14/11/2011
By Adam Cadle
Raising the retirement age will have a negative effect on the economy according to economist Jochen Mierau, who was awarded a PhD by the Dutch University of Groningen for his research.
In his thesis ‘Annuities, Public Policy and Demographic Change in Overlapping Generations Models’, Mierau explained how an increase in the retirement age will result in a shorter pensioner period for an individual thus leading to less money needing to be saved to cover this timeframe. This will in turn lead to many banks not having enough money to invest and therefore economic growth will decrease.
Whilst acknowledging that the government most likely has other motives for raising the retirement age such as ensuring the welfare state remains economically sustainable, in his thesis Mierau emphasised that the government should either raise premiums or lower payments instead of raising the retirement age.
“The same models can be used to prove that it’s better to tax consumption, for instance as is done with VAT, than to raise income taxes. In the first case wealth is redistributed from the older population who consume a lot to the younger population saving for later. Raising income taxes has precisely the opposite effect,” Mierau said.
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