EUROPEAN PAPERS ON THE NEW WELFARE

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

7. Gradual retirement and its benefits

Gradual retirement, often referred to as partial or part-time retirement, offers a transitional period between full-time employment and full retirement. The worker, instead of working full-time one day and fully retiring the next, can reduce work hours according to graduated and agreed schedules while drawing part-time pay (and in some cases some form of state subsidy or partial pension). Approximately five years is the transition period most commonly encountered in the OECD countries, while in legislation in France and Germany worktime reduction is planned for workers between 55 and 65.
There are a number of advantages for employers and workers alike. For the employer, gradual retirement or work-time reduction
• reduces the wage-cost of hours worked;
• raises productivity per hour (productivity per hour in many work functions increases when a worker moves from full- to part-time);
• retains skills and expertise together with the older worker’s specific contribution;
• reduces absenteeism (e.g. Swedish and French firms);
• makes for better age management;
• frees older workers for training duties.
For the employee, it:
• makes it possible to adapt work to the older workers’ changing abilities;
• reduces stress and increases job satisfaction;
• gives the older worker the opportunity to benefit from continued membership of a work team and from inclusion in the work place (e.g. Japan);
• provides the older worker with free time to develop extra-occupational activities.

8. Implementation and potential of gradual retirement in selected OECD countries

In addition to an important number of seminars and conferences on the topic organized by us or other organizations with our help, we were able with the European Commission’s support to launch a network and prepare and edit a book in 1996: Gradual Retirement in the OECD Countries: Macro and Micro Issues and Policies, by Lei Delsen and Geneviève Reday-Mulvey (Head of the Four Pillars Research Programme at The Geneva Association).
In this work, well-known social security and pension experts covered 7 countries: France, Germany, Japan, the Netherlands, Sweden, the United Kingdom and the USA. A typology of four models was proposed: the Swedish, Japanese, continental and Anglo-Saxon models. We showed that with 60 year-olds having a life expectancy of almost 25 years — most of the latter in reasonable health — there is considerable potential for keeping older people better integrated (i.e. more ‘actively’ than as mere consumers) in our societies in future. Gradual retirement can and already does provide an alternative to full early retirement which has receded in countries like Finland, Denmark, the Netherlands and France. New pension rules and employment policies have begun to have some impact on reversing early retirement policies. It is now widely recognized that in the medium- to long-term the de facto age of retirement will be later and more flexible.
At the same time, we published specific country studies or articles by either members of this network or other experts and specialists. Furthermore, we have been part of European and international networks and, by doing so, we contributed to important research and policy formulation studies. These studies show that extension of working life is seen everywhere as a crucial policy for reducing the burden of social expenditure in years to come. Because of its flexible nature which is well suited to end of career, gradual retirement is finding increasing favour with the majority of workers, and growing acceptance with management and trade unions.
Our research over the last few years has revealed that gradual retirement can be implemented on a wide scale and has considerable potential to facilitate an extension of working life in OECD countries. By promoting work and age management at end of career, workers will be prepared to work later and continue to contribute to pension schemes, and enterprise will be able to reduce costs and to benefit from increased flexibility.
“One can hardly overstress the importance of properly integrated public and company policies for promoting the employment of older people”. I. Shimowada.

9. Recommendations for public and company policies

Public Policies: What stands out as essential is that public policies need to be sufficiently comprehensive and accompanied by incentives at various levels. Those countries which so far have been more successful in implementing gradual retirement tend to be the ones which have designed global policies (Denmark, Finland, Sweden and the UK). It is essential to make early retirement options as well as disability and unemployment routes more difficult, more costly and their terms more stringent. It will be objected that current labour market conditions, especially rates of unemployment, make any progress difficult. It is precisely for this reason that gradual retirement cannot be handled outside the broader context of employment redesign and redistribution. In several European countries, legislation (or, in the Netherlands, collective agreements) promotes replacement of full early retirement by gradual early retirement and makes retirement more flexible and delays it. But such legislation clearly needs to be accompanied by financial incentives from the state. Changing the deeply-rooted mindsets of the early retirement culture requires drastic redesign, a good partnership between the State and enterprise, new age management policies and their gradual implementation, and last but not least a wide and lasting debate in firms, trade unions and with the media.
Company Policies: Four areas at least, among the many that require attention, should be a particular focus for this integrated policy approach: First, training. In order for older workers to remain motivated and productive, continuing training should not terminate at 45 or 50 years but should continue until end of career. Countries where such company policies exist are in a much stronger position when the decision to extend working life is taken. In Sweden the extent of training is impressive and there seems to be little discrimination towards older workers. In France and Germany, especially in bigger companies, the same policy is more frequent. A second key variable is pay policy. It is clear that seniority-based pay policy, by raising the wage costs of workers at end of career, constitutes a real obstacle to all forms of extension of working life. In several countries, there is a growing trend in wage calculation today towards reducing the weight of the seniority factor and increasing that of performance. In America and Britain, this trend is prevalent in bigger firms, but is now to be found in other countries (e.g. in Japan, Germany and France in some sectors, such as insurance). Third, occupational pensions: many Dutch, British and American pension funds are final-salary based but there is an increasing consensus to modify them and make them average-salary based. And fourth, part-time and flexible work. The development of part-time and flexible forms of employment is obviously important for gradual retirement. Most countries have seen such development at either end of the life-cycle. Countries such as the Netherlands and the UK have a high rate of part-timers. Some have improved legislation in this respect so as to provide better levels of protection for part-time work (for example, France and the Netherlands). In other countries, there is availability of part-time jobs for older workers either inside (e.g. Sweden) or outside main career employment (Japan, UK, USA).
In conclusion, gradual retirement seems to stand at the crossroads of two important issues:
• redesigning the end of career and flexibly extending working life for pressing financial reasons which have to do with demographic prospects, but also because of the need for proper management of human resources and skills; and
• developing well-protected and regular part-time and flexible work not only as a desirable transition from full employment to full retirement, but also as an ideal opportunity for moving towards a socially fairer and more efficient division of labour within our society (Giarini and Liedtke, 1998).
Our work has been well recognized by key organizations, such as the European Commission and the OECD, and the academic world. In the press, our proposals and research have been mentioned in several prestigious journals and newspapers such as The Economist, The Financial Times, Le Monde and Neue Zürcher Zeitung.
More widely, our concepts and proposals on the future of work — with the best-seller in Germany (and translated into eight different languages) of the Report to the Club of Rome The Employment Dilemma and The Future of Work by Orio Giarini and Patrick Liedtke — have influenced the political debate.
“For years The Geneva Association and a few others have been attempting to put the concept of gradual retirement on the policy agenda. That has finally proved successful. The work-retirement transition is now at the centre of the policy stage… and your work was an important influence in formulating our policy advice to OECD ministers”. Peter Hicks, OECD, Paris, December 1998.


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