Trends in retirement plans, a reflection of societal choices

Whether public employment pension schemes align with private-sector rules, cover all or part of the workforce (e.g. tenured civil servants vs. contract employees) or retain their own funding sources, there is little doubt that they will continue to see changes in the years to come. There is a need to ensure public pensions remain economically viable while also factoring in societal considerations, such as remaining aligned with the rest of the working world. (1)

This means regularly adjusting the minimum age for entitlement to pension benefits and/or the required number of years of service (with or without contributions) and what the penalties for early retirement look like.

In Germany, only civil servants (40% of the public workforce) have a standalone pension plan. Since 2012, they can apply for maximum pension benefits – equal to 71.75% of their most recent base compensation – from age 63, so long as they have made 40 years of contributions. Like in France, bonuses and other payments are not included in pension calculations. In 2021, the average pension rate was 67.2%.

In Spain, public employees also have a self-funded pension plan with its own special rules (retirement age of 61 and full pension with 30 years of service), but as from 2011 this no longer applies to new hires. Contributions are now paid into the general pension fund and the legal retirement age is 65, set to increase to 67 in 2027.

In 2019, Italy – the European country with the highest average age of its working-age population – opted for a new calculation model. The new “quota 100” scheme offers a straightforward way of determining pension entitlement: the sum of the retirement age and the number of years of service must equal 100. To encourage workforce renewal, the government has committed to hiring and training replacements during the six-month period between giving notice and retirement.

In the United Kingdom, civil servants have seen a number of different pension schemes over the years. The current one, “Alpha”, has been in place since 2015. The retirement age is 65 and the pension calculation is based on career-long average earnings. As for contributions, they increase in step with the annual salary scale (ranging from 4.60% to 8.05%).

Some countries, like Sweden, have long had a single system after eliminating special schemes. Others have more recently made the same choice, like Austria and the Netherlands (after adopting the “WNRA” act to normalise the legal status of civil servants).

Another option, rolling back the maximum retirement age so that people can work longer if they want to, has recently been taken up by Ireland and Portugal.

When a worker takes a pause in their career, it usually affects their pension credits. In Belgium, periods of caregiving leave are now included in pension calculations.

When Norway wanted to harmonise public- and private-sector rules in early 2020, it introduced a flexible and innovative new model. Under the agreement signed by the four leading labour unions, workers have the option of retiring at age 62 or working until age 75, the right to continue working and earning employment income without it reducing their pension benefits, and a 10% bonus for civil servants who stay on after becoming eligible for early retirement (due to the nature of their work or an early entry into the workforce). The new system in Finland includes a graduated scale for pension accrual rates: 1.5% between age 18 and 53, 1.9% between age 53 and 63 and 4.5% between age 63 and 68.

¹ According to data published in June 2020 by Eurostat, the average duration of working life (across all sectors) is estimated to be 36 years, an increase of 3.5 years from 2000. On a country-by-country basis, the figure varies widely across the European Union (32 years in Italy, 35.4 years in France, 42 years in Sweden.