Sustainability and adequacy of pensions in EU countries. A cross ...

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Table of Contents PREFACE .............................................................................................................................. 2 1. SETTING THE CONTEXT: THE SUSTAINABILITY CONCERNS .................................................. 3 A. THE POPULATION AGEING CHALLENGES .......................................................................................... 3 B. THE JOBS CRISIS.......................................................................................................................... 4 C. THE FISCAL CRISIS ....................................................................................................................... 5 D. FINANCIAL SUSTAINABILITY CHALLENGES: AGEING AS A CONTRIBUTORY FACTOR.................................... 6 2. PENSION REFORMS AND THEIR AGGREGATE IMPACT: EVOLUTION OF THE BENEFIT RATIO 9 3. IMPACT OF REFORMS ON THE STRUCTURE OF FUTURE PENSION SYSTEMS ...................... 10 4. IMPACT OF REFORMS: CHANGES IN THE AVERAGE FIRST PENSION .................................. 12 5. POLICY CHALLENGES GOING FORWARD! ......................................................................... 14 REFERENCES ...................................................................................................................... 16 ANNEX A ........................................................................................................................... 17 1
Sustainability and adequacy of pensions in EU countries A cross-national perspective Preface The financial sustainability challenges that EU countries face are well documented, but the impact of policy reforms now on the structure of future pension systems and on incomes of future retirees is less clearly delineated. Similarly, the need for sustained policy remedies to the current economic and fiscal crises is widely recognised, yet the effects of actions taken now on the nature of future social challenges arising are masked. This paper addresses these issues, and is based upon the author’s presentation to the conference under the Belgian Presidency of the Council of the European Union, "Assuring Adequate Pensions and Social Benefits for All European Citizens", held at Liège, 6-8 September 2010. The analyses emphasize the need for policy-makers to be aware of the impacts of decisions on sustainability issues and on fiscal consolidation upon pension systems’ structures and on pension income adequacy for future pensioners. This paper builds on from an earlier policy brief (Zaidi 2010a), which stratified EU countries according to the poverty risks of its older populations (aged 65 or more) in 2008, and reported on the current adequacy of retirement incomes. The outcomes reflect both the influence of past pension policies and also the labour market and demographic experiences in working life of current retirees. Extrapolating this picture forward to depict how current generations of workers will fare in their incomes as and when they retire is the major part of this paper. In doing so, it uses projections and simulations on income entitlements of future retirees in EU countries, as provided by the EU’s Economic Policy Committee and the Social Policy Committee and the OECD. The context is that although the shocks to global systems caused by the financial nearmeltdowns in 2008 and 2009 are beginning to recede, its effects will remain with us for decades to come. National economies are now saddled with structural debts, partly as a result of choices made over the boom years and partly in pursuing expansionary policies during the recession. Although signs of economic recovery are visible, the effect of unemployment as well as cutbacks required for budgetary consolidations on the vulnerable groups of the society, particularly pensioners, could run deep. The shape and design of future pension policy, and how that policy will be influenced by choices made now in response to the current fiscal crisis, future population ageing challenges, and the welfare of future pensioners, is discussed here. Such questions as were asked by Gauguin at the turn of 19 th century – D'où Venons Nous / Que Sommes Nous / Où Allons Nous (Where Do We Come From? What Are We? Where Are We Going?) – at a critical moment in his life, are also particularly pertinent for EU’s pension policymakers in the current times. 2
Page 1: Belgian Presidency of the Council o
Page 5 and 6: Figure 1: Population Ageing in EU c
Page 7 and 8: Figure 3: Government deficit (-) /
Page 9 and 10: Results presented in Figure 4 show
Page 11 and 12: The results presented here are deri
Page 13 and 14: ii). Strengthening links between co
Page 15 and 16: 5. Policy challenges going forward!
Page 17 and 18: References Economic Policy Committe

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