Social security systems - today and in the future.

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 Social Insurance.

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 of GDP.

 

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 disease.

 

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 future.

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.

Policy recommendations

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 work. 

 

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.

 

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