Two-thirds of pension reforms in OECD countries in the last 15 years contain measures that will automatically link future pensions to changes in life expectancy. This quiet revolution in pension policy means that the financial costs of longer lives will be shared between generations subject to a rule, rather than spreading the burden through potentially divisive political battles as happened in the past.
As a result, nearly half of OECD countries – 13 out of 30 – now have an automatic link between pensions and life expectancy in their retirement-income systems, compared with only one country (Denmark) a decade ago. Indeed, the spread of this policy has a strong claim as the major innovation in pension policy in recent years. The link to life expectancy has been achieved in four different ways:
Seven countries – Australia, Hungary, Norway, Poland, Mexico, the Slovak Republic and Sweden have introduced mandatory defined-contribution plans.
Italy, Poland and Sweden have substituted notional accounts for traditional, defined-benefit public schemes. Notional accounts are designed to mimic some of the features of defined-contribution plans: in particular, pension entitlements are calculated in a similar way to annuities.
Some countries have retained defined-benefit public schemes while introducing a link between life expectancy and pensions. Finland, Germany and Portugal will adjust benefit levels with life expectancy.
Two countries will link qualifying conditions for pensions to life expectancy: the pension age in Denmark and the number of years of contributions needed for a full pension in France.