There  are no earnings limitations on Social Security benefits above age 65. In the past, a  greater percentage of pension-plan participants were covered by defined  benefit plans. As a result of these trends, the median age of the U.S. population, like that  of other high-income nations, is projected to steadily increase in the  coming decades, but it will still be lower than that of most high-income  nations. Key Elements of Reforms in Other Nations Expected to Increase Labor Force Participation of Older Workers

The recently enacted retirement policy reforms in Japan, Sweden, and the  United Kingdom are expected to lead to higher labor force participation of  older workers. Benefit Adjustments to National Pension Systems May Increase Labor Force Participation of Older Workers

Reforms in the United Kingdom, Japan, and Sweden that increase the age  at which workers are eligible for benefits or allow flexibility in when and  how pension benefits can be taken are some of the policy changes that  may encourage older workers to stay in the workforce. Additional pension reforms that change benefit calculations so they  reward continued work or discourage early retirement may also promote  continued labor force participation by older workers. The United Kingdom adjusted its benefit calculation formula  to increase the reward for those who defer drawing benefits from the  national pension system. To Increase Work Incentives for Older Workers, National and Employer-Provided Pension Reforms Moved Systems Towards Defined Contribution Features While Other Reforms Addressed Disability Insurance

Each of the nations we studied implemented reforms that included defined  contribution features in their national and employer-provided pension  systems, although this shift was more pronounced in Sweden and the  United Kingdom than in Japan. Experiences of Other Nations Suggest That the Nature of Reforms Plays a Key Role in Increasing Labor Force Participation of Older Workers

The experiences of other nations suggest that the scope and  comprehensiveness of reforms, the transparency and availability of  information, and the strength of the economy play important roles in  encouraging labor force participation by older workers. Japan has supplemented its national pension  reforms with wage subsidies to encourage older employees to continue to  work. Officials  from each of the three nations we studied also identified other critical  labor market policies that needed to be harmonized with these changes,  particularly in the area of employment age discrimination and regarding  mandatory retirement ages. These eligibility age increases will be phased in over several decades. In addition, there have been changes to  the structure of employer-provided pensions complementing the national  pension reform. The NDC plan is financed according to pay-as-you-go principles, but the  system also includes pension reserve or “buffer” funds. This means that with increasing life  expectancy over time, other things being equal, individuals will have to  work longer or accept lower pensions. These programs have, for the most part,  always been open to workers of all ages. Sustainability: Changes to the U.K. national pension system, including  raising women’s eligibility age, increasing Basic State Pension benefits in  line with average price increases rather than the higher of increases in  average prices or wages, and making survivors’ benefits less generous, are  helping to maintain the long-term fiscal sustainability of the system.
Why GAO Did This Study

In recent years, the challenges of aging populations have become a topic of increasing concern to the developed nations. These challenges range from the fiscal imbalance in national pension systems caused by fewer workers having to provide benefits for greater numbers of retirees, to potential economic strains due to shortages of skilled workers. Part of the solution to these challenges could be greater older worker labor force participation. GAO identified three nations--Japan, Sweden, and the United Kingdom--that had displayed high levels of older worker labor force participation in the past and were now implementing policy reforms that continued to emphasize the importance of older workers. The experiences of these nations suggest that the nature of the reforms, the public availability and transparency of information on the reforms, and the strength of the national economy play key roles in extending older worker labor force participation.

What GAO Found

The retirement policy reforms in Japan, Sweden, and the United Kingdom are expected to lead to higher labor force participation of older workers. Japan is facing the most severe aging trend of the nations GAO studied, as its median population age is projected to be 28 percent higher than the United States in the coming decades. In response, Japan has enacted substantial benefit cuts to its national pension system by raising the eligibility age and reducing benefit levels to maintain fund solvency. Due to these changes, some Japanese workers will have to work to later ages. Sweden undertook the most significant reform by changing the structure of its national pension system from a traditional pay-as-you-go defined benefit plan, like the U.S. Social Security program, to a system where participants' benefits are more in line with their contributions. These reforms are expected to extend workers' careers by rewarding longer labor force participation with higher benefits. The system also incorporates flexibility by automatically adjusting benefits to changes in the economy and life expectancy to preserve financial stability. The United Kingdom will phase-in an increase in the women's national pension eligibility age so that it will be equal to the higher male age of 65. It also revised its benefit formula to raise the annual incremental increase for those who defer drawing their pension benefits. These changes either reward continued employment or discourage earlier retirement, and thus may promote continued labor force participation. However, although incentives to work to later ages have been created through reforms to their national and employer provided pension systems, officials from each nation stressed that these policy changes must be accompanied by labor market reforms and economic growth to provide job opportunities to older workers if they are to be effective.