Reckoning with retirement age realities

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The Prime Minister of Mongolia announced last week that the Government of Mongolia is raising the retirement age in accordance with international standards. However, there is no “global standard” for the best age for retirement. Each country has its own standard based on its society and demographics, and these may vary greatly. To prove this, let me show you some historic and modern statistics concerning retirement ages and life expectancies, both in Mongolia and across the globe.

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France has the lowest retirement age at 52. The retirement age in China is 50 to 55. Norway has the highest age at 67. In terms of the retirement age for men, in Sri Lanka it is 55, which is the lowest one overall. But Finland’s is 62 to 68 and Norway is 67. The overall average is 63.0 for men and 61.1 for women.

According to statistics from National Statistics Office of Mongolia, the average Mongolian life expectancy was 62.77 in 1992. In 2000, the life expectancy was 63.2, with 60.4 for men and 66.1 for women. But by 2015, it had risen slightly to 69.89 (66.02 for men and 75.84 for women). You can see that, on average, Mongolian women live nine years longer than Mongolian men.

As we can see from these statistics, in the last 15 years, the average life expectancy for  Mongolians has only increased by 6.69 years.  Most importantly, for men, it only increased by 5.62 years. According to the requirements of the proposed IMF bailout package, the government is required to raise the retirement age for women to 65 and to 66 years for men starting in 2035. If we imagine that Mongolian life expectancy will continue to rise at the same rate as it has over the last 15 years, in 20 years, the life expectancy for a Mongolian man could increase by another 7.5 years. Based on this calculation, starting in 2035, it looks like Mongolian men will, on average, only receive pension payments for seven to eight years.

An increased life expectancy for Mongolians can be expected based on the experiences of other countries. For example, Japan has the highest life expectancy in the world, 80.41 for men and 86.87 for women. Between 1960 and 2015, the life expectancy of the Japanese population rose by 17.7 years. Between the 1950s and the 1960s, the life expectancy in Japan increased by 6.9 years. Over the next 40 years, life expectancy rose by 10.8 years. Over 50 years, 39 percent of the increase took place in the first 10 years of that timeframe. Some research suggests that this growth in life expectancy was because of the economic boom that occurred in Japan between 1950 and 1960. Japan rapidly became the world’s second largest economy in the 1960s. In essence, with rapid economic progress comes a rapid increase in life expectancies.

There are many factors that influence life expectancy, according to a study  conducted by Diddahally Govindaraju, Gil Atzmon and Nir Barzilai entitled “Lessons From Centenarians”.  According to this report, molecular genetics and epigenetic factors, environmental influences, diet, metabolism, and other factors influence life expectancy.

Mongolia is less developed than Japan, but it can be compared to Japan in the 1950s. We could say that the life expectancy of Mongolia might increase by 10 years in the coming 40 to 50 years. So, it is definitely not the time to raise the retirement age so dramatically.

Mongolians contribute 10 percent of their salary to the Social Insurance Fund for more than 20 years, and employers contribute a further 10.2 percent of their employees’ salaries. The minimum monthly wage in Mongolia is 240,000 MNT. This means that most Mongolians personally contribute at least 5,760,000 MNT  and their employer’s another 5,875,200 to the fund over their working life. The minimum monthly pension payment is 251,000 MNT. Under the current system, people who were paid the minimum wage throughout their working years receive the money they paid into the Social Insurance Fund after four years.

The National Statistics Office states that the average salary in Mongolia is 884,295 MNT. Therefore, on average, Mongolians pay 88,429 MNT per month and their employer pays another 88,500 MNT in social insurance contributions. Extrapolating this, the average person will pay 21,222,960 MNT from their salary and 21,647,541 from the employer and in total 42,870,501 MNT in social insurance over 20 years. These people will get back 397,933 MNT per month for their state pension, recovering the money they paid in social insurance in at least 9 years. Note that this calculation does not include any kind of interest rate return on the money invested in the fund. Also if you are working and getting paid you must pay social insurance no matter for how long you were paid. In practice, most people pay social insurance for about 30 – 40 years. This means that the above mentioned calculation regarding much Mongolians and their employers pay to the Social Insurance Fund could be doubled, but even if people contributed for another 10 – 20 years, the monthly pension payment would be only 1.5 percent higher according to the Social Insurance Law.

Even if the government raises the retirement age as proposed, there is no guarantee that life expectancies will increase. The aforementioned projections indicate that there is only a low probability that life expectancy for Mongolian men will increase by five years in 20 to 25 years. Mongolia is still only a developing country, and is certain to remain one for a good number of years to come. The government proposed increasing social insurance contributions, but most people will not want to give up what is not a small amount of money for something that will not yield any return. Such a dramatic rise in the retirement age and an increased social insurance contribution is certainly not “people-friendly”, nor is it a fair decision at this point in time.

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