Pension Adequacy in the European Union 2010-2050
Over the last decade most Member States have reformed their pension systems to improve their medium and longer term sustainability as a precondition for delivering on adequacy objectives. But in the context of accelerating population ageing and the current economic crisis achieving pension policy objectives are becoming more challenging. When trying to reconcile and optimise sustainability and adequacy concerns Member States face trade-offs and difficult choices. Achieving the goal of cost effective and safe delivery of adequate benefits that are sustainable is quite challenging.
Public pension expenditures make up a big part of public expenditure (EU-27: 11.3% of GDP in 2010, variance 6% - 15%) and are a major factor in the present and medium to longer term public budget position. Sustainability relates to the fiscal and financial balance between revenues and liabilities (and ratio of workers/contributors to pensioners/beneficiaries) in pension schemes. Pension reforms are needed to ensure that a balance can be maintained even as the population ages. They may also be necessary to improve possibilities for short to medium term budget consolidation.
Importantly, pension systems affect economic growth through their impact on labour supply. In particular they influence the participation of older workers for whom employment rates especially need to improve. Moreover, pension levels largely determine the proportion of people 65+ that are exposed to poverty and social exclusion. The adequacy and sustainability of pensions will therefore also affect the ability of Member States to achieve the employment and poverty targets of Europe 2020, i.e. those of raising the employment rate to 75% for people aged 20-64 and of reducing the number of people exposed to poverty or social exclusions by 20 million by 2020.
Consequently, considerable attention has been devoted to pensions in the Europe 2020 process and it's European Semester, which starts with the Annual Growth Survey, where both in 2011 and 2012 there were major points on pensions and ends with the adoption of Country Specific Recommendations, where in 2011 16 Member States received recommendations pertaining to pension issues. In support of European concerns about pensions the Commission recently issued a White Paper outlining "An Agenda for Adequate, Safe and Sustainable Pensions" in which among 20 initiatives it commits to deepen the analysis of adequacy issues in collaboration with Member States. This report is the first result of this commitment.