Pension levels on the decline.

Dr.WSW – 05/2018

The European Commission and the Social Protection Committee published their Pension Adequacy Report 2018 on 30 April in English only. This is not surprising, given that the Report has a total of around 450 pages of highly complex analyses, including country profiles. It is the third report of its kind, released every three years.  

Not surprisingly, the key message is that the Member States have gone some way to achieving adequate and sustainable pensions, but there is still a lot to be done. It is recommended that the Member States take the following steps:  

 

  • improve access to old-age pensions for groups who were previously excluded or inadequately covered; 
  • raise the retirement age and improve conditions for a longer working life; 
  • promote supplementary pension schemes; and 
  • reduce the gender pension gap. 

The analytical part of the report describes some progress: 

 

Old-age poverty has declined. In the 65+ age group, there are now 1.9 million less people living in poverty than 10 years ago, although this trend has stagnated since 2013. The poverty risk for older people is often lower than that of the working population; only in seven Member States is it higher. In simple terms, the average European income replacement rate is 58%, but there are large variations between Member States, ranging from 40% to 80%. A not insignificant problem is the erosion of retirement income as a result of poor indexation of pensions. Another important factor is cost-effective access to public services, and in particular to healthcare and long-term care. The report notes that there are major gaps in some countries. 

 

The report also highlights the gender pension gap. Women's pensions are still 37% lower than men's pensions. One of the contributors to this is the fact that old-age poverty for women is significantly higher than for men. To reduce the gap, it is recommended that women be offered better protection for care-related career breaks. 

As a result of recent pension reforms, the number of older workers (aged 55 to 64) has risen by 4.2 million in the last 3 years, split equally between women and men. This has been accompanied by a sharp drop in the proportion of retirees in this group, but a slight increase in the number of people unable to work due to illness or disability. Nevertheless, the expected increase in life expectancy means that further increases in retirement age are necessary. However, it is not just pensions that determine the standard of living in retirement.  

In addition to the regular analyses, each of the Adequacy Reports also focuses on special topics. This time, in line with Principle 15 of the European Pillar of Social Rights, the focus is on improving access to social protection. For the first time, the report examines in detail the possibilities of providing adequate protection in old age to people in non-standard employment and the self-employed. It then calls for pension coverage to be extended to cover more people in non-standard or self-employment. 

 

Finally, there should be more coverage by supplementary pension schemes to complement statutory pensions. 

 

A more detailed evaluation of the analysis is available here (in German language only).