October 02, 2017

Poland bucks European trend by lowering its retirement age

Poland bucks European trend by lowering its retirement age

An election promise by the ruling Law and Justice party (PiS) to lower Poland’s retirement age came into effect this Sunday, reducing the age to 60 for women and 65 for men.

The legislation reverses the changes approved in 2012 by the former centrist government to raise the age to 67, a move reflecting the trend across Europe to gradually increase the retirement age as workers live longer and stay healthier.

The Polish economy is currently booming, with growth at 3.9% and unemployment at its lowest level since the transition from communism in the early 1990s. In the short-term the change is therefore expected to have only limited impact on the economy.

However, with the PiS government estimating its cost at about 10 billion zlotys in 2018 (roughly $2.74 billion, or 0.5% of GDP), economists have warned that there is a strong potential for strain on state budgets in the future.

There is also concern that the reduction in retirement age threatens to drastically limit employees’ access to workers, further increasing the pressure on wages, which are already growing at their fastest pace in five years.

Poland has one of the most rapidly aging populations in Europe, and the state pension agency ZUS has estimated that 331,000 people could take advantage of the offer—equivalent to 2% of the country’s total workforce.

“I'm worrying what will happen when the economic cycle turns,” said Marcin Mrowiec, chief economist at Bank Pekao. “We might wake up with wages above levels that firms can cope with and...permanently higher budget spending on pensions.”

Writing for IZA World of Labor, René Böheim warns against policies that would seek to lower retirement ages, observing that “Higher employment for older workers coincides with higher employment for younger workers…Lowering the retirement age decreases the incentives to train and to invest in additional skills, and therefore leads to lower economic growth.”

Read more articles on Retirement and late-life work and Transition economies.

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