Pensions: a European issue

A European crisis

From London to Rome, from Berlin to Lisbon and from Helsinki to Brussels, every system — which are very different across Europe— is beginning to break down.

The Netherlands for example, whose system is one of the most generous in the world (the pension reaches 80% of the last wage), risks seeing a great fracture emerge. Indeed the Dutch retirement pension could approximately decrease by about 10% in the next few years. Why? Well, on one hand because life expectancy is getting longer —as well as the length of retirement!— and on the other hand because income from savings is drastically plummeting.

These ‘funded’ pension schemes depend on financial markets. We might imagine, therefore, that this social fracture would be less important in more supportive political systems.

From ’baby boom’ to ’elderly boom’

Unfortunately, this is absolutely not the case. Each system faces another problem that Europeans struggle to deal with: population ageing. In every country, there is a decrease in contributors and an increase in pensioners. This is particularly due to the famous “baby boom” in the postwar period which is slowly becoming a “elder boom”. It’s a dead end!

In the United Kingdom, university lecturers were on strike for a period in November because their pension contributions were about to increase from 8 to 9,1% of their wage. The aim is to tackle a large deficit (about £7 billion) that the British government — which has its hands full with Brexit!— does not know what to do with. For a lecturer whose wage has not been increased at the same time as their contribution rate, it means a loss.

Viewed as a role model by many European governments, Sweden has a “points-based system”. It is, in some ways, the one which French president Macron’s government would like to set up in France. The Scandinavian system, however, is much more radical because it self-balances thanks to the variation of point value, whereas the contribution rate remains fixed about 18%. The: when the system faces financial difficulties, pension funds automatically decrease. It has happened three times over the last 10 years.

Longer life expectancy in Sweden also threatens the delicate stability of the pension system, it may cause another pension decrease. The first affected are similar to those affected in France: women and people with interrupted work careers. The only possible way out appears to be progressively raising the retirement age to 64 years old for the Scandinavians.

Raising the retirement age, decreasing pensions, increasing contributions: the equation is a sad one, and the result will hardly suit anyone in Europe. Thus far, however, no alternative has been found, and the reality is a complex one: across the continent, countries face ageing populations and an unsustainable system. It is very likely that, since we will live longer, we will also have to get used to the idea that we will work longer too.