Posted Sep 29, 2022, 12:10 PMUpdated Sep 29, 2022, 1:50 PM
European demography is one of the most aging in the world. On average, 21% of its population is aged 65 or over, compared to just 10% globally. A reduction in the share of assets which forces the various countries of the European Union to rethink the financing of their pension systems.
Some opt for an extension of the legal retirement age, which varies between 62 and 67 depending on the state, others choose to link their system to life expectancy or to pay bonuses to people who choose to work longer. Overview.
In Germany, an urgent reform
Funding pensions is an explosive subject for Germany: the country’s aging demographics threaten its current system in the short term. Despite a legal retirement age set at 67, a report by the independent Scientific Council of the Ministry of the Economy already warned, in June 2021, of the explosion in public spending: by 2040, the financing pensions could represent 45% of the State budget, compared to 26% in 2019.
Since the arrival at the chancellery of Olaf Scholz at the end of 2021, the subject has not yet been put back on the table, while Germany anticipates social movements this fall due to the increase in the cost of life. Shortly before his election, he undertook not to postpone the retirement age beyond 67 despite the recommendations of the Scientific Council, which favored this track.
In Italy, more than 16% of GDP spent to finance pensions
After being put on the table by the government of Mario Draghi, the reform of the Italian pension system will fall to the person who will succeed him. And reform seems urgent. Nicknamed the “Japan of Europe”, Italy is the oldest country in the EU, with a median age of 47.6, according to Eurostat. The country’s spending to finance its pension system is thus among the highest of developed countries: 16.5% of GDP in 2020.
In 2011, the legal retirement age was raised to 67 for men and 66 years and 7 months for women. But it was finally relaxed in 2018 by the M5S-League government with the “100 quota” rule, on trial for three years. It allowed an early departure, from the age of 60 on the condition of totaling forty years of contributions. Given its far too high cost for the state coffers, Mario Draghi decided not to renew this rule. Before his departure, he had nevertheless revalued pensions by 2% from October 1, for a total cost of 2.4 billion euros.
In Sweden, a system considered unfavorable to low wages
Like Italy, Sweden should soon look into the delicate reorganization of its pension system. Since its last reform in 1994, it has had a universal plan. In theory, the Swedes therefore have the possibility of leaving the world of work from the age of 61, but must work until the age of 65 to benefit from a full pension. This system was to encourage Swedes to work longer in order to increase the level of their pension. In practice, those who entered the labor market in 1980 leave it on average at 64.2 years for men, and 63.4 years for women.
The total contribution corresponds to 18.5% of the salary (capped at the equivalent of 48,500 euros per year). When a person retires, his pension is calculated by dividing the amount of his contributions by the number of years remaining to live according to life expectancy. Today, this universal system is at the heart of many criticisms, because it is considered unfavorable to low wages and partly responsible for the poverty of the oldest.
In the Netherlands, a retirement linked to life expectancy
More than ten years of negotiations. This is what it took in the Netherlands to achieve a pension reform now considered successful by the various political parties. Finally enacted in June 2019, this system has the particularity of linking the retirement age to life expectancy. The Dutch work longer on average than their European neighbours: according to the OECD, their effective retirement age is now 66.3 years, and should increase to 69 years for people entering the labor market in 2020.
Dutch pensions are nevertheless among the most generous in the European Union: they are in fact made up of a basic income of just over 1,220 euros per month, to which is added 70% of the amount of their last salary.
Spain challenged to push back effective retirement age
The extension of the legal retirement age for Spaniards had already been recorded in 2011: set at 65 in 2012, then at 66, it must be gradually raised to 67 by 2027. But the country is still in full consultation with social actors to continue the transformation of its system, the various points of which were presented last fall by the government.
The government is paying particular attention to the gap between the legal retirement age and the actual age at which Spaniards leave the labor market: 64.8 years on average. For example, it plans to increase to 21% the discount imposed on the pension of a person who retires after thirty-eight years of contributions instead of forty, against 16% currently. To take inflation into account, the amount of pensions was also indexed to the consumer price index in August 2021.
In Belgium, a bonus for working longer
In Belgium too, the pension reform is dividing the country. The project put on the table a year ago by the liberal Alexander De Croo was finally the subject of a government agreement in July. It does not go back on the legal retirement age, currently set at 65, which should increase to 66 in 2025 and 67 in 2030.
To encourage Belgians to remain active as long as possible, the text intensifies the gap in pensions between early retirement and full retirement. Belgians can indeed leave the labor market early from the age of 60, provided they have accumulated forty-four years of career. The reform therefore provides an additional 300 to 500 euros on the annual pensions of those who continue to work beyond the age of access to early retirement or the legal age, within the limit of three years maximum.
To better take into account the inequalities between women and men, Belgium also plans to increase the value of part-time work in the calculation of the amount of the pension. It also introduces a minimum pension of around 1,600 euros net monthly after forty-five years of career.
· In Switzerland, alignment of the retirement age of women with that of men
Switzerland has submitted its pension reform to a referendum. On 25th September, 51% of the Swiss thus approved this project intended to rebalance the finances of the provident system in the face of longer life expectancy and the retirement of the baby-boom generation. A relief for the government, after two failures in 2004 and 2017.
The reform aims to increase revenue by raising VAT to bring in an additional 12.4 billion Swiss francs (12.9 billion euros) by 2032. It also raises the retirement age for women to 65 years, to align it with that of men, and makes retirement departures more flexible, between 63 and 70 years, with the option for workers to gradually reduce their activity.
