How will the shrinking labour force pay for the pensions and healthcare of the growing elderly? This column argues that linking retirement ages to longevity would alleviate a significant part of the deterioration in public finances and ensure that the burden of adjustment is carried by those gaining from increases in longevity.

In summary:

… there has been and will continue to be a widening gap between the number of years people spend inside and outside the labour market.  When longevity increases and retirement ages stay constant or even fall, it is implied that each generation tries to benefit from existing schemes by taking all of the longevity gain as an increase in retirement (leisure).  Obviously this is not possible, and this is the main reason for the projected trend decreases in the budget balance.  A much more straightforward reform agenda would thus be to ensure that retirement increases alongside longevity.  Linking retirement ages to longevity will remove a significant part of the trend deterioration in public finances, and it will ensure that the burden of adjustment is carried by those gaining from increases in longevity.

Read the entire piece here.