Pension Economics and the Four Pillars: Success in a Never-Ending Challenge

5. Promotion of a new design for retirement: the fourth pillar

Since the mid-1990s, the Association’s research programme on the four pillars has concentrated on promoting the issue of ‘a new design for retirement’, that is, a re-examination of the end of career and the possibility of building a fourth pillar into our social policies.
The fourth pillar involves supplementing the first three pillars with resources from a fourth, that is, income from part-time work for some years after reaching retirement age or earlier in the case of early retirement. From the legal retirement age onwards, this fourth pillar income is accompanied by a partial pension. Because it helps to lighten the growing burden of funding pensions in the future, the fourth pillar has become one answer at least to the enormous problem of pension financing in the years to come. But it also marries up with many of the changes and needs that are specific to our contemporary service economies (the increasingly flexible nature of employment and of the life-cycle). The graph summarizes the trends towards a fourth pillar:
6. New context, new concept: gradual retirement as a substitute for early retirement

In the nineties, the concept of the fourth pillar had to be rethought to suit a short and medium-term frame and we proposed that gradual retirement become a substitute for early retirement.
Indeed, the changing attitudes of stake holders towards employment at end of career have progressively given rise, although not homogeneously across Europe, to a new consensus about a later and more flexible age of retirement and new work conditions at end of career:
• The state and its policy-makers, for well-known financial reasons, needed to reform pensions and reverse the trend towards early retirement. Public deficits in most industrialized countries had risen enormously over the last decade and the Maastricht criteria for accession to the single currency required their drastic reduction. States were accordingly left with little alternative to limiting social protection expenditure. In recent years, policy makers introduced new policies aimed at the inclusion of older workers:
– raising the age at which a person becomes eligible for a state pension;
– drastically reducing early retirement incentives and allowances;
– reducing access to disability and unemployment insurance for early retirees;
– encouraging a gradual end to working life;
– educating employers about the value of older workers.
• At the same time, more and more employers have realized that early-retirement policies have meant a considerable loss of experience and expertise which could have been useful to businesses. Some employers have already realized that it makes good business sense to recruit, develop, motivate and retain older workers, and this for five main reasons: return on investment, preventing skills shortages, maximizing recruitment potential, responding to demographic change, and promoting diversity (Alan Walker, 1996). Moreover, employers know that they must adapt their management to an ageing work force and that career planning and employment of older workers, i.e. end-of-career management, are becoming a priority issue. More generally, it is occupational life as a whole that is being re-examined in order to adapt its cycle to the abilities and needs of the life-long worker.
• Trade unions have been in favour of early retirement especially when offered on favourable financial terms. But attitudes are now changing, since increasingly unions are becoming aware that the needs of the employee in the service economy are different from those of the worker in manufacturing and that continuing training and adjusted work conditions are also issues to be addressed (European Trade Union Institute).
• Older workers themselves are still fighting to secure good terms for early retirement while the latter are still available. But more numerous are those who recognize the need for a transition between a full-time career and full retirement and of adjusted work conditions which enable them to remain active later. Many know that our pension systems will not be able to afford the current periods of retirement (around twenty years or more) at these expense levels for much longer. At the heart of our project is the notion of productive ageing. Surveys have shown that there is a genuine desire among many older people for part-time or full-time work, managerial or non-managerial jobs, and a continuing contribution to society. Many more older workers today than ten years ago have benefited from continuing training.

See also: giarini, O. and Liedtke, P. (1998): The employment Dilemma and the future of work. A Report to the club of Rome.

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