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As far as I know, especially across Europe, the retirement age is increasing due to low birth rates and population ageing, the current pension system being unsustainable in this situation.

But this can't be a long term solution, because as people get older, their health deteriorates and they are unable to work anyway. I already see this phenomenon around me, as the retirement age reached 65. It is still not a very high percentage but let's say 1 in 10 (anecdotal) people retire before the legal age due to medical reasons. I can only conclude this will become more and more common as the retirement age heads towards 80. One can imagine a situation where the legal retirement age becomes irrelevant, as most people would be too sick to work by then anyway.

This can't be mitigated by increased life expectancy as some diseases, especially mental ones are more common as people age and most ones are incompatible with daily work.

Assuming current birth rates and population ageing keep their trend, is there any other solution for a sustainable retirement system?

How can European states have a sustainable retirement system since deteriorating health is associated with the increasing retirement age

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  • Surely if current birth rates and population ageing keep their trend, then at some point birth rates will be either zero (in which case it is not possible) or infinity (in which case the population is not aging, but it is still not possible due to overpopulation)? – user253751 Mar 4 '20 at 11:07
  • @user253751 the population trend is another can of worms... but for the foreseeable future in the developed countries we can assume the trend to be negative more or less. – Adrian Sicaru Mar 4 '20 at 11:31
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    So the question is: if birth rates continue declining forever, how can we sustain retirement forever? And the answer is: we can't because eventually there will only be retired people (and after that phase, humans will be extinct). – user253751 Mar 4 '20 at 11:32
  • @AdrianSicaru - I have edited your question to be more answerable. It is still too broad, but at least I narrowed its scope to Europe only. – Alexei Mar 4 '20 at 12:37
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    @FluidCode Increased productivity will not help you if birth rate is zero. Nor will retraining old people, in the long run. – user253751 Mar 4 '20 at 14:51
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It's a very complex and highly misrepresented issue.

First of all life expectancy rose quite quickly, but after reaching about 81 years in some countries the growth rate slowed down. The media highlights the presence of a lot of centenaries, but in a population in the range of hundreds of million of people they are still outliers. So, retirement age has been set at 65/67 years depending on the country, it is unlikely it will grow further.

Second. The media highlights the huge proportion of the GDP taken by spending on pensions in some countries. E.G. Italy, but they overlook on purpose that most of that spending is for people who retired with the old rules, people who exploited the system in the past, people who were pushed on early retirement by their employers and people who still enjoy a generous treatment due to many loopholes. This doesn't happen only in Italy, spending on pensions is unequal and so unbalanced towards early generations or certain professional categories that we can easily call the system discriminatory. But in the future as the current pensioner die out spending will go down anyway.

Third. This apply only to Europe for the moment. Many countries increased retirement age, but they did not outlaw early retirement. It may seem a schizophrenic policy, but it has a purpose. Since in Europe it is more difficult to fire people than in the US early retirement has been widely used to convince people to leave the company, so it is a mass redundancy tool paid by the taxpayer instead of the employers. With the increase of the retirement age its usage will probably increase as well, but this is an employer choice, they decide when to layoff people to cut the costs. If the chance for a worker of being pushed on early retirement increases it means the real increase of the retirement age will be lower than the official one, but it also means that people are losing the right to choose when they want to go on retirement. It will be the employer to decide it.

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A quick answer can be provided by taking a look at a European pension system that is considered one of the best in the world (Netherlands):

The Netherlands' world-leading pension system is due to the diversity of its funding sources, the accuracy of cost measurement, the fairness of distribution, the strong supervision of the Dutch central bank and the Dutch financial market authority. Compared with other countries, the Netherlands is relatively better at solving the problem of population aging, because it absorbs different pension fund models and implements consistent and risk-sharing policies.

As you can see there are ways to partially counter-balance population aging and one of them is having more funding sources:

The Dutch pension system combines a pay-as-you-go system, in which workers pay for retirees' benefits, and an individual investment system. In the individual investment system, groups and individuals make high-risk and low-risk investments to make up for the amount they receive from the state pension. These different models can be seen as the three pillars of the Dutch pension system.

Note the individual investment system. This is an important component that also relies on people being financially educated to prepare themselves for the retirement.

Assuming current birth rates and population ageing keep their trend (...)

Another important factor that counter-balances population ageing is immigration. Example from German:

If Germany sustains its current level of economic growth in the coming decades, all three drivers of population growth – immigration, fertility, and average life expectancy – could rise, and the population would remain relatively constant.

(..) if Germany can integrate immigrants into the labor market and increase older workers’ labor-participation rate, it would be in a better position to finance existing social-welfare programs.

Quite a lot of ifs, but immigration is clearly an important factor.

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