Council concerned about pension adequacy, but still reduces ageing to a 'cost' issue

The Council of the EU has adopted three sets of conclusions in relation to ageing in June, which show that a coherent approach on ageing is still lacking. The conclusions reflect on the results of three major reports drawn up by member States and the European Commission:

  • the Ageing Report contains population projections and projections for age-related public PensionAdequacyReport-CoverImageexpenditure in the very long term, until 2070;
  • the Pension Adequacy Report analyses the current ability of pension systems to safeguard an adequate standard of living for older persons today, the evolution of pension adequacy in the longer run and the impact of reforms on pension adequacy;
  • the Report on Long-Term Care looks at the challenges of long-term care systems.
      

Fiscal sustainability as the major concern

The Council conclusions on ‘fiscal sustainability challenges arising from ageing’ take a purely fiscal view and reflection on ageing. The Ageing Report underlines that age-related expenditure is set to increase by between 1.9 and 4.4 percentage points of GDP until 2070. Of this, only 1.1. percentage points of GDP stem from the increase in pension expenditure due to a higher number of pensioners, while the costs for health and long-term care might increase by between 2 and 4.9 percentage points of GDP.

AGE considers that the figures in the moderate scenario should be manageable from the point of view of public finances. The figures seem to suggest that pension spending is less a challenge than the spending on health and long-term care. Yet, the Council conclusions warn of ‘the greying’ of our society, seeing it only as a challenge and not as an achievement. The Conclusions call first and foremost to pursuing pension reforms to increase retirement ages to address the pension spending. The Council continues to use the ‘old-age dependency ratio’ as an important figure, while this ratio – the share of people over 65, relative to the share of people between 25 and 64 – has no longer a significance in monitoring ‘dependency’: higher educational achievement and social exclusion of younger persons mean that labour market entry happens at a later age; while many EU member States have already retirement ages above 65 and more and more workers continue working beyond that age. Low employment rates remain a challenge and EIGE has estimated the potential GDP gains from reaching gender equality as between 6.1 and 9.6 percentage points by 2050. 

Finally, the main apparent challenge –health and long-term care spending – is only reflected in a vague call for improved access to preventive and primary care. This is not up to the opportunities for increasing health status through approaches such as Health in All Policies, emphasising accessibility and activity in all citizens’ environments, strengthening reintegration and rehabilitation – opportunities for the health status of individuals just as opportunities for lightening the burden on public finances. The UN has declared 2020-2030 the ‘Decade of Healthy Ageing’. Fully engaging with this UN Decade and its topic would have been worth mentioning in the Council conclusions.
  

Pension Adequacy, a continuing challenge

The Council of Employment, Social Affairs and Health ministers (EPSCO) has adopted the Pension Adequacy Report 2021 with accompanying political messages. AGE could provide an accompanying comment to the Report.
The Pension Adequacy Report confirms that poverty and social exclusion in older age continue to rise, with a shift from material deprivation to a (relative) at-risk of poverty. Combined with demographic change, this also means a rapid increase in the absolute number of older persons at risk of poverty, placing an important predicament on the aim to reduce poverty and social exclusion by 2030, as announced in the European Pillar of Social Rights Action Plan.

The Pension Adequacy Reports underlines the persisting gender pension gap at a high level, falling only slowly over the years, and still accounting for higher than average rates of poverty and social exclusion for women over 75.

The Report underlines the beneficial nature of pension reforms from the point of view of public finances and certain improvements on minimum pensions and coverage, but also increasing inequalities between pensioners. It also outlines that higher retirement ages risk increasing inequality for workers with long careers and low incomes and persons with lower life expectancy at retirement. The Pension Adequacy Report also outlines that one in three older households in need for long-term care and support cannot afford it.

These facts show that the pensions challenge cannot be resumed and addressed only through a fiscal lens, as the Council conclusions on the Ageing Report do. Reforms that reduce public spending, while increasing inequalities and putting at risk of poverty additional shares of pensioners risk being undermined by public contestation of such reforms.

The fact that two separate sets of conclusions were adopted by the Council shows the schizophrenic approach towards pensions, while an overarching reflection would be needed.

  
AGE has proposed an EU Age Equality Strategy as a response to the Green Paper on Ageing – which raises questions on the future of public finances in a context of ageing. AGE continues to call for addressing the fiscal challenges through a lens of solidarity between and within generations and the need for protection for the most vulnerable, including older women, but also older persons with disabilities, older persons with career gaps due to care or health problems, older migrants, national and ethnic minorities and other groups.

 

For more informaton, contact Philippe Seidel, philippe.seidel@age-platform.eu

 

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