European Union pension systems: Adequate and sustainable?

11-11-2015

One in four European Union (EU) citizens currently depend on their pension income. Younger citizens will one day benefit from pensions too. And they also have an immediate interest, as the taxes and social security contributions working age people pay help support current pensioners. However, pensions are one of the biggest public expenditure items in the EU and as the EU population ages due to lower birth rates and increasing longevity, pension systems have come under increasing pressure. Since its inception in 2011, the European Semester process has resulted in a pension related Country Specific Recommendation (CSR) for a majority of Member States every year. And the 2015 Ageing Report shows there has been good progress in making pension systems more sustainable. Overall EU spending on public pensions as a percentage of GDP is now expected to be similar in 2060 to today’s level, despite demographic ageing. But pensions also need to be adequate and the recently published 2015 Pension Adequacy Report (PAR) gives a comprehensive picture of this both now and in the future. Whilst acceptable levels of adequacy have largely been maintained for current pensioners, this is not the case everywhere or for all groups (e.g. women are at greater risk of inadequate retirement income). And as the impact of pension reforms feeds through, there are some challenges to be faced if the growing numbers of future EU pensioners are to avoid poverty or large falls in their income on retirement.

One in four European Union (EU) citizens currently depend on their pension income. Younger citizens will one day benefit from pensions too. And they also have an immediate interest, as the taxes and social security contributions working age people pay help support current pensioners. However, pensions are one of the biggest public expenditure items in the EU and as the EU population ages due to lower birth rates and increasing longevity, pension systems have come under increasing pressure. Since its inception in 2011, the European Semester process has resulted in a pension related Country Specific Recommendation (CSR) for a majority of Member States every year. And the 2015 Ageing Report shows there has been good progress in making pension systems more sustainable. Overall EU spending on public pensions as a percentage of GDP is now expected to be similar in 2060 to today’s level, despite demographic ageing. But pensions also need to be adequate and the recently published 2015 Pension Adequacy Report (PAR) gives a comprehensive picture of this both now and in the future. Whilst acceptable levels of adequacy have largely been maintained for current pensioners, this is not the case everywhere or for all groups (e.g. women are at greater risk of inadequate retirement income). And as the impact of pension reforms feeds through, there are some challenges to be faced if the growing numbers of future EU pensioners are to avoid poverty or large falls in their income on retirement.