Older Workers: Other Countries' Experiences with Phased Retirement

In response to an aging workforce, countries around the world have developed policies to encourage older workers to work longer to improve the financial sustainability of national pension systems and address shortages of skilled workers. Phased retirement is one option that can be used to encourage older workers to stay in the workforce. GAO was asked to look at phased retirement programs in the United States and other countries. In June 2017, GAO issued a report (GAO-17-536) that looked at phased retirement in the United States, where formal phased retirement programs are as yet uncommon. This report looks at phased retirement in other countries.

Specifically, GAO examined (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 of other countries in providing phased retirement and how their experiences can inform policies in the United States.

GAO analyzed relevant data, reviewed academic research, and conducted interviews to identify countries with phased retirement, and selected four countries with national policies permitting phased retirement programs with broad coverage for case studies. GAO also conducted interviews with government officials, unions, employer associations, and other experts.

GAO's review of studies and interviews with employment and retirement experts identified 17 countries with aging populations and national pension systems similar to the Social Security program in the United States. These countries also have arrangements that allow workers to reduce their working hours as they transition into retirement, referred to as “phased retirement.” Phased retirement arrangements encourage older workers who might otherwise retire immediately to continue working, which could help alleviate pressures on national pension systems as well as address labor shortages of skilled workers. The17 countries had established phased retirement programs in different ways: at the national level via broad policy that sets a framework for employers; at the industry or sector level; or by single employers, often through the collective bargaining process.

GAO's four case study countries—Canada, Germany, Sweden, and the United Kingdom (UK)—were described as employing various strategies at the national level to encourage phased retirement, and specific programs differed with respect to design specifics and sources of supplemental income for participants. Canada and the U.K. were described as having national policies that make it easier for workers to reduce their hours and receive a portion of their pension benefits from employer-sponsored pension plans while continuing to accrue pension benefits in the same plan. Experts described two national programs available to employers and workers in Germany, with one program using tax preferences. Experts also said Sweden implemented a policy in 2010 that allows partial retirement and access to partial pension benefits to encourage workers to stay in the labor force longer.

Even with unique considerations in the United States, other countries' experiences with phased retirement could inform U.S. efforts. Some employer-specific conditions, such as employers offering employee-directed retirement plans and not being covered by collective bargaining are more common in the United States, but the case study countries included examples of designs for phased retirement programs in such settings. Certain programs allow access to employer-sponsored or national pension benefits while working part-time. For example, experts said the U.K. allows workers to draw a portion of their account based pension tax-free, and one U.K. employer GAO spoke to also allows concurrent contributions to those plans. In addition, experts said that certain program design elements help determine the success of some programs. Such elements could inform the United States experience. For instance, U.S. employers told us that while offering phased retirement to specific groups of workers may be challenging because of employment discrimination laws, a union representative in Germany noted that they reached an agreement where employers may set restrictions or caps on participation, such as 3 percent of the workforce, to manage the number of workers in the program. Employers in the U.S. could explore whether using a similar approach, taking into consideration any legal concerns or other practical challenges, could help them to control the number of workers participating in phased retirement programs.

GAO is not making recommendations in this report.

The aging of the labor force has resulted in many policies designed to  keep older workers in the work force longer. One such policy, phased  retirement, allows workers to reduce their working hours and transition  into retirement. We were asked to look at phased retirement programs in  the United States and in other countries. In June 2017, we issued a report  that examined phased retirement programs in the U.S., and this report  examines phased retirement programs in other countries. The  experiences in other countries regarding phased retirement could provide  useful information to the United States where formal phased retirement  programs are not yet common.

Our 2017 report on phased retirement in the U.S. found that although  phased retirement programs are uncommon, the programs that do exist  provide flexibility for workers and employers. This report focuses on other  countries’ experiences with phased retirement and 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 can that inform the U.S.  experience.

To determine the extent to which phased retirement programs exist in  other countries with an aging population, we first used the Social Security  Administration’s publication Social Security Programs throughout the  World to gather a list of 179 countries that have a national pension  program, similar to Social Security, in place. Then we used United  Nations population data to identify countries with an aging population— those with a high percentage of people aged 50 and over—which further  narrowed our list to 44 countries. Next, to determine whether these  countries have phased retirement arrangements, we conducted literature  searches and reviews of relevant research published in the last 10 years;  reviewed data from the Organisation for Economic Co-operation and  Development (OECD); and consulted with subject matter experts. This  approach resulted in 17 countries with some form of phased or gradual  retirement options for older workers. From these 17 countries, we  selected 4 countries for case studies—Canada, Germany, Sweden, and  the United Kingdom (U.K.)—that have national policies with relatively  broad coverage to encourage phased retirement. To understand the  characteristics of the phased retirement programs in the case study  countries and whether experiences with the programs could inform efforts  in the U.S., we conducted interviews with government officials,  employers, employer associations, unions, and other experts. We  identified employers and other experts for interview through a review of  relevant research, referrals from subject matter experts, and referrals  from the U.S. Embassy in each country. For more information on our  objectives, scope, and methodology, see appendix I.

We conducted this performance audit from June 2017 to February 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence we obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

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.

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.

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.

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.

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

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.

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.

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.

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.

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)

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.

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

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.

“Phased retirement” lets you work less than full-time before you fully retire. This can help keep skilled people working longer while easing pressure on national pensions (e.g. Social Security).

The U.S. workforce is aging, but there are few formal phased retirement programs here. We looked at 4 other countries to potentially inform a U.S. strategy.

We found program designs that could work under the unique institutional conditions here. For example, many of the programs were designed to work with traditional pensions, but some included employee-directed retirement plans, which are more common here.