Is re­tire­ment nat­u­ral and in­evitable?

The con­cept of stop­ping to work at a cer­tain age is a fairly re­cent in­ven­tion. Yet it’s time for the con­cept to be re-in­vented to bet­ter suit to­day’s cir­cum­stances.

Finweek English Edition - - COLLECTIVE INSIGHT - By Mark Hawes

have peo­ple al­ways re­tired? The short an­swer is no, which then begs the ques­tion: when did we start re­tir­ing? Is re­tire­ment sus­tain­able? Let’s first con­sider what re­tire­ment is. Gen­er­ally, the word “re­tire­ment” has come to re­fer to leav­ing for­mal em­ploy­ment or stop­ping all in­comegen­er­at­ing ac­tiv­i­ties. Legally, re­tir­ing refers to your tax sta­tus and ac­cess to your re­tire­ment sav­ings in terms of the post-re­tire­ment in­vest­ment ve­hi­cle op­tions avail­able.

So have hu­man be­ings al­ways reached a point in their life where they stop earn­ing an active in­come?

His­tor­i­cally, we sim­ply did not live long enough to even con­sider the pos­si­bil­ity to stop work­ing. In the 18th cen­tury life ex­pectancy was only 35 and rose to just above 50 when Alexan­der Flem­ing dis­cov­ered peni­cillin in 1928. Con­se­quently, peo­ple sim­ply worked as much as they phys­i­cally could un­til they died.

In ad­di­tion, sav­ing was in­cred­i­bly oner­ous as economies were dom­i­nated by a sub­sis­tence life­style; feu­dal-style taxes were paid to main­tain the cen­tral pow­ers rather than chan­nelled back to the cit­i­zens and fi­nan­cial sys­tems for sav­ing were rudi­men­tary at best.

How, then, did re­tire­ment come about and why at age 65? The per­son gen­er­ally cred­ited with “in­vent­ing” re­tire­ment as we know it, is Chan­cel­lor Otto von Bis­marck in 1883, but his ob­jec­tive was mostly to in­crease his pop­u­lar­ity with his peo­ple, and to stem the tide of ris­ing Marx­ism in Europe. He an­nounced that he would pay a pen­sion to any cit­i­zen of the age of 65. This was well past the life ex­pectancy of the pop­u­la­tion in the 1880s and there­fore a rel­a­tively safe bet for the gov­ern­ment purse.

In ad­di­tion, the Industrial Rev­o­lu­tion had sparked a trend of ur­ban­i­sa­tion, fun­nelling peo­ple out of ru­ral life and into cities that were industrial and busi­ness-ori­en­tated. Sci­en­tific mo­ti­va­tions were put for­ward where peo­ple were be­gin­ning to be classed as less pro­duc­tive due to the re­duced phys­i­cal abil­ity of peo­ple to work af­ter age 60 – the most no­to­ri­ous be­ing the fa­mous physi­cian Wil­liam Osler who be­lieved the av­er­age worker is “use­less” af­ter age 60.

The rise of pen­sion funds

Re­tire­ment there­fore gained pop­u­lar­ity as an eco­nomic ne­ces­sity as peo­ple started liv­ing longer; un­em­ploy­ment took hold af­ter the Great De­pres­sion in 1929 and young men re­turned from both the First and Se­cond World War seek­ing jobs. In 1935 Franklin D. Roo­sevelt pro­posed the So­cial Se­cu­rity Act where work­ers had to pay for old-age in­sur­ance for their own fu­ture.

Re­tire­ment had be­come an eco­nom­i­cally at­trac­tive op­tion to push the “el­derly” out of work, mak­ing way for new job seek­ers, and leisure was mo­ti­vated as the re­ward for years of hard work.

SA for­mally joined the re­tire­ment sys­tem of em­ployer-based re­tire­ment plans with the pass­ing of the Pen­sion Funds Act in 1956. The de­fined ben­e­fit scheme was ini­tially the pre­ferred struc­ture. How­ever, though it was a great model in boom times, it rep­re­sented a sig­nif­i­cant and pos­si­bly crip­pling risk for both em­ploy­ers and em­ploy­ees alike dur­ing dif­fi­cult eco­nomic times.

Since the turn of the cen­tury, there has been a sig­nif­i­cant mi­gra­tion to de­fined con­tri­bu­tion schemes, where re­tire­ment sav­ings are com­pletely sep­a­rated from the em­ployer and more re­spon­si­bil­ity shifted to the em­ployee. The role of the em­ployer has changed from a pa­ter­nal­is­tic one to that of a sup­port­ive fa­cil­i­ta­tor. The em­ployee, in turn, is given a more cen­tral role in de­ter­min­ing their own re­tire­ment out­comes, nec­es­sar­ily tak­ing more re­spon­si­bil­ity and risk.

Iron­i­cally, hav­ing both the time and the sav­ings to fund a leisure life­style in re­tire­ment still is the ex­cep­tion rather than the norm. Cur­rently only 2% of the work­ing pop­u­la­tion can af­ford to re­tire and main­tain their cur­rent life­style and only 10% can af­ford to stop work­ing (re­tire) at all. Most peo­ple have no choice but to find some other means to cre­ate an active in­come. This is ev­i­denced by the num­ber of re­tire­ment fund mem­bers cash­ing in their re­tire­ment sav­ings (roughly 80%) to make pro­vi­sions to cre­ate in­comeearn­ing op­por­tu­ni­ties both pre- and post-re­tire­ment.

Knowl­edge-based work

For­tu­nately, the na­ture of work op­por­tu­ni­ties has evolved from labour-based to knowl­edge-based jobs. In an agrar­ian-dom­i­nated econ­omy, a per­son’s value was based on phys­i­cal strength. When we were no

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