Older Workers: Other Countries' Experiences with Phased Retirement
Released: 2019-04-01T00:00:00

Letter

Background

Phased retirement arrangements are programs that allow older workers to reduce their working hours to transition into retirement, rather than stopping working abruptly at a given age. The option to transition into retirement through phased retirement encourages older workers who might otherwise retire immediately to continue working. Delayed retirement may help alleviate pressures on national pension systems and address labor shortages and shortages of skilled workers. Phased retirement programs exist in both the public and private sectors and are used by employers that cover workers through both defined benefit (DB) and defined contribution (DC) retirement plans. The programs sometimes include a partial draw-down of pension benefits for workers while they continue to work and may include a knowledge-transfer component. Phased retirement programs are often called “flexible,” “partial,” or “gradual” retirement programs.

Sources of Retirement Income

Similar to the United States, the retirement systems in other developed countries consist of three main pillars: a national pension, similar to the U.S. Social Security program; workplace employer-sponsored pensions or retirement savings plans; and individual savings. Retirement plans can be broadly classified as DB or DC. A DB plan promises a stream of payments at retirement for the life of the participant, based on a formula that typically takes into account the employee’s salary, years of service, and age at retirement. A DC plan, such as a 401(k) plan in the U.S., allows individuals to accumulate tax-advantaged retirement savings in an individual account based on employee and/or employer contributions, and the investment returns (gains and losses) earned on the account. With DC plans certain risks and responsibilities shift from the plan sponsor (employer) to the plan participant (employee). For example, workers with a DC plan often must decide how much to contribute, how to invest those contributions, and how to spend down the savings in retirement. For DB plans, many of those decisions reside with the employer. Some retirement plans combine features of both DB and DC plans, often referred to as hybrid plans.

National pensions: According to literature we reviewed, many countries have created retirement plans for their citizens and residents to provide income when they retire. These plans are typically earnings-based and require employer and employee contributions over a number of years, with pension benefits not accessible before a certain age. National pensions are generally DB plans, similar to the U.S. Social Security program.

Employer-sponsored pensions or retirement savings plans: Employer-based pensions or retirement savings plans are set up by employers to help ensure their workers have income during retirement. Employer-sponsored plans often require both the employer and employee to contribute money to a fund during employment so that the employee may receive benefits upon retirement. Employer-sponsored pensions typically refer to DB plans that promise a source of lifetime income at retirement, whereas retirement savings plans are typically DC plans, with retirement benefits that accrue based on contributions and the performance of the investments in the employees’ individual accounts. Over the past several decades, there has been a significant shift in private sector employer-based retirement plans from traditional DB plans to DC plans. In the U.S. this shift has been to 401(k)s as the primary employer-sponsored retirement plans.

Individual savings: Individuals can augment their retirement income from the national pension and employer-sponsored plans with their own savings, which would include any home equity, investments, personal retirement savings accounts like Individual Retirement Accounts (IRA) used in the United States, and other non-retirement savings.

Population Aging and Economic Productivity

Population aging, primarily due to declining fertility rates and increasing life expectancy, has raised concerns about the sustainability and adequacy of pensions, especially as many workers continue to exit the labor force before the statutory or full retirement age. Research indicates that while certain countries are aging more rapidly than others, population aging will affect most OECD countries, including the United States, over the coming decades. For example, the share of the population aged 65 and older is projected to increase significantly by 2030 (see fig. 1).

According to a 2017 OECD report, since 1970, the average life expectancy at age 60 in OECD countries has risen from 18 years to 23.4 years and, by 2050, it is forecast to increase to 27.9 years. At that time, the average person is expected to live to nearly 90 years old. The increased life expectancy means that workers are spending more years in retirement. In many instances, the aging population is placing additional pressure on public pension systems and has raised concerns about the solvency of national pension systems and the long-term adequacy of benefits. In response, countries have used strategies, including increasing the statutory retirement age of their national pension systems, to reduce that pressure. However, many workers continue to leave the workforce prior to reaching the statutory retirement age, according to OECD data.

To address this development, retaining older workers in the labor market has been an objective in many countries. Some researchers have suggested that, in the U.S., economic productivity could decline as baby boomers age and leave the labor force, thus reducing the rate of economic growth. For example, a 2016 study found that a 10 percent increase in the percentage of the population age 60 and older decreases the growth rate of per capita gross domestic product (per capita GDP) by 5.5 percent. According to this study, two-thirds of the reduction is due to slower growth in the labor productivity of workers of all ages while one- third is due to slower labor force growth, suggesting that annual GDP growth in the U.S. could slow by 1.2 percentage points per year this decade, entirely for demographic reasons. Phased retirement has the potential to provide options that would be beneficial both to older workers and the overall economy by extending labor force participation.

We Identified 17 Countries with Aging Populations That Have Phased Retirement Options for Older Workers

Among the 44 countries that met our initial criteria as having a national pension system similar to Social Security and an aging population, we identified 17 with some kind of phased retirement program. Based on a review of relevant research, studies, and interviews, we determined that phased retirement programs in these countries were established in several ways: (1) through national policies including legislative actions and specific programs that encourage phased retirement; (2) at the industry or sector-level through collective bargaining agreements that cover specific occupations or sectors; and (3) by individual employers. Table 1 shows the three types of phased retirement arrangements found in the 17 countries we identified.

Based on our research, we determined that a national policy on phased retirement may provide a voluntary framework within which employers may participate rather than a requirement that they offer such programs. For example, Canadian officials reported Canada changed regulations that require employers who provide defined benefit pension plans and also offer phased retirement to allow participating workers to receive some partial pension benefits while continuing to accrue pension credits. However, according to the Canadian government, it is ultimately up to individual employers to make phased retirement available for their employees.

In many countries, collective bargaining played a key role in the formation of phased retirement programs, particularly at the industry or sector level. Half of the 17 countries have “sectoral” phased or partial retirement arrangements established through collective bargaining agreements that cover a large number of workers from specific industrial sectors or occupations, such as local government workers in Sweden or metal and chemical sector workers in Germany. Such sectoral programs can include public and private employers that provide a program or policy that applies to their workers only. Sometimes, companies with sectoral programs have the flexibility to set their own program requirements, within the broad guidelines of arrangements established through collective bargaining agreements.

Phased retirement programs can also be established by individual employers. Employers offering phased retirement are generally larger companies in the private sector with their own pension plans. Our research found examples of phased retirement programs offered by individual employers both within and outside of collective bargaining agreements.

Selected Countries’ National Policies Were Generally Designed to Encourage Phased Retirement, and Individual Program Design Aspects Vary

Selected Countries Employ Various Strategies to Encourage Phased Retirement

The national policies implemented in our four case study countries— Canada, Germany, Sweden, and the U.K.—currently, are mainly designed to encourage older workers to remain in the labor force and continue to earn and contribute to their pensions, and often, share their institutional knowledge with younger workers, according to the officials, experts, and employers we interviewed. For example, according to Canadian government officials, Canada, to retain older workers and meet the financial needs of those workers, amended its income tax regulations in 2007 to allow phased retirement under certain DB pension plans. Additionally, government officials in the U.K. reported that in 2014, the U.K.’s national flexible work policy was expanded to cover older workers who wanted to phase into retirement. They said that this was done, in part, to keep older workers—aged 50 and over—in the labor force. However, the reasons for instituting phased retirement have shifted over time. Based on our research and interviews with foreign officials and other experts, we found that, in some cases, phased retirement was initially used as an incentive for older workers to retire early so employers could hire unemployed younger workers. For example, officials reported that in 1996 at a time of double-digit unemployment (around 10 percent), Germany instituted a national part-time work program, the Altersteilzeitgesetz (ATZ), to encourage older workers to retire. Officials said this phased retirement program originally sought to get older workers out of the labor force and encourage employers to hire unemployed workers and trainees. Today, in response to an aging population, Germany is using phased retirement to encourage older workers to remain in the workforce and ensure knowledge and skills transfer, according to officials we interviewed. In addition, our research found that Sweden offered a national phased retirement program or a “partial pension” scheme from 1976 to 2001, mainly as an option to allow workers to gradually withdraw from work 5 years before the statutory retirement age. According to our research, this program was implemented, in part, to make it the transition from work to retirement more flexible. Swedish officials stated that the country abolished the program in 2001, mainly due to excessive costs, and implemented a new policy in 2010 that permits partial retirement and access to partial pension to encourage workers to stay in the labor force longer.

The four case study countries employed various efforts at the national level to encourage phased retirement options that seek to keep older workers in the labor force. From our interviews with government officials, unions, and other experts, we found that all four countries have national policies to help facilitate phased retirement. Examples include national programs that companies and sectors can offer to workers—such as the national program in Germany or the program in Sweden that ended in 2001—as well as implementing policies that seek to incentivize both employers and employees to offer and participate in phased retirement programs.

As shown in table 2, the four countries reported having made efforts at the national level to encourage phased retirement, including implementing national policies and programs that involve public subsidies, tax incentives, or changing pension rules to allow individuals to receive partial pension benefits while continuing to accrue benefits in the same pension plan. For additional information on the national efforts made by case study countries, see appendix II.

Individual Programs in Case Study Countries Have Similar Aspects, but Vary in Design and Sources of Supplemental Income to Workers

Employers in our case study countries have implemented various phased retirement programs that reflect the employers’ goals for offering phased retirement and the preferences of participating employees. Based on our interviews with officials, employers, and representatives from employer associations and unions in the four selected countries, we found that the programs offered by employers in those countries had similarities and differences in how the programs were established, designed, implemented, and funded.

Role of collective bargaining. Based on our research and interviews with experts, we found that most of the phased retirement programs we reviewed in the four case study countries were established as part of collective bargaining agreements between employers and union- represented workers. This was often the case for sectoral programs in either the public or private sectors and for those covering specific occupations. The programs often covered a large number of workers. For example, in Sweden, representatives of an organization for public employers with approximately 1.2 million employees (23 percent of the Swedish workforce) told us that 90 percent of the workers in Sweden were covered by collective agreements, and that they have negotiated collective agreements that included phased retirement for many of their members. In Canada, one expert reported that phased retirement was most common in fields that are highly unionized, because Canadian unions wanted to increase flexibility for members to gradually decrease work, but also receive a pension payment. For example, the expert said that universities were at the forefront of phased retirement implementation and they are highly unionized.

While most of the programs we reviewed were based on collective bargaining agreements, we identified a few companies that initiated phased retirement for their workers outside of the collective bargaining process, when the employer determined a need for such a program. For example, one private sector employer in the financial industry we interviewed in the U.K. told us that offering phased retirement options addressed employees’ need for flexibility. This employer commented that if employees are happy, they will stay with the company longer and continue to provide customers with superior service. As another example, a large German employer in the transportation industry offers a phased retirement program for managers who are not covered by a collective bargaining agreement.

Defined benefit and defined contribution plans available. Many phased retirement programs we reviewed involve DB pension plans that provide a fixed stream of payments at retirement for the life of the participant. However, we also found some employers that were moving from such plans to DC or hybrid pension plans, and phased retirement is permitted under those plans as well. For example, a private sector employer in the U.K. that sponsors both DB and DC retirement plans, told us that workers in both types can participate in phased retirement and can draw from their employer-sponsored retirement accounts at age 55, although the drawdown rules are different for each type of retirement plan. As another example, the UK’s National Health Service workers are currently covered by two retirement plans, according to pension plan administrators we interviewed. Specifically, a pure DB plan initiated in 2008 is being phased out and replaced by a DB hybrid plan introduced in 2015. Both plans offer flexible retirement options, plan administrators said.

Health care coverage. Each of the four countries we reviewed provided universal health care coverage. The broad availability of health care in these countries, allows workers to reduce their work hours or responsibilities without concern for losing health coverage, while not increasing employer costs. This also made it easier for employers in our case study countries to retain phasing part time workers and potentially hire another worker without the additional cost of providing health care to two workers.

Program limits. Other similarities found in the phased retirement programs that we reviewed in the four case study countries, include 1) having a maximum age up to which a worker can partially retire— sometimes phased retirement can only be taken previous to the statutory retirement age as set by the country’s national pension system—and 2) limiting phased retirement to specific groups of employees. As examples, one employer in Germany told us that it offers phased retirement only to employees working in “hardship” positions, such as those who work night or rotating shifts, while some employers in Sweden offer phased retirement to workers in particularly skilled occupations where workers cannot be easily replaced, such as certain health professionals, according to representatives from an employer association.

Program terms and conditions. Based on our review of program documents and interviews with program administrators, we found that the phased retirement programs we reviewed in the four countries, regardless of type, had basic requirements, such as age of participation, years of service, eligible positions, period of phasing work, and time requirements; however, the specific terms differed from program to program. For example, a sectoral phased retirement program in Sweden allowed workers to apply for phased retirement at age 60, and draw down 50, 80, or 90 percent of their earned employer-sponsored retirement account while phasing. A public sector employee program in the U.K. provided a phased retirement option at age 55, and workers could draw down from 20 to 80 percent of their employer-sponsored pension while reducing their work hours. In contrast, a program in Germany only allowed workers aged 56 and older, with 20 years of service, and who had rigorous work schedules (i.e., night shifts or rotating shifts) to apply for phased retirement. Other aspects, such as the categories of workers eligible to participate, also differ. For example, one higher education employer in Canada only allows faculty and librarians to participate in phased retirement, while another employer in the U.K. allows all employees to apply for phased retirement.

Sources of income. Workers participating in phased retirement typically forego some amount of wages as a result of reduced working hours or reduced responsibilities, similar to the wage reduction in full retirement. In the programs we reviewed in our four countries, workers are able to offset foregone wages, at least partially, from multiple sources. According to program administrators and employers we interviewed, these sources include the national pension; employer-sponsored retirement accounts; an employer-provided benefit designated for this purpose; personal savings; or some combination of these sources. For example, German experts told us that, in Germany, workers participating in the national ATZ program can reduce their work hours by 50 percent. Experts told us that employers are required to pay a minimum of 70 percent of full-time wages for phasing employees and pay contributions toward the employee’s pension as though the employee were working 90 percent. Among the employers we interviewed that continue to offer the national ATZ program, the 20 percent topped-off amount was reported as generally financed by the employer. In the U.K., employees participating in a private-sector employer’s phased retirement programs make up for the foregone wages by withdrawing funds from their own employer- sponsored retirement plan.

In Canada, one employer offers a lump-sum allowance to employees between 60 and 64 years of age who wished to reduce their hours as part of phased retirement. Participating employees are paid a salary proportional to their reduced hours and can use the lump-sum benefit to supplement their income, but may not exceed their full-time salary. This lump-sum is funded solely by the employer. During the phased retirement period, employees can continue to contribute to their employer-sponsored retirement account as if working full time, and need not withdraw from their pension. In Sweden, one public sector phased retirement arrangement is financed by employers as part of collective bargaining agreements. This program allows workers to work 80 percent of a full- time job and receive 90 percent of a full-time salary. The employers continue to contribute to the employer-sponsored pension as if employees were working full-time. Workers in Sweden can also supplement any reduced income with national pension benefits.

Even with Unique Considerations for the United States, the Experiences of Other Countries with Phased Retirement Could Inform U.S. Efforts Differences in Institutional and Employer-Specific Factors May Affect How U.S. Efforts to Provide Phased Retirement Can Be Informed by Other Countries’ Experiences

Institutional and employer-specific factors in other countries, which shape the design of phased retirement programs, typically differ from the institutional environment experienced by many U.S. private sector employers, although they may be similar to those common in U.S. public sector employment. Some of these institutional factors include the extent to which employers and workers are supported by universal health insurance, whether the programs are structured around employer- sponsored traditional DB plans—particularly for workers who have worked at their firm long enough to qualify for phased retirement—and whether programs are the result of collective bargaining agreements. In many of the selected countries we reviewed, phased retirement programs designed to extend labor force participation are fairly recent. While the rate of employment among older workers in the case study countries and the U.S. increased in recent years, data has not been collected in the case study countries to gauge the effects of phased retirement and participation is low. Experiences of the case study countries suggest that, in implementing such programs at the employer or national level, phased retirement programs may be more effective if carefully designed based on the employer’s specific industry or production characteristics, and with data collected and analyzed to pinpoint the most successful strategies.

A Unique Consideration for U.S. Companies Wishing to Offer Phased Retirement: Importance of Employer- Sponsored Benefits Unlike our case study countries, most U.S. workers get their health insurance through their employer, which can be a costly benefit to provide. Employers with 50 or more employees must provide coverage or pay a fee; however, the requirement does not apply to those working less than 30 hours per week, on average. In June 2017, we found that employers offering phased retirement programs must decide if they will include participants in their health care coverage and that all eight of the employers with phased retirement programs with whom we spoke had extended their employer-sponsored insurance to program participants. In addition, the benefit payments provided under U.S. Social Security may not be as high as the national retirement benefits in some of our case study countries and many U.S. workers rely on employer-based retirement benefits and personal savings for a secure retirement. Strategies such as allowing continued contributions during phased retirement and supplementing phased retirement income through partial retirement payouts or other sources may be helpful for worker satisfaction in phased retirement programs. more common in the U.S. than in most of our case study countries. (see sidebar) However, we found examples of phased retirement programs offered to workers covered under DC pension plans that are not collectively bargained in our case study countries. Some of the employers with DC pensions that we learned about were transitioning from traditional DB plans to DC plans. In these instances, newer workers are usually enrolled in the DC plan and, because the shift is recent, many of the workers covered under DC plans may not be old enough or have sufficient years of service to qualify for phased retirement, where such characteristics are criteria for participation. For example, a privately-run transportation company in Germany reported offering phased retirement programs that reduce working hours by about 20 percent, to workers who meet certain criteria. Workers hired after 1995 and workers from the former East Germany are covered under a DC plan and may qualify for the phased retirement program. These examples indicate that private sector employers in the U.S., where workers are increasingly covered by DC plans rather than DB plans and generally not covered by collective bargaining agreements, may also be able to implement and benefit from phased retirement programs.

Most of the programs we reviewed are relatively recent and have reported small numbers of participants. Although OECD’s data show that employment of 55- to 64-year-olds increased between 2006 and 2016 in Germany, Sweden, and the U.K., it is not clear what role phased retirement has played in that growth. (see fig. 2) Governments, employers, and unions have not systematically collected data to understand the effect of the program on choices older workers make regarding when to retire or the effects of phased retirement on employers, workers, or national workforce participation. Some employers we spoke with provided information on the number of workers who had used or were currently using the programs, but there is not enough data to draw conclusions, possibly because the programs are relatively new.

As previously mentioned, the goal for some phased retirement programs has shifted and although employers and national governments now have greater incentives to retain older workers, the design of some phased retirement programs may encourage workers to use the program to leave the workforce earlier than they might in its absence. For example, experts at a high-skill employer in Canada said that they believed that the program may have incentivized older workers to reduce their hours when in the absence of the program they may have worked full time.

Competing Needs of Employers, Workers, and Countries Mean That Benefits for Some May Be Challenges for Others

Employers, workers, and countries may have competing needs and goals in phased retirement programs, which must be considered in designing programs. Specifically, these groups may differ in their preferences in the areas of who may participate, the primary goals for the program, and how the program will be financed. In previous work, we found that some U.S. employers are reluctant to offer phased retirement programs because they believe there is not sufficient interest among employees and that employers in industries with technical and professional workforces were more likely to provide formal and informal phased retirement programs. Challenges identified by the programs in our case study countries can provide helpful insights into areas of concern in designing phased retirement programs in the U.S.

A Unique Consideration for U.S. Companies Wishing to Offer Phased Retirement: Nondiscrimination Laws In June 2017, we found that U.S. industries with skilled workers or with labor shortages also have motivation to offer phased retirement programs, in part because their workers are hard to replace. However, U.S. companies must comply with laws intended to protect workers from discrimination. Experts and employers said programs that target highly skilled workers, who are often highly paid, could violate nondiscrimination rules, which generally prohibit qualified pension plans from favoring highly compensated employees. One study we reviewed for that work noted that regulatory complexities and ambiguities involving federal tax and age discrimination laws impact an organization’s ability to offer a phased retirement program.

Program scope: Certain experts noted that, particularly in the context of collective bargaining, workers typically want phased retirement programs to be broadly available; in contrast, certain employers may want narrowly scoped programs that are targeted to certain high-skilled or scarce workers. Phased retirement is also used by certain employers to target key employees with rare or sought after knowledge, skills, and experience and provide opportunities for knowledge transfer prior to retirement. Representatives from two German companies with high-tech or high- skilled workforces noted that phased retirement was important to retain workers with experience and knowledge.

Employers also reported setting criteria that limit the program to individuals with a specific length of service with the employer, with physically difficult jobs, or with challenging schedules, which may help employers to target the program to certain workers. We reported in June 2017, that U.S. employers noted that targeting specific workers might pose a challenge because of laws that prohibit special treatment of selected workers for certain U.S. pension plans. (see sidebar) The differences in the desired scope of phased retirement programs could potentially be resolved. For example, some experts we interviewed reported that employers may have caps which limit participation, such as limiting participation to a specific percentage of employees who are age eligible. A union representative in Germany noted that employers there may set restrictions or caps on participation, such as 3 percent of the workforce, or an employer may effectively cap the extent of participation by restricting the program to a budgeted amount of funds. Employers in the U.S. could explore whether using a similar approach regarding the scope of a phased retirement program, taking into consideration any legal concerns or other practical challenges, could help them to control the number of workers participating in phased retirement programs.

Knowledge sharing/succession planning: A representative at a German employer noted that the employer has integrated a knowledge sharing component to its program so that workers are able to train younger workers and share their expertise. Retaining older workers may have an added benefit—according to a U.K. public plan administrator, their phased retirement program also brought more age diversity to the workforce.

One expert said that phased retirement has the additional benefit of helping with succession planning since management has more information about the retirement decisions of those participating in the program. An official from a Canadian university stated that the university’s phased retirement program, which includes a specified timeframe of 3 years, helps with planning because they know exactly when the worker will leave their job and can begin the sometimes lengthy process of recruiting replacement faculty. In our previous report, we noted that five of the nine employers we interviewed said that knowing when workers will retire allows employers to plan for the future.

Work life balance/program complexity. Union representatives in our case study countries described several benefits that phased retirement provides to workers. For example, one said that phased retirement provides more choice for workers, another noted that phased retirement allows workers to continue to work at reduced hours until they reach the statutory age to receive a national pension, and a third mentioned that such programs reduce the burden for workers who cannot or do not want to work full time. Similarly, other experts we interviewed said that phased retirement’s part time work schedule provides workers the opportunity to continue working when they might otherwise retire. The experts each cited specific reasons workers might retire, including health concerns, the physical demands of their work, or the responsibility of caring for a loved one. U.K government officials stated that phased retirement for older workers in their country originated from a 2002 policy to facilitate flexible work for caregivers of dependent adults and young and disabled children. According to the U.K.’s government website, flexible work can be part time, job sharing, annualized hours, or telework, among others. It also states, that employers can decline a request for flexible employment if they can demonstrate that granting such a request can have a detrimental effect on the firm, but, according to a 2013 U.K. government survey, 97 percent of employers offer some kind of flexible work.

Experts in several of our case study countries noted that the rate of participation in phased retirement programs is low, which each attributed to different factors, including that workers may have insufficient knowledge or understanding of the programs; employers may have restrictions on program participation, such as eligibility requirements or caps on participation; or there may be insufficient interest or incentives for workers. For example, a German academic noted that his country’s Teilrente program, which combines partial national pension benefits and reduced work hours for workers age 63 and older, is confusing and has not been well-marketed, leading to low uptake. In our previous report, we noted that according to 2014 Health and Retirement Study data, an estimated 29 percent of 61- to 66-year-olds in the U.S. plan to reduce their work hours: however only an estimated 11 percent actually did gradually reduce their hours.

Extending labor force participation: Countries may want to encourage older workers to delay retirement to increase labor force participation, broadly or in certain sectors, especially in times of low unemployment. In the past, phased retirement in some nations had been used as a tool to downsize workforces and encourage workers to retire early. However, the rising costs of national pensions and an aging workforce have now encouraged nations to view phased retirement as a tool or mechanism to extend labor force participation. Indeed, according to the European Commission, increased labor force participation of older workers is a goal of the Eurozone. According to an academic expert we interviewed, increasing the use of phased retirement is not a specific strategy to achieve that goal, some countries are now using such programs to help achieve it. For example, a Swedish official commented that the availability of phased retirement can help older workers stay in the workforce longer. In addition, an association of employers in Germany stated that raising the age of eligibility for national pension benefits and eliminating incentives for early retirement was likely to induce older workers to work longer. Delayed retirement also gives workers longer working lives and earning potential, which may help make pension systems sustainable. A German academic noted that continued work keeps older individuals out of poverty and increasing retiree income could reduce their reliance on national “safety net” benefits. He said that retired people are interested in Germany’s program allowing work after retirement age because they may have insufficient savings and “mini jobs” provide opportunities for earning more.

Certain sectors of national economies may particularly benefit from extending workers’ time in the workforce. For example, an expert at a U.K. consulting firm noted that, due to Britain’s expected departure from European Union membership the country may face labor shortages in certain sectors, such as health care and hospitality, because of the loss of foreign workers. He also suggested that flexible work arrangements may help to avoid potential shortages by retaining older workers who are citizens in those sectors. We also found, in our previous report, that phased retirement could also benefit the U.S. economy in helping to extend participation in the workforce.

A Unique Consideration for U.S. Companies Wishing to Offer Phased Retirement: In-service Distributions and ERISA Requirements Related to Plan Design We previously reported that defined benefit (DB) plans may provide in-service distributions, which would allow phased retirement participants to draw a portion of their retirement benefit during their participation in phased retirement, to workers aged 62 and older. Defined contribution (DC) plan participants generally may not receive distributions from a DC plan until they reach age 59 ½ and distributions before that age may be subject to an additional tax. Our previous work also found that in-service distributions may be important to supplement salaries for participants in phased retirement. An expert we spoke to stated that the Employee Retirement Income Security Act of 1974 (ERISA) requirements pertaining to plan design reduce plan flexibility since changes to plan structure to allow for phased retirement have to be honored even if the economy changes and employers want to shed rather than retain older workers. He stated that this requirement reduces the appeal of phased retirement for employers sponsoring DB plans.

Program design. Experts in certain case study countries reported that employers must design their programs carefully to ensure that they meet sometimes complex statutory requirements and to ensure that workers are eligible for and benefit from phased retirement. However, some also mentioned that designing a program that incentivizes continued work and avoids penalties for workers can be a challenge. For example, an expert we interviewed stated that, in Germany, early retirees can receive their full pension benefit after 45 years of work, but they are subject to salary caps until they reach the full retirement age, which may be a disincentive to combining continued work with a pension draw down. Conversely, there is an incentive for continued work in Germany without claiming a pension since, should the worker continue to work, contribute to the public pension, and delay claiming, their benefit increases by 0.5 percent for each additional month worked. In our previous report, U.S. employers also cited concerns in designing programs to meet statutory requirements. (See sidebar).

According to a Eurofound report, the flexibility of phased retirement can come with administrative costs, particularly if frequent changes are allowed. For example, a Canadian employer noted that managing a workforce of part-time employees was a challenge because it was unfamiliar. They also said that, in some circumstances, their program allowed participants to renege on their retirement date and that it was administratively cumbersome. We also reported in our previous work that employers using phased retirement in the U.S. had experienced administrative concerns that included challenges with part-time workforces.

Potential costs of phased retirement programs. Several of the experts we spoke with said that making programs sufficiently financially beneficial to encourage worker participation can be costly. In addition, some employers reported that, where available, tax incentives, government subsidies, or financing salary supplements directly from the workers’ retirement benefits were used, which may have helped to minimize their costs in providing the programs. In contrast, some government experts from the case study countries noted in interviews that certain government supports had been cut, suggesting that those governments prefer employers to finance more of the benefit. Other experts we spoke to explained that some employers in our case study countries paid for most of the cost of the programs themselves, although, some employers also benefit from tax incentives. For example, according to experts, the current provisions of the German ATZ program’s required that employers provide salary supplements of at least 20 percent of full-time wages above the pay for partial (50 percent) employment. According to an OECD report, initially, the supplement was paid through government subsidies to employers but now, if employers wish to retain the program, they must pay the salary supplement themselves, adding additional costs to employers. German government officials noted that the salary supplement paid during phased retirement is tax-advantaged. Such incentives might also encourage employers in the U.S. to offer phased retirement programs.

Potential reductions in future benefits: Some experts noted that certain phased retirement programs allow workers to reduce their hours without a proportional reduction in wages or benefits when they enter full retirement. It may also provide more options in how to draw down benefits. However, some programs we reviewed also include pay that is less than what is received during full employment and may involve reduced benefits after retirement, which is a factor for workers considering participation. For example, German experts explained that ATZ requires a salary supplement of at least 20 percent of salary, effectively resulting in workers receiving 70 percent of their wage for 50 percent of hours worked. In our previous report, we noted that according to 2014 HRS data, an estimated 22 percent of U.S. workers aged 61- to 66-years surveyed would be interested in reducing their hours even if it meant their pay would be reduced proportionally. We also found in our previous report that low savings and concerns about eligibility for health benefits may create barriers that affect workers’ ability or interest in participating in phased retirement programs.

Even when they receive employer-provided subsidies, as in Germany, workers’ salaries in phased retirement programs are less than under what is earned for full-time work. A recent OECD report noted that removing obstacles, such as limits on earnings while working and receiving pension payouts and limits on the accumulation of benefits, is important to make combining work and pensions more attractive. A Canadian employer had similar concerns and noted that workers may be reluctant to reduce their hours without having some way to supplement their income, for example through a partial draw down on their retirement savings or private or public pension.

In some cases, workers may work and draw a benefit from their national or employer-sponsored pension plan. Some experts reported that certain programs allow workers to continue to contribute to their pension plans or earn pension credits. Union representatives in the U.K. and Germany noted the importance of workers remaining in the labor force longer for the purpose of increasing their income after full retirement. For example, according to a U.K. government website, the U.K. has no mandatory retirement age for the national pension system and allows individuals who have reached the retirement age to work and draw a benefit. According to a U.K. government website, if a worker continues to work after the full retirement age and delays their claim for the national pension benefit, their weekly payments could be larger when they do choose to retire and take their benefit. Experts at a privately run German transportation company noted that workers earn 100 percent of their pension credits during the period that they are participating in the company’s phased retirement program. In addition, the U.K. allows workers to draw a portion of their plan benefits—with 25 percent being tax-free—and one U.K. employer we spoke to allows continued contributions to those plans.

Participants may also see reductions in their retirement benefits after full retirement. Workers with DC plans may reduce their retirement savings through early withdrawals during phased retirement. Similarly, depending on program design, workers may have limitations on their contributions to their employer-sponsored DB plan or public pension during phased retirement; yielding lower pension benefits at retirement. An OECD report notes that national pension payments made during participation in phased retirement programs and any change in the age at which a worker retires, such as retiring prior to or after the full retirement age, should result in pension adjustments that are actuarially neutral—in other words, workers taking early pension payments will have reduced benefits for the duration of their retirement while those who delay payment receive increased benefits. One expert at a German university noted that participants do not always realize the effect the program will have on their pensions.

Agency Comments

We provided a draft of this report to the Commissioner of the Social Security Administration, the Secretary of State, the Secretary of Labor, the Secretary of the Treasury, the Commissioner of the Internal Revenue Service, and the Acting Director of the Office of Personnel Management. The Social Security Administration provided a technical comment, which was incorporated as appropriate. The remaining agencies had no comments.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Commissioner of the Social Security Administration, the Secretary of State, the Secretary of Labor, the Secretary of the Treasury, the Commissioner of the Internal Revenue Service, the Acting Director of the Office of Personnel Management, and other interested parties. This report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) the extent to which phased retirement exists in other countries with aging populations, (2) the key aspects of phased retirement programs in selected countries, and (3) the experiences that other countries have had in providing phased retirement and how that can inform the U.S. experience.

To determine the extent to which phased retirement exists in other countries with aging populations, we used data from the Social Security Administration’s publication Social Security Programs throughout the World and United Nations population data to first identify countries with aging populations. Social Security Programs throughout the World contains comprehensive data on the social security programs in different countries around the world, including the statutory retirement age, early retirement age, and GDP per capita. We used the Social Security Administration’s publication to gather a list of 179 countries that have some kind of social security program. For these countries, we used United Nations population data to find the proportion of the population aged 50 and over, where available. We then limited our research to those countries whose proportion of population aged 50 and over is more than one standard deviation above the average. This group represents countries where the proportion of the population aged 50 and over is above 33 percent, and includes a total of 44 countries.

To determine whether the 44 countries that met our initial criteria of having 1) an national pension program similar to social security and 2) an aging population have adopted phased retirement programs, we reviewed the Organisation for Economic Co-operation and Development (OECD) and the European Union reports and data that focus on older workers and extending work life in other countries. We focused on OECD and European Union countries because they are advanced economies that are most similar to that of the United States. In addition, we conducted literature searches and reviews to identify countries with phased retirement programs aimed at extending working lives of older workers as well as to assist with knowledge transfer from older workers to younger workers. The literature searches comprised of terms related to phased retirement, such as gradual retirement; partial retirement; labor force participation of older workers; and transitional retirement. We limited our searches to literature released during the 10-year period from 2007 to 2017. Additionally, we spoke with subject matter experts to gain their perspective on which countries offer phased retirement programs or have a policy aimed at extending working lives of older workers. We identified these experts through our review of relevant literature and expert referrals. In total, we identified 17 countries with some form of phased or gradual retirement options for older workers. We examined these 17 countries to identify the types of phased retirement programs within each country. For example, we researched whether the country had (1) national phased retirement policies or programs (2) sectoral programs established through collective bargaining agreements that cover specific industries, occupations, or sectors; and (3) individual employer programs.

To obtain a more complete understanding of key aspects, and the benefits and challenges of phased retirement programs in selected countries, as well as potential lessons learned for the U.S., we reviewed the group of aging countries with relevant programs identified in the first objective, to select a sample of four countries for case studies. These countries are Canada, Germany, Sweden, and the United Kingdom (U.K.). The criteria for selecting case study countries included being described in literature or by experts as having a national policy related to phased retirement or as having taken legislative action, in part, to facilitate or encourage phased retirement, a variety of sectoral and individual employer programs (public and private sector), when the programs were implemented, and expert or industry recommendations. We also considered the various countries’ economic and social frameworks and whether they are similar to that of the U.S. Specifically, we selected Canada, Germany, Sweden, and the U.K. because they had national phased retirement policies, which may include a national program such as in Germany and Sweden, and a wide variety of phased retirement programs in both the private and public sectors. For the case studies, we conducted interviews with government officials, program administrators, employer associations, unions, and employers to obtain in-depth program information and to learn about their experiences with phased retirement. We identified appropriate officials and organizations to contact primarily through review of relevant literature, subject matter expert recommendations, and referrals from the U.S. Embassy in each country. We reached out to a variety of labor unions and employers in selected countries in an effort to obtain multiple perspectives on issues related to phased retirement and met with those available to speak with us. We did not conduct an independent legal analysis to verify the information provided about the laws, regulations, or policies of the foreign countries selected for this study. Rather, as described above, we relied on appropriate secondary sources, interviews, and other sources to support our work. We submitted key report excerpts to government officials in each country, as appropriate, for their review and verification, and we incorporated their technical corrections as necessary.

To determine whether experiences with phased retirement in other countries could inform efforts in the U.S., we relied on testimonial evidence from interviews and a review of relevant research. The applicability of lessons learned was shaped by the differences in the national pension and social systems in the selected countries, such as the availability of healthcare and other retirement benefits.

Appendix II: Key Features of Phased Retirement Systems

To compile the information in this appendix, we interviewed officials and program administrators from selected phased retirement programs in Canada, Germany, Sweden, and the United Kingdom (U.K.), as well as employer associations, unions, and retirement experts. We also reviewed documentation and obtained statistics from country agencies. We identified employers offering phased retirement programs primarily through reviews of relevant literature, referrals from subject matter experts, and referrals from the U.S. Embassy in each country. We reached out to a variety of labor unions and employers in selected countries and met with those available to speak with us. We did not conduct an independent legal analysis to verify the information provided about the laws, regulations, or policies of the countries selected for this study. Rather, we relied on appropriate secondary sources, such as plan documents; interviews; and other sources. We submitted key report excerpts to government officials in each country, as appropriate, for their review and verification, and we incorporated their technical corrections as necessary.

At a glance

• Population: 37 million (2018) • GDP: $1.65 trillion (2017) • Statutory retirement age:

starting at age 65 with full benefits

Early retirement age: 60, with Sources of retirement income National pension: The earnings- related Canada Pension Plan targets a replacement rate of 25 percent of average lifetime earnings, up to a maximum earnings limit each year. Starting in 2019, this plan will replace one- third of average earnings, and the earnings range used to determine average earnings will also gradually increase. Employees in the province of Quebec have their own Quebec Pension Plan, broadly similar to the Canada Pension Plan.

National efforts to encourage phased retirement In 2007, Canada introduced changes to the Income Tax Regulations to allow more flexible phased retirement arrangements under defined benefit (DB) registered pension plans. Under the pension tax rules, phased retirement allows an individual to receive a portion of his or her pension benefit from a DB pension plan while continuing to accrue pension benefits in the same plan. The income tax regulation changes permitted qualifying employees to receive up to 60 percent of their accrued benefits in their employer-sponsored DB pension while continuing to accrue further pension benefits based on either full-time or part-time work, subject to employer agreement. Qualifying employees must be at least 60 years of age or aged 55 or older and eligible for an unreduced pension under the terms of the DB plan. Highlights of individual phased retirement programs Sectoral Collectively Bargained Programs

Employer group 1: Certain provincial government hospital employees of this public sector employer, those aged 55 or older with at least 5 years of service, can reduce their work schedule to between 50 and 60 percent of full-time work, and receive pay proportional to hours worked plus an annual pension pre-payment from their employer-sponsored retirement plan, which changed from a DB to a target benefit or shared-risk plan. Combined, the payments equal 85 percent of full- time earnings. Workers can choose to phase for a period of 1 to 5 years. Participants continue to accrue pension service benefits based on full-time work.

Employer-sponsored pensions: Registered Pension Plans established by employers or unions to provide pensions for employees. In general, the plans can be defined benefit (DB), defined contribution (DC), or a combination of DB and DC plans.

Individual savings: Individuals can use tax-assisted arrangements that foster personal savings including Registered Retirement Savings Plans that are similar to traditional IRAs in the United States and the Tax Free Savings Account—a general purpose savings plan that provides tax treatment similar to Roth IRAs in the United States. the ages of 60 and 64, can reduce their workload by working fewer hours. They are paid a salary proportional to their reduced hours and a lump-sum retirement allowance, paid by the employer that can be used to supplement their income, not to exceed their full time salary. Participants can continue to contribute to the employer-sponsored DB plan as if working full time.

Canada (cont.) participate in phased retirement up to 3 years prior to age 71. Participants can work 50 percent of full time work each year over a 3- year period and get paid a salary proportional to their reduced hours. Participants cannot draw from their employer-sponsored DB plan, but can contribute to it and the national pension as if working full time.

Employer 5: An employer with two phased retirement programs. One program was established through a collective bargaining agreement, and allows unionized faculty aged 60 or older with at least 10 continuous years of service to slowly reduce their work time and receive proportionate pay. Participants can contribute to their employer-sponsored DC pension as if working full time. Participants in this program cannot draw from their pension until fully retired. The second phased retirement program was established in-house by the employer (outside of collective bargaining agreements) for non-faculty staff (see details below).

Employer 5 (same employer 5 above): All non-faculty staff over age 55, with at least 15 years of full-time work can reduce hours for up to 3 years.

Source of supplemental income In Canada, employees participating in phased retirement programs we reviewed were compensated for foregone wages due to reduced hours primarily by withdrawing funds from their own employer-sponsored pension plan, a lump sum benefit funded by the employer, or their savings, as necessary.

At a glance

• Population: 82.3 million (2018)

GDP: $3.68 trillion (2017) and a few months, gradually increasing to 67 by 2029 (Those with 45 years of contribution can get a full pension at 63, gradually increasing to 65)

Early retirement age: 63 with 35 years of contributions, with reduced benefits, gradually increasing to 67 Sources of retirement income National pension: An earnings- related pension, requiring at least 5 years of contributions. In 2018, the employer and employee contribution rates were 18.6 percent of covered earnings. common national phased retirement program, the ATZ was established in 1996. Broad program guidelines specify that the program is available to those 55 and older and allows part-time work up to 6 years prior to the statutory retirement age. Workers can participate in the ATZ under two basic models: one in which an employee works part-time the entire period (reducing hours up to 50 percent of full-time work) and a second “block” model with 100 percent work the first half of the period and 0 percent the second half. The second model was the most popular among workers as a way to retire early. Employers pay a minimum of 70 percent of full-time wage for works in the phasing period. In general, 20 percent of the income foregone due to a reduction in hours worked is paid by the employer, who would also pay contributions toward the national pension as though the employee was working 90 percent of the time. ATZ provides tax benefits to both employers and employees on the 20 percent supplemented wages and the national pension contributions. The ATZ program provides the general framework, but employers and employees can set specific parameters through collective bargaining agreements. In 2009, the program reached its peak with 680,000 participants, when public subsidies were discontinued. Public sector employees have access to a phased retirement program similar to ATZ with minor differences such as a starting age of 60 instead of 55 and a maximum duration of 5 years.

Employer-sponsored pensions: While most occupational pension plans are DB plans, they vary by how they are funded, such as book reserves, autonomous pension funds or direct insurance. Employer-sponsored pensions are generally voluntary and cover about 60 percent of the workforce. Pension reforms implemented in January 2018 aim at increasing coverage by making it less onerous for employers to sponsor DC pensions. The reforms removed the guaranteed minimum benefit that was previously required for DC plans that made it difficult for smaller employers especially to offer pensions to their workers.

Teilrente: This national phased retirement program, established in 1992, allows eligible workers to work reduced hours and draw partial benefits from the national pension at the same time, with a ceiling on allowable earnings for those below the statutory retirement age. The program is used very little because it is perceived as complicated, though program reforms in 2017 simplified some of the features and added flexibility, such as raising the earnings limit and replacing the 3- tier partial benefits with smoother withdrawal options between 10 percent and 99 percent of pensions. In general, eligibility for Teilrente starts at age 63, and there are no rules on additional earnings past the full retirement age. With the reforms, policymakers hope more people will consider the program and not stop working completely at 63 when they reach early retirement age.

Sources of retirement income (cont.) Individual savings: Private retirement savings include products such as Riester pensions, first introduced in 2002. Riester pensions benefit from tax incentives on contributions but also from additional direct public subsidies for low-income households and households with children. The self-employed are generally not eligible for Riester pensions but can benefit from the Ruerurp pensions, another instrument for private retirement savings.

Germany (cont.)

Employer 1: This employer offers the ATZ program to its workers.

Currently, almost 14 percent of this employer’s eligible workers aged over 55 and covered by collective bargaining agreements participate in the ATZ phased retirement program. Of those in the program, about half are in the active phase of ATZ, working 100 percent (first years of the block model), while the other half are in the second phase with 0 percent work (last years or second half of the block model). Participants in the ATZ receive 85 percent of full-time wages for an average of 50 percent of full-time hours during the phasing period, which lasts up to 6-years. The employer also contributes 100 percent of full-time wages to the employer-sponsored hybrid contribution plan and the national pension plan during the entire phasing period.

Employer 2: This employer has workers covered by collective bargaining agreements participating in the ATZ phased retirement program. Accordingly, employees 55 and older can reduce their hours to 50 percent for up to 6 years prior to the statutory retirement age, subject to approval. However, the employer reports it is phasing out ATZ as it has negotiated its own company phased retirement program. The new program targets workers in hardship positions, such as those who work night or rotating shifts. Specifically, workers aged 56 and older with at least 20 years of service with this employer, including at least 10 years of service in a hardship position, can phase into retirement for a maximum of 6 years and then must retire. Eligible workers can work 80 percent of full-time hours, receive 90 percent of their full-time wage, and receive 100 percent of their employer- sponsored pension credits as well as 90 percent of national pension credits. There is no cap on the number of workers who may participate, though eligibility requirements effectively limit the number of workers who can enroll. Currently 2,400 workers are participating in the program.

Employer 1 (same employer 1 above): This employer offers a phased retirement program to certain retired executives for the purpose of retaining experience and knowledge, with a temporary contract (18 months maximum). The program is relatively new and currently includes about 80 senior experts, about 85 percent of which are aged 65 or older.

Employer 2 (same employer 2 above): This employer offers a phased retirement program for managers, that allows managers to work an 80 percent schedule and receive 80 percent of their pay and 100 percent of their pension credits.

Source of supplemental income In Germany, employees participating in phased retirement programs we reviewed were compensated for the foregone wages due to reduced hours primarily by their employer, together with their own savings schemes.

National efforts to encourage phased retirement

The current part-pension national policy, in effect since 2010, allows workers, after age 61, to withdraw 25, 50, 75, or 100 percent of their national pension benefits, independent of hours worked. Individuals can draw from the earnings related to part of their national pension and continue to earn new pension entitlements. There is no penalty for working and earning and drawing from the national pension. The decision to draw a pension has a lifelong effect, but is not irrevocable. The pensioner can instruct pension payments to cease and subsequently for the pension to resume at any time. The two components of the national pension, the income pension and the premium pension, are drawn independently of each other.

Early retirement age: None Sources of retirement income National pension: The earnings- related national pension has two components, one notional income pension and a smaller DC premium pension. Employers and employees contribute 16 percent of salary toward the income pension and 2.5 percent towards the premium pension, for a total of an 18.5 percent contribution rate.

Sweden had a national partial pension program that was in effect from 1976 to 2001, when it was abolished. The program allowed workers to gradually withdraw from work 5 years before the statutory retirement age, which was lowered from 67 to 65 at the time. Partial retirement was publicly funded, replacing 65 percent of the loss of income resulting from the reduction in hours worked (made less generous with a replacement rate of 50 percent in 1981). Upon reaching the statutory pension age of 65, program participants still received a full old-age pension.

Highlights of individual phased retirement programs Sectoral Collectively Bargained Programs

Local authorities and regions employers: Public sector workers covered by a multiemployer collective bargaining agreement can work 80 percent of full-time work, receive 90 percent of full time salary, and receive an employer-sponsored pension as if working full-time.

Employers of graduate engineers: Engineers covered by a multiemployer collective bargaining agreement, age 60 and older may apply for the right to part-time retirement. Once approved the employees can ask to reduce their hours and receive 50, 80, or 90 percent of the earned employer-sponsored pension.

Employers of professional employees: White collar union members working in all parts of the labor market, including schools, healthcare, trades, media, police, sports, and telecom, among others, are covered by a multiemployer collective bargaining agreement that allows phased retirement. This program allows workers aged 62 and older to shorten their working hours and begin to take withdrawals from their employer-sponsored pension.

Sweden (cont.)

Sources of retirement income (cont.) Employer-sponsored pensions: Workplace pension plans are generally established through collective bargaining agreements and cover about 90 percent of workers, in the public and private sectors. Employers and unions negotiate the details of workplace pensions in four sectoral collective bargaining agreements: blue-collar private sector, white-collar private sector, state employees, and municipal employees. Most workplace pensions are DC plans. In general, workers can withdraw from pensions at age 55.

Source of supplemental income In Sweden, employees participating in a phased retirement programs we reviewed were generally compensated for foregone wages due to reduced hours primarily by withdrawing funds from their own employer-sponsored pension plan or their own savings, as necessary. Workers also have the option to withdraw benefits from the national pension after age 61.

Individual savings: Until 2016, it was possible to make tax deductions for private pension saving, up to a maximum. The tax- deductibility of private voluntary pension savings was abolished in 2016 for all but the self-employed, who do not qualify for occupational pension plan reductions.

Population: 66 million (2017)

GDP: $2.62 trillion (2017)

Statutory retirement age: (state pension age) 65, gradually rising to age 66 from 2018 to 2020, to age 67 from 2026 to 2028 and to age 68 between 2037 and 2039.

National efforts to encourage phased retirement Since 2014, the UK has had a flexible work policy where any employee who has worked for their employer continuously for at least 26 weeks has the statutory right to request flexible work. There are several types of flexible working, including job sharing, working from home, working compressed hours, or working annualized hours, among other things. The policy covers workers who want to phase into retirement.

Early retirement age: None (for the state pension)

Sources of retirement income

National pension: A flat-rate single-tier national pension was introduced in April 2016. This new pension plan replaces the previous two-tier system and provides a regular payment of about £164 per week (increasing to £168.60 in April 2019) or £8,528 per year, unless the pension is deferred, in which case it increases by about 5.8 percent per year.

Employer-sponsored pension: Since the 2008 Pensions Act, employers have been required to automatically enroll eligible workers into a qualified workplace pension plan and make minimum contributions, with the option for workers to opt-out. The qualified plans can be either DB, DC, or hybrid plans. The National Employment Savings Trust (NEST), managed as an independent entity, was established by the government to help employers meet their obligation to automatically enroll eligible workers in a retirement plan and thus functions as the default qualified workplace plan. covered by this DB pension plan, aged 55 and older, can reduce their hours or move to a less senior position. Reduced income can be supplemented by the workers workplace pension. Participants can draw some or all of their pension benefits, while continuing to contribute into their pension and build up future pension benefits. According to plan documents, actuarial reductions on benefits paid before a worker reaches their statutory retirement age can be waived, in whole or in part, upon agreement with the employer.

Teacher’s Pension: Since 2007, teachers, between the age of 55 and 75 in England and Wales covered by this DB pension plan, can reduce earnings by at least 20 percent due to part time work or a reduction in responsibilities for a minimum of 1 year. This reduction in income can be supplemented by the workers workplace pension. The maximum amount that participants can withdraw from their pension is 75 percent of the total pension benefits. Remaining pension benefits continue to grow as participants continue to work and contribute on a reduced salary. According to plan documents, benefits taken before statutory retirement age would be subject to actuarial reductions.

United Kingdom (cont.)

Sources of retirement income (cont.) Individual savings: Savings arranged by the individual—similar to traditional or Roth IRAs in the U.S. The U.K. has Individual Savings Accounts that allow an individual to save up to a designated amount per year tax-free. Workers can take money out of their Individual Savings Account at any time.

Highlights of individual phased retirement programs (cont.)

Civil service pension: Since 2008, civil service workers covered by the civil service pension, aged 55 and older, can reduce their earnings by at least 20 percent due to reduced hours or reduced job responsibilities. Participants can take some or all of their pension and pension lump sum they have accrued, while continuing to work, and contribute to their pension until their normal pension age. Drawn down benefits paid before a worker reaches their normal pension age are actuarially reduced as they are being paid early.

A private sector employer in the financial industry offered phased retirement to employers under both a DB and a DC plan. Both plans allow workers age 55 and older to reduce their hours and receive benefits from their DB and DC pension plans. Workers continue to contribute to their workplace pension and the national pension plan.

In the U.K., employees participating in phased retirement programs we reviewed were generally compensated for the foregone wages by withdrawing funds from their own workplace employer sponsored pension plan.

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual named above Michael Collins (Assistant Director), Susan Chin (Analyst-in-Charge), Laurel Beedon, Britney Tsao, Margaret J. Weber, and Seyda Wentworth made key contributions to this report. Also contributing to this report were Sharon Hermes, Amy MacDonald, Sheila R. McCoy, Kelly Snow and Adam Wendel.