Raise the retirement age? This is a discussion that has been going on for some time around the world. Longer life expectancy and an aging population—which, in pay-as-you-go and mixed systems, puts a lot of pressure on fiscal spending, given the decline in contributions from the young working population to finance the pensions of a growing population of retirees—are two of the main reasons behind the debate. Even in the case of the individual capitalization system that has been in place in Chile until now, the need to contribute for more years in order to receive a better pension is an important element in the public discussion.

However, things do not seem to be so simple. An analysis by the World Economic Forum finds some hidden costs in the idea of postponing the retirement age. From the point of view of fiscal sustainability, the idea of retiring later makes a lot of sense. But when analyzing the efficiency of welfare distribution, among other things because it tends to distribute benefits to populations that need them less: those who retire later generally belong to groups with better health and education, more productive careers, and greater financial resources, while those who tend to retire earlier have lower life expectancies. "Therefore, the most pronounced incentives take resources away from people who not only have fewer resources, but also suffer from poorer health," says the analysis.

With this study, which seeks to show the redistributive costs of raising the retirement age, the WEF proposes new elements for analysis to find the difficult balance between providing better pensions to those who need them most, who tend to be those who retire earlier, and the need to maintain sustainable fiscal spending.

Although the WEF analysis is not aimed at a system with a majority individual capitalization component, such as the one that has characterized the Chilean pension model to date, it does provides important elements for the discussion currently underway in the country.

You can see the analysis HERE.