Pension systems prove their worth in crises.

On 20th June, the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) adopted the report on the adequacy of pensions drawn up jointly by the European Commission and the Social Protection Committee.

The report is compiled every three years and supplements the Ageing Report at European level by analysing the fiscal risks associated with the ageing of society. An important finding of the adequacy report is that European pension systems have proven to be resilient during the COVID-19 pandemic and Russia's war against Ukraine and have been able to cushion the impact of inflation on the living standards of older people. The Council also approved the conclusions drawn up by the Social Protection Committee (SPC) on the adequacy of pensions.

Stable pension systems

European pension systems and anti-crisis measures have significantly reduced the impact of the COVID-19 crisis and Russia's war against Ukraine on current pensions. The impact of the Covid-19 crisis on future pensions has been limited, in particular due to successful employment policy measures such as short-time working benefits. During the sharp rise in inflation, pension indexation was an important political lever to protect older people from loss of income. By contrast, funded pension systems were subject to strong fluctuations during the reporting period.

Gender pension gap is narrowing

The gender-specific difference in pensions between men and women has decreased significantly in recent years. In the EU, it has fallen from 35 per cent to 22 per cent since 2014 and in Germany from 45 per cent to 28 per cent. However, the gender-specific differences in the risk of poverty among older people, pension levels and pension cover have remained constant. Women aged 75 or older are also particularly affected by poverty or social exclusion.

Slight decrease in pension payment period

Over the last ten years, the increase in life expectancy in the European Union (EU) has slowed. This longer-term trend was exacerbated by the excess mortality during the COVID-19 pandemic. Between 2020 and 2022, the number of older people declined and life expectancy at the age of 65 fell.

On average, a European can expect to spend 21 years of their life in retirement. This is a slight decrease of 0.3 years compared to 2019 before the COVID-19 pandemic. In Germany, the average pension period in 2022 was 19.8 years. This is a decrease of 0.7 years compared to 2019.

Ensuring future adequacy

The calculations in the report project a decline in theoretical replacement rates over the next four decades. This corresponds to the results of previous reports. The report is therefore in favour of extending working life in order to ensure that pensions remain adequate in the future. In this context, it is emphasised that tackling the issue of disparities in life expectancy is a key challenge for pension policy. Another major socio-political challenge is the future safeguarding of care needs.