Early retirement trend slows
Europe seems to be slowly inching away from its early retirement tendencies, according to the latest data on pensions expenditure issued by Eurostat, the EU’s statistical bureau.
The release of this data coincides with the publication of a study by the Organisation for Economic Co-operation and Development (OECD), which calls on EU member states to stop encouraging early retirement.
The Eurostat figures show that over the past 10 years there has been a steady decrease in the proportion of pension expenditure spent on early retirement provision as opposed to old-age pensions.
In 1993, 12.9% of GDP in the 15 member states went on pensions, with 26.6% of this going to support those that wanted to retire early. By contrast, in 2002, 12.5% of GDP went on pensions, with 24% of this going towards some form of early retirement provision.
This trend is in line with European Commission recommendations that people who wish to work longer should not receive less benefits than those who choose to take early retirement.
Some recent examples illustrate the changing attitude towards early retirement in Europe.
In October, Belgian Prime Minister Guy Verhofstadt chose to defy the will of trade unions by bullishly opting to press ahead with his proposal to extend the minimum retirement age from 58 to 60, despite two highly disruptive strikes by unionists and the threat of more to follow.
In Germany, one of the EU countries where the pensions time bomb is likely to be most explosive, the two major parties - the ruling CDU/CSU and coalition partner SPD - are reported to be close to an agreement on plans to raise the legal retirement age from 65 to 67.
Justin van de Ven, a researcher at the National Institute of Economic and Social Research in the UK, does not think that such moves to curb early retirement are surprising, given the unavoidable greying of Europe over the next few decades. “This is a trend we are seeing played out in most EU countries, with Sweden the most progressive,” he said.
Meanwhile, the OECD held a conference in Brussels in October to present a recent report that calls for an end to early retirement options. “Pension reform may be less effective in encouraging later retirement if other financially attractive pathways to early retirement remain open,” says the report.
According to the OECD survey, workers tend to retire later in Portugal, Ireland, Denmark and Sweden, while the earliest retirement is seen in Belgium, Austria, Luxembourg and Hungary.
The OECD argues against an “implicit tax on working”, whereby workers who choose to stay in work beyond the minimum retirement age are not adequately compensated by higher future pension entitlements.
But the OECD insists that encouraging people to work longer is not just about raising the minimum retirement age and reducing incentives for leaving the labour market early – it is also about improving the employability of older workers.
There are a number of work disincentives and employment barriers in the way of older workers, including employer attitudes and inadequate access to training, notes the OECD report.
For its part, the Commission has welcomed the tangible evidence that member states have started to get to grips with their early retirement problems, but recognises that the employment rate of older workers (those aged between 55 and 64) is still too low.
In a report adopted on 20 October, the Commission says that several member states have recently launched “important reforms” of early retirement systems, but stresses that the current employment rate for older workers in Europe, 40.2%, still remains significantly below the 2010 target of 50%.
This same report also restates the role that legal migration can play in redressing the demographic balance, a mantra that will shortly be seized upon by the UK presidency of the EU when they come to draw up a strategy paper on demographic changes ahead of a key meeting of governments in December.
On 24 October, commissioner Joaquín Almunia, in charge of the EU’s monetary policy, delivered a speech to the Austrian Chamber of Labour in which he stressed that “immigration is definitely an opportunity to expand the labour force, provided that we are able to better manage legal migration at an European level, taking into account the absorption capacity of our societies.”
These are sentiments that European governments seem broadly to agree with. Following an informal meeting of EU leaders on 27 October, British prime minister Tony Blair, who chaired the meeting, said that while illegal immigration remained a problem in Europe, “the benefits of lawful migration to the European economy” should not be overlooked.
He added that the UK would be drawing up a strategy paper on demographic changes ahead of a follow-up meeting in December, which would consider how regulated migration could take some of the burden off Europe’s finances.