Europe is a greying continent. Nine of the 10 nations with the largest populations of over-65s in the world are in Europe. The average number of live births per woman in Europe has been slowly trending downwards over the decades (from roughly 2.4 in 1960 to 1.55 in 2018). It’s estimated that Europe’s working age population will decline by 0.4% every year between now and 2040. Can the continent’s pension systems cope if a shrinking workforce is supporting an ever-growing cohort of elderly retirees?
What do our readers think? First up, we had a comment sent in from AJ, who thinks that only high taxes can ensure sustainable pension systems going forwards. Is he right?
To get a response, we spoke to Matti Leppälä, CEO of PensionsEurope, a European association representing national associations of pension funds and similar institutions for workplace pensions. How would he react?
It’s really about finding a balance between what is adequate with regards to income and then what is sustainable. And ‘sustainability’ in Europe really means looking at the sustainability of public finances, which means taxpayer and public finance part of the economy. And what is crucial is to ensure that Europe can afford this in a globally competitive environment.
If European costs for retirement and other welfare state costs become too high, Europe will not be competitive, and that is the key challenge. Now, Europe has been working on this for two decades, to reform its pension systems – especially social security pensions – so Europe is much more sustainable financially than it was, but it means that many people will receive a pension from social security that is much lower than what people had before. This poses a challenge, people have to save much more by themselves than they did before – privately or through their workplace – to be able to have something similar to those who retired earlier.
Next up, we had a comment come in from Peter, who is convinced that Europe needs immigration to counter demographic decline and sustain European pension systems. Other commenters have argued EU Member States need to adopt measures to boost birth rates. Either, will the best way to put pension systems on a sustainable footing be to try to reverse Europe’s current demographic trend?
These are extremely difficult questions in the present environment; labour mobility and immigration are very challenging debates in Europe, and the COVID crisis makes it even more difficult. So, this is something that urgently needs to be addressed, and I agree we need to have a basis for growth. With an elderly population it is much more difficult to have a growing economy and, of course, the challenges for public finances are much, much greater when the relationship between people in working life with those who are retired deteriorates very rapidly; in Europe this may happen more than anywhere in the world.
So, this is really a crucial question. And Europe will play a role in this; we need a European approach to immigration and labour mobility, it is very much up to Europe to have policies and to regulate things, and the European Union is looking into policy initiatives on this, but these are going to be very difficult debates about immigration and mobility.
Can our pension systems cope with an aging population? Are European pensions systems sustainable given changing demographics? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!