Differentiating Retirement Age to Compensate for Health and Longevity Inequality?

Abstract

Historically, a uniform age was used to proxy work capacity loss and trigger the payment of pensions. Recently, many have argued that we need several retirement ages to better match the distribution of work (in)capacity across socio-demographic groups. At first sight, the proposal makes perfect sense. Work capacity declines faster among low-income or low-educated individuals. But there is also a lot of unaccounted heterogeneity, even inside narrowly defined socio-economic groups. And this compromises the feasibility and desirability of retirement age differentiation. Under a regime of systematic retirement age differentiation, there would be many situations with no retirement for people with serious work restrictions and, simultaneously, numerous cases where entirely healthy people enjoy retirement. An alternative approach would be to stick to uniform retirement age, backed up by a reinforced disability scheme.