A new report from the Organization of Economic Co-operation and Developmen says that, after a decades-long shift toward early retirements, many OECD countries are now trying to reverse the trend.

Early retirement has become more widespread in OECD countries in recent decades, in part because the practice was encouraged by government policies. However, in light of the challenges arising from aging populations, many OECD countries have recently changed their policies with respect to early retirement, and are now aiming to increase labour participation of older workers.

A main finding is that ordinary public old-age pension systems now do not generally give strong incentives to retire before the statutory age. To some extent, this reflects policy measures to strengthen the link between the number of years of pension contributions and the eventual benefits paid to retirees. As a result, pension systems treat early retirement in a more actuarially neutral way.

Nonetheless, old-age pension systems still discourage working after the statutory age and the statutory pension age remains low in some countries. Moreover, early withdrawal from the labour market often remains an option, through special early retirement schemes, unemployment-related transfer schemes, disability pensions and occupational pensions.

Although some of these schemes have also been tightened recently, they still provide important fiscal incentives to retire before the statutory retirement age. The study says further reforms are needed to eliminate the distortions that encourage workers to withdraw early from the labour market.

If older workers remain in employment longer and increase the supply of labour, the demand for workers will need to keep pace. Policymakers face a number of challenges as they try to ensure that demand meets supply. In particular, wages will have to reflect worker productivity. If productivity declines with age and wages are not adjusted accordingly, demand for labour will suffer. Moreover, strict employment protection rules may be an obstacle to hiring older workers and may have to be modified.

In this context, training of older workers could gain importance. If policy reforms manage to raise the average retirement age, the incentive for life-long learning is also likely to rise. Nonetheless, the study says that additional measures to encourage training may be needed.