17.11.2011
 
Dr. Karnit Flug, Deputy Governor of the Bank of Israel:
Raising women's age of retirement—a step that should be taken at this time
Dr. Flug at the Calcalist conference: If women's retirement age is raised to 64 years, their income after retirement will increase by 8–10 percent, and if the age is raised to 67 years, their post-retirement income will increase by 21–28 percent.
 
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Women's retirement age in Israel, currently 62 years, is significantly lower than that in most OECD countries, where the most common retirement age for women is 65. Many countries in which their retirement age is lower have already taken the decision to raise it gradually, so that in 75 percent of the countries women's retirement age in the future will be at least 65 years.
Furthermore, in two-thirds of OECD countries women's retirement age is the same as men's, and in most countries where they are not the same, the decision has been taken (and laws passed) to raise women's retirement age to the same as men's. At the end of the process, of the 31 member countries of the OECD, there will be only three, in addition to Israel, in which the decision has not been taken to bring women's retirement age into line with men's (Poland, Sweden and Turkey).
The main factor underlying the rise in the retirement age in the different countries is the increase in life expectancy, which means that without changing the retirement age the number of years during which retirees will benefit from income from pension funds and old-age pension will increase significantly, without a parallel increase in the number of working years. At the level of the individual, this means that pension savings have not increased and are supposed to cover a longer period. At the macroeconomic level this means an increase in the dependency ratio, i.e., an increase in the ratio of the older, non-working population to the working population, which clearly makes it more difficult to finance old-age pension and payments from pension funds. Failure to raise the retirement age will thus require a cut in pension payments to all pensioners.
In the last three decades, life expectancy in Israel of women who reached the age of 65 increased by five years (and that of men, by four years), and according to Central Bureau of Statistics (CBS) forecasts, it is expected to continue to increase by a year and a half every decade. Against this, women's retirement age has increased so far by only two years. Thus, on average, a man reaching the age of 65 can expect to live another sixteen years after retiring at age 67, and a woman reaching age 65 can expect to live twenty-four years after retiring at age 62. Moreover, healthy life expectancy has risen in Israel, and is high relative to that in other advanced economies.
In light of the above, it is important to examine how women's income after retirement age compared to that before retirement is affected by changes in the retirement age. The Bank of Israel arranged a simulation covering women with different levels of education (and wages), to see the effect of the retirement age on the ratio of post- to pre-retirement income (replacement ratio). The assumption was that women worked continuously up to retirement age, that they save as usual in the new pension funds, and that the provision for pension was 12.5 percent of the pensionable wage. The study showed that raising the retirement age to 64 increased the replacement ratio from about 76 percent to about 83 percent, and increasing the retirement age to 67 increased the ratio to about 95 percent. In other words, a rise in the retirement age to 64 would increase women's post-retirement income by 8–10 percent, and a rise to 67 would increase their post-retirement income by 21–28 percent (depending on their educational level and wages).
In light of the above, the question arises: why not leave the stipulated retirement age as it is, because in any event a woman who wants to continue working beyond the retirement age can do so, as the compulsory retirement age for men and women is 67. It turns out that the official or stipulated retirement age, the age at which anyone can retire and receive the old age pension and pension from the old pension funds in the arrangement, is important with regard to the employment pattern of women and men. A study in the Bank of Israel (published in the bank's 2010 Annual Report) shows that women and men, at all levels of education, greatly increased their participation in the labor force and employment in the relevant ages following the rise in the retirement age in 2004. The rate of participation of women aged 61 and 62 increased by more than 9 percentage points when the retirement age was raised from 60 to 62.
 
It is reasonable to assume that the large increase in the participation rate of women and men as a result of the rise in the retirement age was not only due to the fact that the age at which they were entitled to income from the pension funds and old-age pension was pushed back, but was also due to the fact that the retirement age signifies a norm in the labor market, both for employees and employers. The rise in the retirement age and in the participation rate of women of the relevant ages was not accompanied by an increase in their rate of unemployment or in their despairing of finding employment and dropping out of the labor force.
 
The rise in the retirement age for women will naturally make it difficult for some of them, particularly those in exhausting jobs. It is therefore important that alongside a rise in the retirement age there should be policy measure to help them cope with those difficulties: a significant relaxation of the criteria for entitlement to unemployment pay, extending the entitlement period for elderly working women, incentives for employers to employ elderly workers, both male and female, and focused retraining for the re-absorption in other employment of women in exhausting jobs.
To summarize, the increase in life expectancy necessitates a rise in the retirement age of women, both to ensure the actuarial stability of the National Insurance and old pension funds, and to ensure a reasonable income for women when they retire. It would be reasonable to raise the retirement age relatively rapidly to 64 (say by four months every year), and then, in the second stage, to bring women's retirement age into line with men's, at a pace of one month a year.