Europe’s pension crisis – finding a solution
Anna D’Addio, Economist, Pension Policy Analysis at the OECD, said that there are many risks and uncertainties that affect pensions, and these have been exacerbated by the crisis. No country or pension system has avoided the effects. Pensions are a long-term issue but investment risk is not the only uncertainty. The crisis is also exacerbating the challenges of changing old age dependency ratios, and continuously increasing life expectancy at pensionable age. The two priorities – financial sustainability and adequacy of pensions – are difficult to balance.
Raphaël Hadas-Lebel, President of the French Pensions Advisory Council, said that like most other EU countries France is facing the double demographic challenge of increased life expectancy, and the post-war baby boom reaching retirement age, and the impact of the financial and economic crisis. Conclusions from a report in 2010 by the Pensions Council suggested three ways to balance the pension system, lowering retirement age, increasing compulsory contributions, or postponing retirement age. The government chose to lengthen the contributory period, and raise the minimum age for retirement.
Ralf Jacob, Head of Unit on Active Ageing, Pensions, DG Employment, European Commission, said the long-term challenge of adequacy and sustainability can be met by raising the effective retirement age, but the financial crisis has also created short- and medium-term challenges. The Commission Green Paper on adequate, sustainable and safe pensions is a search for solutions. Responses generally accepted the need for higher effective retirement age and enabling employees to work until statutory retirement age. There need to be accompanying measures in the employment sphere to achieve that goal.
Alison McKie, Head of Life and Health Products, Swiss Re, said that the issue of longevity was very important. It is not simply a matter of people living longer, which is clearly something to be celebrated, but the uncertainty of not knowing how much longer that creates the challenges. Life expectancy has been consistently underestimated for decades – it is a significant issue for insurers. Government should support the development of a market where risk can be transferred more broadly, which requires regular, credible and consistent data.
Fabian Zuleeg, EPC Chief Economist, said that the fight for pension sustainability would be won or lost through labour market participation. Achieving higher labour market participation is crucial for pension sustainability – at least as important as demographic profile. Increasing pension age is only a partial solution, and focusing on reform of pension system reform is important, but insufficient in itself. Labour market reform across all age groups is also crucial and offers additional benefits of economic growth, cohesion, and individual well being.