers on the job longer. In most cases, this has meant increases in official retirement ages: from 60 to 62 in France, for instance, and from 65 to 67 in Spain.
Compared to these reforms, Mr. Reinfeldt’s pitch for retirement at 75 seems “excessive,” said Asghar Zaidi, of the European Centre for Social Welfare Policy and Research in Vienna.
“But I would share his opinion that extending working life is the way to sustain pension systems. People can work longer, pay more contributions or receive less pension income. When people are given these options, an extension of working life is generally the most acceptable. No one wants a lower income or higher risk of poverty in old age.”
Sweden already leads the European Union when it comes to keeping older workers on the job. At 61 per cent, the country’s employment rate for those aged 60 to 64 is the highest in Europe and well above France at 17.9 per cent and Germany at 41 per cent.
The trouble is, the employment rate drops off dramatically at this point, to just 6.3 per cent of those over age 65, according to EU statistics. As life spans continue to grow, there are concerns that Sweden’s generous welfare state could face a particularly heavy burden from the growing number of retirees.
“Compared to a lot of other countries Sweden has come very far,” said Annika Sunden, deputy director at the Swedish Pensions Agency. “But we need to do more. We know that.”
Getting Swedes to think beyond 65 hasn’t been easy, despite a dramatic overhaul of the country’s public pension system that created incentives for working later in life.
In the late 1980s, demographic projections made it clear that without changes, the country’s traditional defined benefit pension would be bankrupt in about 20 years. In a radical move, Sweden scrapped the old system in favour of a “notional defined contribution plan” that ties annual benefits to life expectancy rates, returns, inflation and other factors.
A flexible retirement age allows Swedes to begin collecting their pensions at 61, but the longer they work, the more they receive in benefits. To that end, each year, an orange envelope arrives in the mail containing projections (based on estimated life span) for how much individuals are entitled to if they choose to retire at 61, 65 or 67.
The idea is to educate workers on the limitations of the system as well as encourage them to delay retirement, said Mats Persson, a professor at Stockholm University’s Institute for International Economic Studies.
“Since we got the new system, I think Swedes have a much more realistic view of pensions,” he said. “Everyone agreed that the old system could not be maintained. There had to be a connection between what you paid and what you got out of it. I think people have accepted that.”
Still, the employment rate for older Swedes has improved only slightly in the years since the new plan was unveiled, a lapse that can be blamed in part on company pension plans, unemployment insurance schemes and other systems that still identify 65 as the official age of retirement, said Ms. Sunden.
“For a lot of reasons, in people’s minds retirement still happens at 65,” Ms. Sunden said. “This needs to change. It’s clear that if we live longer, in order to sustain our standard of living as retired people we also have to work longer.”
Swedes currently have the right to work until age 67, a limit Mr. Reinfeldt would like to see pushed to 69. A government committee is now examining the age limits in various insurance schemes and evaluating how work environments can adapt to meet the challenges of older employees. In an effort to further illustrate the impact of increased life expectancy on pensions, Swedes’ orange envelopes will now contain an additional estimate, based on each individual’s cohort, of how many more years they must work to obtain a pension on par with what their parents received. A person born in 1971, for instance, would have to work to 68 years and one month to enjoy a pension similar to that of previous generations, pension officials said.
Labour unions immediately resisted Mr. Reinfeldt’s proposal for retirement at 75, arguing it was impossible, particularly in physically demanding jobs such as nursing and construction.
Mr. Reinfeldt, who later said his comments were meant to provoke discussion ahead of a summit on jobs for the elderly, believes the answer is to help people retrain for more suitable careers when their current jobs become too physically demanding. Companies must also become more flexible about hiring employees at age 55 and older, he said.
“We have to start asking ourselves, ‘How are we going to do that?’” he told the Swedish daily Dagens Nyheter. “‘How do we change careers in the prime of our lives? And how do we make it possible to work until we’re older, maybe even much older?’”
Special to The Globe and Mail
32 The percentage of the population in the developed world that will be over the age of 60 by 2050
62 The official retirement age in France
67 The official retirement age in Spain
61% The employment rate in Sweden for those aged 60 to 64, the highest in Europe
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