Retirement age and pensions: Comparison of 3 different systems

Published 2023-05-01 14:47:35
Pensioners - Credit: Image by pressfoto on Freepik

The recent pandemic impacted global economies with restricted economic activity and increased government debt. This led to some countries increasing the retirement age sparking violent protests and great unhappiness amongst their citizens. Although this issue is a global one, this article focuses on three countries with different systems: France, UK and Japan.

Retirement is something that is often niggling at the back of our minds. We all hope that the proverbial pot at the end of our rainbow has sufficient riches to sustain us through our golden years without compromising our lifestyles too much.

France: a system based on solidarity but you need to wait for official state pension age to unlock it

The French pension system is a pay-as-you-go system that provides retirement benefits to eligible individuals based on their contributions over their working lives. The system is based on a solidarity principle, which means that those who have higher incomes contribute more and receive a lower proportion of benefits, while those with lower incomes contribute less and receive a higher proportion of benefits.

When compared to other OECD (Organisation for Economic Co-operation and Development) countries, France has one of the lowest rates of poverty among pensioners, at only 4.4%. This places France among the top countries in terms of low poverty rates for pensioners, with only Iceland, the Netherlands, and Denmark having lower rates.

France made headline news recently as people demonstrated against the raising of the retirement age from 62 to 64. Tourists got more than they bargained for when French citizens took to the streets of Paris in protest. Streets were littered with garbage (the refuse collection was on strike), massive demonstrations are still being organised around the country and more and more the police is violently clashing with protesters.

Although not approved by parliament last month, the government used a loop-hole in the constitution to enforce the law which pushes the official retirment age from 62 to 64. The legal retirement age will increase incrementally by three months every year until it reaches the age of 64 years by the year 2030. The labour minister says that the law should come into effect by September and he has promised to improve the employment rates of people aged over 50 to help in the hope to smooth the financial impact of the raised retirement age.

Macron’s government argues that the pension system needs to be overhauled to be financially viable as the population ages. However, not only the French government own advising body on pension (Conseil d'Orientation des Retraites) said that there is not crisis, but unions and the opposition suggested alternative financing, including the wealthy to carry the burden of financing the pension system. People are also very unhappy about how the vote was pushed through the parliament without a vote calling it unjustified. As the cost of living increases people feel that they are taxed heavily and should therefore have a right to live comfortably in retirement.

The French labour minister has said that if no action is taken the pensions shortfall will exceed $13 billion annually by 2027. However, opponents of the project, explain that this represents only 0.4% of GDP in 2030 (and 0.8% in 2050 - before to decrease - in the worst case scenario). The government claimed that the planned increase in retirement age will balance the deficit by 2030 with a massive surplus to support those in certain demanding jobs to retire early. 

France has some unique characteristic in comparison to other OECD countries when it comes to retirement. The legal age for receiving a pension is the minimum age, which is determined by an age 62 soon to be 64 but also by the number of years of contribution, currently set at 42 and soon to be increased to 44 with the reform (so you may need to wait 67 if you do not reach 44 before). This differs from many other countries where private pensions (nearly not existent in France) can be accessed before reaching the legal retirement age.

The UK: the state pension is not paid before they reach 66 (soon 67 and then 68) but private pension starts at 55

The UK pension system is a mixture of state and private provision.

The state pension is a flat-rate benefit paid to eligible individuals based on their National Insurance contributions over their working lives. The current full state pension is £203.85 per week (£10,600 over the year) for those who have made 35 years of qualifying National Insurance contributions.

Private pensions are provided by employers or individuals and can take various forms, including defined benefit and defined contribution schemes. Auto-enrolment, introduced in 2012, requires employers to automatically enroll their eligible employees in a workplace pension scheme and contribute towards it but this is not mandatory and employees can refuse enrollment. Individuals can also contribute to personal pension plans, either directly or through a financial adviser.

At present, the legal retirement age to qualify for a state pension is 66 years for both men and women. It may differ depending on when you were born and may vary from 67 to 68 years. However, people can start accessing their private pension pot from as early as 55.

The legal retirement age limit is reviewed regularly to ensure the retirement age conforms with the average life expectancy and that the amount is adequate for a comfortable standard of living. Average life expectancy increases over time. In 1948, it was 78.5 and in 2017 it jumped to 87.8 but has since declined in recent years. It is, therefore, imperative these regular checks and amendments are performed.

According to the 2021 Mercer CFA Institute Global Pension Index, the UK received a grading of B, which translates to “A system that has a sound structure, with many good features, but has some areas for improvement that differentiate it from an A-grade system”. However, critics believe that this ranking by Mercer is based on the “monetary contributions, the viability of the system and the level of perceived confidence”. They believe it does not take into account “the cost of living, or if it allows having a decent retirement or if a significant number of pensioners are in poor health or are classified among the poorest in the general population”.

Even though the poverty rate is at an all-time 20-year low, about 18% of pensioners live in poverty. Poverty levels have increased from 14% from 2013-2014.

Certain groups were identified to be most at risk: 38% of private tenants and 36% of people in the social rent sector in comparison with only 14% of pensioners who are homeowners; certain minority ethnic groups like 33% of Asian/Asian-British and 30% of Black/Black-British pensioners compared with 16% of White pensioners.  There is also the added gender difference where older women are more disadvantaged than men.

These discrepancies do not only arise due to insufficient income for the pensioner but also because extra costs are incurred in this group such as special-care needs, higher heating costs because the houses have poor insulation, etc.

According to Age UK, the government needs to address these inconsistencies with third-party organisations to implement reforms to eradicate poverty in later life.

The state pension should ideally give an income that provides for all basic needs but also help people to shore up 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 is a social insurance system that provides retirement, disability, and survivor benefits to eligible individuals. The system is primarily funded through contributions from employers and employees, as well as government subsidies.

There are two main pension schemes in Japan: the Employees' Pension Insurance system for private sector employees (and the National Pension system for self-employed) and the Government Pension Investment Fund (GPIF). This system is also a defined benefit plan, but it is generally considered more generous than the Employees' Pension Insurance system.

Japan has a rapidly ageing population which is creating massive pressure on the national pension system. By 2020, Japan had approximately 29% of its population over the age of 65. This number is expected to jump to 35% by the year 2040, as per the National Institute of Population and Social Security Research. Japan also has a high life expectancy rate - 87 years for women and 81 years for men. This means that women are more affected by poverty in old age than men.

An actual retirement age much later than the official 60

The pensionable age for the Old-age Basic Pension is 65 in principle, but you may opt to receive pension at whatever age after 60. However, many people in Japan retire much later due to various reasons such as financial security, job satisfaction, and a desire to remain active in society (which plays a very big part of the Japanese culture!). Therefore, you will often hear of not minimum pension age but maximum age for continuing to work in Japan which is now up to 70 (companies must allow older employees to continue working until the maximum legal age).

The actual average age for retirement in Japan varies depending on the industry, occupation, and personal preference. According to a survey by the Ministry of Health, Labour and Welfare, the average retirement age for men was 69.9 years, while for women it was 68.6 years. However, there is a growing trend among Japanese workers to continue working well into their 70s and even beyond.

The Japanese government has been encouraging people to work beyond the retirement age to address the country's aging population and shrinking workforce.

The monthly state pension payment in Japan depends on various factors such as the number of years of contribution and the amount of income earned during those years. According to the Ministry of Health, Labour and Welfare, as of September 2021, the average monthly payout for the national pension was around 70,000 yen (approximately 634 USD). However, this amount may vary for individuals based on their individual circumstances.

The very small state pension payment is also an important factor explaining the appetite for working after the legal retirement age for many Japonese people.

A move towards 65 in the public sector

In the public sector, the government has already acted and decided to increase the retirement age.  All national and local civil servants can now only retire at 61. The previous retirement age was 60. This increase was implemented to regulate the labour shortages created by, in part, the declining population and workforce. The government also hopes that by increasing the retirement age, the older and more experienced workforce can share their expertise with young employees.

This first phase, implemented in April, is a stepwise move where the retirement age will be 65 by the year 2031. The national public service law, which was enacted in 2021, also stipulates that workers nearing the age of 60 will not be appointed to managerial positions and 60 year- old civil servants will begin receiving a salary reduced by 30%.

At present, this is only applicable to the public sector- the private sector may follow suit.

There will be a re-employment strategy established to redress the age group that will retire at the previous cut-off of 60 years and have no public pension for a period until they turn 65 years old.

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 their care for future generations.

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Author: KashGo
Expat Mum in the Desert and content writer for

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