Changing Life Cycles and Challenges for Pension Policies - Evidence from OECD Countries

Francois Peglow, Max Planck Institute for Demographic Research

This paper analyzes the gender specific effect of a rising life expectancy on the retirement span. Utilizing a new indicator for life cycle arrangements, the Ratio of Retirement to Lifespan (RRL), quantifies the proportion of lifetime spent in retirement and characterizes the development of the retirement span. Furthermore, the change in the retirement span is decomposed and the impact of declining mortality ("mortality effect") and varying retirement ages ("behavioral effect") are evaluated separately. Based on the analysis of a cross-sectional panel data set of OECD countries, this elaboration discovers that the change of the retirement span between 1970 and 2005 in most OECD countries is mainly determined by the behavioral effect rather than by mortality improvements. By calculating the required effective retirement ages for several intergenerational balanced life-cycle development scenarios, the paper highlights the policy challenge in postponing retirement entry.