History Pensions

The normal "retirement age" is a twentieth century concept that is relevant in the developed parts of the world. It is the age, as established by a pension plan, at which retirement benefits can be received without a reduction being taken because of age. Because most workers around the world do not participate in either a social security program or private pensions, the concept does not apply to them.

For most workers for whom the concept is relevant, the concept is closely tied to the minimum or normal retirement age in social security programs. In western Europe, however, the normal retirement age in private pensions tends to be lower than the earliest retirement age through social security, with most workers retiring before the minimum age at which social security retirement benefits can be received. In Belgium, France, Germany, and Luxembourg, only one in three or four older workers (and a considerably smaller number in the Netherlands) retire at or after the minimum age for social security benefits. Developed countries that had a minimum retirement age for social security benefits of sixty-five or older at the start of the twenty-first century, or had set such an age in social security law for a future date, include Australia, Germany, Iceland, Ireland, the Netherlands, New Zealand, Norway, Switzerland, and the United Kingdom.

Not surprisingly, the normal retirement age tends to be lower in countries where the life expectancy is lower. Thus, it tends to be lower in poor countries than in rich countries, with some exceptions. In Yemen, workers can retire with social security benefits at age forty-five with twenty years of experience. In Lebanon, both men and women can receive social security benefits at any age with twenty years of experience. As populations age and the old-age burden grows, one policy countries can adopt to alleviate social security financing problems is to raise the normal retirement age. This has been done in Germany, Italy, and Sweden.

The economic relevance of the normal retirement age is lessened in many social security systems and in many pension plans by these plans providing benefit increases when workers postpone retirement, and by the possibility of workers retiring at younger ages than the normal retirement age. If benefits are actuarially adjusted for postponements in retirement age, then whether a worker retires earlier or later than the normal retirement age would not change the lifetime cost to the social security system for workers whose life expectancy is the same as the actuarial life expectancy for the population.