Retirement age to increase by about two years by 2050

The retirement age in Portugal is expected to increase by about two years by 2050, reaching 68.4 years by then, predicts the Organisation for Economic Cooperation and Development (OECD) in the report “Pensions at a Glance 2021” released on Wednesday.

The OECD report adds that Portugal is one of seven OECD countries that have the age of access to retirement indexed to the evolution of average life expectancy, like Denmark, Estonia, Greece, Finland, Italy, and the Netherlands.

According to the document, in Portugal, where the legal retirement age increases by two-thirds of the increase in average life expectancy, the increase will be of “about two years” for those who enter the labour market at the age of 22 and retire after a full career, with no reduction in pension.

According to the organisation, the normal retirement age in Portugal will thus rise from 66.42 years in 2021 to 67.5 years in 2035, reaching 68.37 years in 2050.

Workers who have to interrupt their working life due to unemployment will have to retire a year later than workers with full careers not to suffer pension cuts.

Although linking retirement age to average life expectancy makes pension systems more robust, the measure is insufficient, says the OECD, particularly considering that the fall in average life expectancy is no longer seen as a “theoretical scenario” due to the mortality associated with the Covid-19 pandemic, an effect that will only be visible in 2022.

In fact, taking into account the latest data published by Statistics Portugal (INE) showing an unprecedented reduction in average life expectancy at 65, the retirement age in Portugal is expected to fall to 66 years and four months in 2023, after reaching 66 years and seven months in 2022.

In the document, the OECD also noted that mortality rates vary from year to year due to environmental factors, even in normal times, such as climate and contagious diseases such as influenza, so the link to average life expectancy may not be a stable indicator.

The organisation also indicates that Portugal is one of the countries with the highest net replacement rates (the amount you receive in pension compared to the salary you received while working) in the future, of around 90% taking into account a full contribution career and an average salary.

Taking into account a full contributory career and average earnings, the net replacement rate for future pensions in OECD countries averages 62%.

The rate ranges from minus 40% in Chile, Estonia, Ireland, Japan, Korea, Lithuania and Poland to “90% or more in Hungary, Portugal and Turkey,” the document says.

The ageing of the population has accelerated in the last decade, with an impact on pensions and countries such as Portugal and Spain “will face acute demographic challenges” that will affect the adequacy of the value of pensions and financial sustainability or both, warns the OECD.

On average across OECD countries, people aged 65+ had an average disposable income equal to 88% of the total population in 2018.

Over the past two decades, the average income of older people has increased by 6 percentage points in the OECD, growing by more than 10 points in countries such as Portugal, Spain, Denmark, Hungary or Greece.