Health policy as effective pension policy

Seija Ilmakunnas Director, Labour Institute for Economic Research

Seminar Connections between health and employment: what

implications for cost-effectiveness 28 October 2014

This presentation: Research: good health – later retirement

In practice: over time healthier workers working relatively less Need to change the tide

From early exit culture to later retirement - towards more streamlined pension system - there are risks to the fairness – the role of health policy Conclusions

Health status and retirement: observations from research literature

The bulk of the evidence gives health an important role in retirement decisions, some examples.: Schuring, Burdorf, Kunst & Mackenbach (2007):

Subjects with poor health and low/intermediate education had the highest risks of unemployment or (early) retirement (Europe, ECHP-data)

Schuring (2010): Controlling for individual and work related characteristics, poor self-perceived

health was strongly associated with exit from paid employment due to retirement, unemployment, or disability (Europe, SHARE)

Dwyer & Mitchell (1999): Health problems influence retirement plans more strongly than do economic variables (USA, HRS data) Cai & Kalb (2006): Better health increases the probability of labour force participation, the largest effect is for older groups and women (Australia)

Health status and retirement Examples of findings from previous Finnish research

Karpansalo, Manninen, Kauhanen, Lakka & Salonen (2004): Self-assessed poor health is a strong predictor of early retirement due to

mental disorders, musculoskeletal disorders, and cardiovascular diseases. Risk of retirement on nonillness-based pension is also increased among those with poor perceived health.

Hakola (2002): There is large variance between the distinct retirement channels on how health

actually affects the retirement risk. Channel substitutability is important (especially between unemployment pension and disability pension).

(health variable based on re-imbursement of medicine expenses related to chronic illnesses)

Ilmakunnas & Ilmakunnas (2008): Having medically diagnosed illness increases the probability of being on part-time

pension and it decreases the probability of continuing the working life over the lower age limit for old-age pension.

Last 30 years: Majority of the gains in life expectancy have been spent in retirement (about 2/3 of additional years spent in retirement)

Longer time in retirement challenges the economic sustainability of the pension system Better overall health status of the working age population is at odds with decreasing employment/retirement -ratio

Better health enabling later retirement, but other factors can counteract: - institutions – incentives of the pension system - rising incomes and increasing demand for leisure - failures in the labour market

The Finnish success story? Rising employment rates for older workers

Source: Statistics Finland

%

Source: Statistics Finland & Finnish Centre for Pensions

Changes in life expectancy and retirement age WRT year 1983

years

Retirement age = the expected effective retirement age (expectancy) for 25-year-olds

0,7

0,72

0,74

0,76

0,78

0,8

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Retirement age in relation to life expectancy 1983 – 2013

Source: Statistics Finland & Finnish Centre for Pensions

Trends in perceived health 1979- 2010 Perceived health good or rather good (age group 25 -64, %)

Source: Health behaviour and health among Finnish adult population, THL

Age-standardised death rate for diseases of the circulatory system per 1000 000 persons

Source: Prättälä et al. (2011)

0

1

2

3

4

5

6

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050

2052

2054

2056

2058

2060

20-64 65+

Population ageing according to population projections: Population in two broad age groups (20 - 64 & 65 +) (in millions)

Source: Statistics Finland

Policies supporting later retirement: “Hard measures”: Changes in the pension system - eligibility restrictions to the early retirement schemes (even abolitions) - changes in economic incentives (early retirement: lowering the amount of pension) - old-age pension after 2017: lower age limit gradually to 65 from 63

“Soft measures”: Better coverage and quality of the occupational health services - the other side of the coin: discrepancy between the employed and the unemployed

Promoting better working conditions and health with specific programs for older workers - The National Program On Ageing Workers, The Well-being at Work Program, …

Increasing rights to vocational rehabilitation within the pension scheme - a person has a right to vocational rehabilitation if illness, handicap or injury poses a threat to his or her work ability within about five years & economically reasonable

Getting rid of the early exit culture

From early exit culture to later retirement: Abolition of “extra” early exit channels imply more streamlined pension system - the main goals of the pension system become clearer - the labour market problems need to be solved where they arise More pressure towards the remaining channels i.e. disability pensions Question of the fairness of the pension system: early exit channels have been used more intensively by lower socio-economic groups - this has counteracted the effect of the shorter period they have received old-age pension (due to shorter life expectancy) Re-employment possibilities of older workers are of great importance - policies to support remaining work ability become increasingly important - higher employment of older workers has resulted from delayed exits from current jobs rather than better recruitment prospects (Ilmakunnas & Ilmakunnas 2014)

50 year old men:

Expected time in employment, unemployment and in retirement (2007)

Source: Myrskylä et al. 2013

Some final conclusions and remarks Improving health status of the work force is good news for the

sustainability of the pension system However, better health is more a prerequisite for longer

working careers than an automatic relief Health operates intervened with the pension and labour market

institutions Abolition of early exit channels and increasing old-age pension

age implies greater need to support work ability of older workers

Particular need for policies that aim to alleviate the health inequalities among the work force

Thank you!