Editor's note: This text corresponds to the fourth and last delivery of the article by Professor Nicholas Barr for CENIE, ¿Why don't we work longer? Throughout the month of October, we published the different parts, weekly, within the framework of activities organized under the Financial Education Day 2025.
It is important to identify these multiple impediments because they provide a roadmap of interventions that help to address them. What follows is a list of interventions set out only in embryonic form – all require more detailed attention in light of different country experiences and institutions. Later and more flexible retirement are not only nice-to-have – they are essential elements in addressing population ageing.
Policies to change attitudes
Raising pension age. Gradually raising state pension age is an important signal to workers and employers. Box 1 sets out principles for doing so – principles that assist the politics of reform, and principles with which the recommendations of the UK Pensions Commission (2005) complied.
Box 1: Principles for raising pension age
Automatic adjustment should be based on three principles.
- The rules should relate to date of birth, not to the date of retirement, otherwise there will be a wave of retirements just before any increase in pension age.
- Changes should be made annually, to avoid large changes in eligibility across nearby cohorts. Large changes are inequitable and likely to cause political difficulties, since benefits could differ significantly between people born in successive years, sometimes only days apart.
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As far as is sensible, rules for changing benefits should be explicit. Automatic adjustment linking pension age to changes in life expectancy leads to greater predictability and decreased political pressure. Nevertheless, as with the indexation of income tax brackets, it is always possible for legislation to change whatever the automatic rules produce.
Source: Barr and Diamond (2010, Box 5.4).
Thinking more intelligently about age. The customary measure of the age of a society is average age since birth and, as noted, people’s views about how old is old tend to be out of date. A different measure is remaining years of life expectancy.
‘Measured by average years left the UK population today is probably the youngest it has ever been. It is three years ‘younger’ now that it was in 1840, despite a doubling in the average years lived (age) of the population (from 21 to 41 years)’ (MacInnes and Spijker 2014, and for fuller discussion Spijker 2020).
Public communication has an important role in this aspect.
Policies to encourage older people to continue to work
A range of policies help.
Ensuring access to skills training and retraining. Workers, including older workers, need access to training and retraining that is both available and affordable. Thus, thought needs to be given separately (a) to delivery, e.g. what training, decided by whom, delivered by whom? and (b) to finance, e.g. extending student loans to vocational training (Barr 2018, 2023).
Support in the workplace. As an example, Porsche provides workers doing heavy work in car assembly with exo-skeletons (Financial Times 2019), analogous to power steering in cars. Other dimensions of support – also relevant to younger workers – include flexible working arrangements and health and well-being support.
Compatible pension design. An important starting point are designs that avoid a pension penalty from continuing part-time or full-time work. For example, in a final-salary defined-benefit plan if a person moves to half time work on half pay, the year should be counted as half a year of service on full salary, hence the move to part-time does not have a pension penalty. Similarly, pension benefits should increase suitably for a delayed start.
A second aspect is to allow partial pensions, for example the option initially to draw 25%, 50% or 75% of pension, while the deferred element continues to grow.
Policies to facilitate employers hiring older workers
Again, multiple policies are needed.
Addressing age discrimination. Age discrimination is illegal. The policy response is to enforce the law rigorously.
Supportive labour market institutions.
- Avoiding fixed costs of employment: employer costs should be broadly proportional to a worker’s pay. Any employer contribution, including social insurance, has a dampening effect on employment, but social insurance contributions that are a percentage of wages avoid the more powerful incentives against part-time work that fixed costs create.
- Lowering transactions costs and legal uncertainty: the issues are particularly relevant where a worker wishes to downshift at his/her existing employer. One approach would be to design sample contracts agreed between employer organisations and trade unions. A second aspect are any necessary changes to regulation and/or legislation.
Ensuring that workers have the necessary skills. The separate issues of delivery and finance were outlined above. For employers what is essential is that delivery provides workers with relevant skills and that the finance side does not discourage hiring older workers. If employers finance training on a voluntary basis the incentive is for each employer to free-ride on training financed by their competitors. That problem can be avoided by financing training in other ways, for example through one or more of a levy (say 2% of wages) applying to workers of all ages, through some taxpayer support for training, perhaps targeted at older workers, and/or through a system of student loans (though the last is more relevant to younger workers).
Addressing any age-related differences in health. If health-related absence from work is greater for older workers, consider some form of subsidy for employing older workers to level the playing field, e.g. a reduced social security contribution or a wage subsidy.
5. Conclusion
For the purposes of later and more flexible retirement, a well-designed pension should have four strategic elements:
- An initial earliest pension age that makes it possible to provide an adequate pension on a sustainable basis;
- A subsequent earliest pension age that increases with rising life expectancy in a way that is rational and transparent, so that people know well in advance broadly when they will be able to retire;
- Supportive labour market institutions and pension design that allow people to move from full-time work towards full retirement along a phased path of their choosing;
- Efforts to increase public understanding of the simple economics of pensions.
References
Barr, Nicholas (2018), Strategic policy directions for tertiary education, Submission to the Review of Post-18 Education and Funding.
Barr, Nicholas (2021), ‘Pension Design and the Failed Economics of Squirrels’, LSE Public Policy Review, 2021; 2(1): 5, pp. 1–8.
Barr, Nicholas (2023), ‘A fairer way to finance tertiary education’, LSE Politics and Policy, 7 June.
Barr, Nicholas and Diamond, Peter (2010), Pension Reform: A Short Guide, New York and Oxford: Oxford University Press.
Christensen, Kaare, Doblhammer, Gabriele, Rau, Roland, and Vaupel, James W. (2009),
‘Ageing populations: the challenges ahead’, The Lancet, 374: 1196–208.
Financial Times (2019), ‘Germany invests to prolong employees’ working lives’, 17 January.
Financial Times (2025), ‘How can businesses harness the benefits of older workers? Having different generations working together can help them bring out the best in each other,’ 7 August.
Indeed (2025), ‘5 Advantages of Diversity in the Workplace’, 28 July,
MacInnes, John and Spijker, Jeroen (2014), ‘The politics of population ageing’, School of Social and Political Science, University of Edinburgh.
Petery, Gretchen A., Grosch, James W., and Chosewood, L. Casey (2023), ‘Clearing Up Myths About Older Workers While Understanding and Supporting an Aging Workforce’,
US Centers for Disease Control and Prevention.
Spijker, Jeroen (2020), How should we measure population ageing: using the old-age dependency ratio or is there an alternative?, CENIE
Teambuilding.com (2025), ‘18 Key Benefits of Diversity in the Workplace’, 3 March,
UK Pensions Commission (2005), A New Pension Settlement for the Twenty-first Century: Second Report of the Pensions Commission, https://webarchive.nationalarchives.gov.uk/ukgwa/+/http:/www.dwp.gov.uk/publications/dwp/2005/pensionscommreport/main-report.pdf
Vaupel, James W. and v. Kistowski, Kristín G. (2005), ‘Broken Limits to Life Expectancy;’ Ageing Horizons, No. 3, 6–13.
Nicholas Barr is Professor of Public Economics, European Institute and School of Public Policy, London School of Economics and Political Science. Other blogs and a range of academic and policy writing can be found on https://www.lse.ac.uk/european-institute/people/barr-nicholas
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