Friday, 27 July 2012

On Social Security and Pensions

Throughout Europe, a lot of fuss has been going on concerning the retirement age in several countries, most notably the Southern European ones (well given the whole charade about austerity measures and bailouts no wonder these came up as well!). The fact that the population is aging has made EU leaders (and economists) promote ideas to help safeguard the social security schemes of each nations. For example, Germany has imposed  a plan where the retirement age will gradually increase by a month per year, to reach 67 years of age by 2029.
In my opinion, this idea of having just a fixed age that someone has to retire is inherently wrong. Let me illustrate this with a short example:
Jack and John are of the same age. However Jack started working at age 18 right after he finished high school and John at 23 after finishing university with a Masters degree. Thus when they will both retire at age 65 Jack would have worked for 47 years (wow that sounds a lot!) and John for 42. If they both started off with the same salary and getting similar raises each year then at the time of retirement Jack would have accumulated a lot more than John. And of course a wise guy (we will call him hmmm.... Wolfgang) would answer ''Well, duh Euronomist isn't it simple? Jack's pension will be greater than John's!".
True Wolfgang. But think about this: if the worker is satisfied with retiring at age 63 after working for 45 years and get a smaller pension than he would have gotten had he worked for another 2 why not allow him or her the luxury? Why not devise a plan that would allow a worker to retire after working for certain number of years even if he is younger than the retirement age?
At this time Wolfgang would have started arguing about the feasibility of such a plan with an aging population. This would mean that the number of years that a person should work must be analogous to the life expectancy in that country. Thus if the life expectancy in Germany is greater than in Mozambique then number of years required in the former should be greater than the ones in the latter country. And to cope with rising life expectancy one may also rise this amount of years by e.g. a month per year. A direct benefit of this is that it would reduce the number of people that work without a contract as it would be beneficial to them to report that time.
I have also been thinking about making the retirement age just a point where one may just start enjoying the benefits of pension schemes with the opportunity to work. When I say work I do not obviously mean heavy duty things like building or digging or whatever but some sort of government work where pensioners would -if they wanted to- work for a small salary doing something that would please them like taking care of public gardens in their neighborhood or aiding in government charities. This could be a part-time job which would last up to a maximum of 5-8 years or until the citizen is deemed unfit for the job.
Admit it Wolfgang. Most retirees do not want just to sit around at their homes all day, having nothing to do. Getting them enabled in a job (even with just a small, basic salary which would be added to their pension) would mean that the government will be able to complete its needs cheaper, making at the same time, a lot of pensioners happier.
As for the youngsters who might believe that senior citizens are out to get their jobs think again: They would only be hired at a specific number per year, replacing mostly other seniors who held the job before them and most importantly it would be a part-time job. No youngster hopes for just a part-time job to feed his/her family and sustain a certain standard of living. What should be given is incentives to young people to start on their own, doing what they wish and not following the ideas and notions of the previous generations. But, more on incentives and start-ups later on. Stay tuned!

P.S. I am under the impression that the age of 67-68 which is proposed as the age of retirement is due to the fact that academics (think economists here) retire at that age. Well, let me think, 3-4 years of a degree, 1-2 for a Masters and 4-5 for a PhD, if you are a genius then you start working at 26 (most of the academia start working at 28 if they are lucky enough to finish their PhD on time) which leaves you with 42 years of work. Hmm why wouldn't they propose the age of 69 then? Is it because of the sexual connotation?

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