Issue 3: University graduates are living longer – should that lower workers’ pension rights?

10. 02, 2022

We hear that Icelanders are living longer than before and, therefore, the boards of private sector pension funds are planning to slow the acquiring of pension rights. This means that the “pension promise” (76% of average lifetime wages) which was aimed at by raising dues from 12% to 15.5% in 2016-2018 will not be fulfilled at 67 years of age, but rather at 70 years.

On the one hand, it sounds reasonable to raise the retirement age or slow the rights accumulation as fund members live longer. The same amount has to last for a longer time, as the lifespan lengthens. But this elides serious problems. The lifespan of different demographics is not being extended equally.

General workers start paying pension dues earlier than others (due to shorter schooling) but enjoy pensions for a shorter time than the more educated, 5 years shorter than university educated ones. This puts them at a considerable disadvantage in the pension system. They pay dues for longer, but get a pension for fewer years.

When the retirement age is raised or rights cut, then they face an even steeper disadvantage, in addition to their greater difficulty in working longer to maintain their previously earned pension. In neighbouring countries, this has been mended with countervailing measures. Similar solutions are offered here for Iceland.

Read the full PDF version of issue 3 of Efling’s Economic Analysis (Kjarafréttir) here.