Pension Adequacy Report: Risks of poverty will increase, remaining challenges for older women

6 October 2015

This information is available in French here

The Council of EU ministers of employment and social affairs has released a report on the adequacy of pensions including a statement by AGE Platform Europe. The report is an update of the 2012 Pension Adequacy Report and highlights the key challenges older persons face in attaining their right to an adequate standard of living. A key chapter focusses on women, whose risk of poverty is much higher than men’s. AGE welcomes the report and calls for more concrete actions to be taken to improve pensions of older women.

Overall lower poverty rates, but big differences between countries

While the older population overall faces lower poverty rates than most other population groups, there are big differences between member states. The overall risk of poverty for older persons (i.e. the part of persons earning less than 60% of median income) is 14% comparted to 16% for other adults. However, in 12 member states, poverty rates are higher for older persons than for others, and in some countries the differences are huge. Also, in many member states, median income has fallen during the crisis, with the effect that persons on the lower income scale might no longer be considered as ‘at risk of poverty’ while they earn the same low income than before the crisis.

Problem of female poverty in old age

Older women are more vulnerable than men to poverty, as they dispose of less retirement income, the pension gap standing at 40%. They also outlive their partner more often and are therefore more often in a single-person household, which has higher financial needs per person. Effective measures to closing this gap quoted in the report are survivor’s benefits and the recognition of carer’s leaves in the calculation of benefits.

The risks of pension reforms

The pension reforms that were conducted across Europe will probably have a worsening effect on pension adequacy, risk of poverty and gender equality, as pension levels will be lowered. In 15 member states, this drop will be partially compensated by the increased role played by funded pension schemes; however these expose pensioners to a higher degree to fluctuations of financial markets. A key risk is also linked to disability or early labour market exit due to unemployment – shorter careers can significantly lower pension levels and therefore increase the risk of old-age poverty. The report calls also for further reforms to ensure the adequacy of pensions for migrants and currently young persons without standard work contracts. It also emphasised the importance of reducing gender gaps in employment.

AGE: more scrutiny on vulnerable groups

AGE Platform welcomes the report and calls for closer scrutiny of the situation of specific groups, such as older women or older migrants. AGE was asked to submit a statement to the pension adequacy report, which was annexed to the official report alongside the contributions of employers and trade unions. AGE highlights the cumulative negative effect of some pension reforms on current and future pensioners. AGE asks member states and the Commission to pay more attention to the gender pay, career and pension gaps, focussing not only on employment of younger women and childcare provision, but also on the labour market integration of older women and facilities to help them reconcile work with care duties. AGE reiterate its call for a carer’s leave to be established.

Look at the whole picture: health status and living costs

When raising retirement ages, more attention should be paid to healthy life expectancy, which is below statutory pension age in many member states and declining recently. Pension adequacy is also put at risk by rising fees that have to be borne by users of health-care and long-term care services. AGE calls therefore for the establishment of reference budgets that can capture the changes in the costs of goods and services that are specifically needed by older persons, in order to better assess the adequacy of pensions in future reports.

More focus on decumulation phase

AGE is also concerned about certain risks relating to the increasing importance of funded pensions in the form of private, occupational or increasingly even statutory pension schemes. Products to decumulate pensions, such as annuities, are often complex and intransparent in terms of costs. Supplier’s practices should be monitored and assessed to improve this market, upon which the retirement income of many pensioners depends.