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Reforming Pensions in Europe: Economic Fundamentals and Political Factors

in
Publisher: 
Social Science Research Network
Author: 
Ondrej Schneider - Charles University Institute of Economic Studies; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Date published: 
19 May, 2009
Region: 
International

Publication type: 
policy
Publication link: 
Reforming Pensions in Europe: Economic Fundamentals and Political Factors
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Study shows Ireland not prepared for pension reform and ageing population    

As Europe ages at considerable rate member country’s pension expenditures are expected to grow rapidly. In almost all developed countries public pensions is the greatest budgetary expense. By 2050 20% of Portuguese GDP could be funding public pensions. In this situation current public pension spending represents a serious threat to the economic stability and competitiveness with developing international economies. 2050 45% of the Irish population is expected to be over 64 year.
Research from CESifo indexes pension reform measures of 17 EU countries. Quite simply pension reform is considered successful if future expenditures are lowered.  The study shows that out of the 17 countries studied, only three countries in the EU are likely to reduce their expected spending on pensions by 2050.
Pensions across the EU vary dramatically. In 2004 Ireland was spending an average of only 4.7% of GDP on pensions while Italy 14%. Ireland may seem well prepared for demographic change. However, forecasted increase in pension expenditure leaves Ireland, according to this research, ill prepared with an expected to increase 6.4 % in public pension spending by 2050. The study shows while governments are concerned with levels of projected change in demographics, they are not worried about the current levels of public pension spending.
 
Further EU variation in retirement age is documented. While 65 years is considered the standard age to retire in the EU, most workers retire earlier. In France the average male retires at 58 and Slovak female at 55 years. The Portuguese come out tops with the average worker retiring at 66. In Ireland we retire on average at 65 years.  
The main results show that:
 
·         EU pension reform is inconsistent and varies widely across countries
·         Delay to country reform is evident
·         Government attempts for change are only initiated when faced with pressure of further pensions increase
·         Retirement age also varies considerably across 21 EU countries recorded
·         In 2005 Ireland had the lowest public debt at 28% of GDP

 

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