Europe is facing major challenges
Social security systems - today and in the future.
TH – 08/2021
Old-age provision, health and care are
fundamental core issues for every society. These three major social security
systems - pension, health and long-term care - are derived from the values and standards of their relevant coexistence
and they also shape them to considerable extent. Their arrangement and
facilities are determined by the available resources and are subject to
constant, highly dynamic change processes.
The EC regularly draws up reports that look
at the development lines of these three security systems within its member
states. These studies enable long-term, cautious forecasts or projections to be
made. Three of these studies, the adequacy report, the old-age report and the
long-term care report, are the subject of the current ed* issue from German
The various reports started with a look at
the starting point used today - usually 2019 - and a generally in-depth look
back at how this came about.
Pensions today and in the future
The pension adequacy report (see News 06/2021) highlighted two questions in particular: are
pensions, now and in the future, adequate for maintaining living standards and
can they prevent poverty in old age?
Low retirement incomes are often the result
of low earnings and/or interrupted working careers, and this often applies to
females. According to the report, minimum and basic benefits could make an
important contribution to pension adequacy here. In fact, some member states
have already developed these components in recent years and in Germany, they
are applied through basic security benefits.
The length of retirement has also been
shortened in many countries: The retirement age is rising faster than life
expectancy. An average of 40 years are now spent actively and 20 years are
spent in retirement in the life cycle.
The adequacy report clearly warned against
a decline in the pension level in the future. Even those who retire in 2059
will have a lower pension in relation to their earned income than a new
pensioner had in 2019 - with the same working career. A further decline in the
pension level can be expected by 2070. It also looked at the gap between the
statutory and actual retirement ages as well as the costs incurred as a share
On the expenditure side, the conclusion is
that long term expenditure on old-age pensions will remain relatively stable
but this will also go along with later retirement and reduced wage replacement rates.
Health is becoming more expensive
Demographic change counts as one of the
cost drivers in health care spending. The main way to counteract this is to
increase the number of healthy years of life. However, medical progress in the
past had a far greater effect than demographic factors and the incidence of
Demographic and non-demographic factors
will continue to exert considerable pressure on the sustainability of publicly
financed health care expenditure in the future. The public sector will continue
to bear the main share of healthcare costs in the future. Therefore health care
expenditure will remain one of the long-term cost drivers for the foreseeable
Long-term care - problems and costs
Separate chapters were dedicated to the
long-term costs of long-term care in both the old age and long-term care
reports. The projections were limited to public expenditure; but reasonable
funds are already flowing into nursing care from private pockets, e.g. as
additional payments. The long-term care report took a detailed look at the
affordability and quality of long-term care services.
With increasing life expectancy, more and
more people are reaching an age where they become dependent on help from others
due to their declining physical and mental health. This will naturally have an
impact on long-term care expenditure, which will increase faster than the
expenditure on health and pensions.
Family members and friends, especially
women, currently provide the bulk of long-term care, often informally. However,
the supply of unpaid carers is expected to decline, partly because people are
having fewer children and they might also be living further away from their
elderly parents and be unable or unwilling to provide care. Therefore, social
protection systems will increasingly have to provide for those in need of care.
Only a few EU countries are currently providing comprehensive social protection
for covering care needs in old age.
The report also took a close look at how additional payments for those who cannot afford it could be reduced, the quality of
care services (there are still no pan-EU quality indicators) and the working
conditions of care workers (especially the effects on their health).
The role of the informal, and often unpaid,
care services already mentioned give rise to an appeal for more social
security and other assistance to be made available to unpaid carers - but
please not at the expense of expanding formal care.
The reports also included policy
recommendations, most notably in the adequacy report. Even though these
recommendations focused on old-age provision, they were also aimed at other
social security branches. They included advice (not new) about putting old-age
provision on a broader financing basis in a changing economic and labour market
environment and against the background of demographic change; wage-related
contributions should be supplemented to a greater extent by other sources that
place less of a burden on earned income, such as capital gains or assets.
Possible contributions from consumption and especially environmental taxes were
only tentatively discussed. It also called on member states to do more to
eliminate gender inequality and to better protect atypical and self-employed
With regard to the health and care sector,
the reports contain passages that can be interpreted in the direction of
cautious privatisation of the cost burden. It is only clear in the care sector
that the rise in costs should also be slowed down by concentrating public
spending on those people who need care most urgently and can least afford it.
This would contradict the approach in Germany as well as in other countries, of
not making long-term care benefits dependent on material needs.
You can find the complete ed* newsletter here.