In Europe, Germany faces the most pressure to deal with an ageing population finds Jonathan Williams

Looking across these pages, the impression might arise that all countries will, in equal measure, suffer as an ageing population and increasing dependency ratios put a strain on welfare states. However, no other European country, arguably no other country than Japan, is set to see such significant changes as Germany.

Thomas Jasper, head of general consulting at Towers Watson Germany, jokes that the country is a leader in the field of demography - "to put a positive spin on it" - and says that the World Economic Forum in Davos regards the issue as on par with climate change, terrorism and solving global supply issues.

Like all governments, Germany's faces the challenge of changing perceptions of age - why should this generation work up until retirement age, why should they perhaps work even beyond 67? Then there are the decades of policy that, faced with soaring youth unemployment in the wake of reunification, preached early retirement as the responsible and practical alternative to work.

The contradiction now facing Germany and Europe as a whole is that it will need these ageing workers. A falling birth rate and low immigration have taken us beyond the point of no return. In a trend mirrored across Europe, more people are approaching the age of retirement (60-64) than are preparing to enter the workforce at ages 15-19. If Germany is to have any chance of sustaining its position as a hub of industrial excellence in the medium term, it needs to encourage its aging population to work longer and stay healthier into old age.

Alfred Gohdes, head of actuarial consulting at Towers Watson sees a number of problems facing the German retirement system. He jokes that "the baby boomers are followed by the geriatric doomers".

Gohdes explains that German mortality tables under-estimate the country's life expectancy by up to a year for men and around half of that with women. German calculations have been facing revision increasingly often in the last 50 years, with data gathered for the 1960s no longer accurate in the 80s and data from that decade already devalued by the mid-90s. A new, dynamic measure of calculating mortality introduced was in 2005. While these new tables, complied by Heubeck AG, continue to underestimate both life expectancy and mortality rate, their dynamic nature at least keeps pace with the ever-rising figures in both areas.

Jürgen Pfister of the German Demographic Network says the challenge facing employers in Germany is also that of coming to terms with an ageing workforce. He says his previous employer, the small retailer Metro, gradually came to accept this shift and, unlike a number of other large employers at the time, no longer tried to change the company's make up by encouraging retirement.

"The only sensible option remaining was to seize this disadvantage and turn it into an advantage - to no longer view the demographic change purely as a threat, but to see it as an opportunity for us," he says. "The biggest employment-market challenge of this decade is, in my option, increasing the activity in the 55 - 64 age group. On average, only 33% of the group are part of the workforce across Europe - if we were able to increase that level to that found in Sweden, which would mean doubling the current figures, the European market would see 8m additional employees enter the market."

He says that offering early and pre-retirement must be abolished, as allowing retirement for those now 55 years of age only signals to current, younger employees that this is the desirable time to depart the workforce.

While the changes in longevity might affect the workforce, Alfred Gohdes notes that its effect on the pension system is not as pronounced as might be expected.

"This may be a point some do not want to hear - but if longevity is approached openly and with an analytical mindset it is merely a smaller part of the risk an employer takes on as part of its occupational pension scheme [bAV]."

This is particularly important to note, as Guntram Hepperle, head of general consulting at Towers Watson's Munich office, says employees are increasingly asking about the options a firm offers. He stresses the importance of retention by creating a bond between workers and occupational scheme - something that only is possible once workers fully understand the benefits they will receive. As such, he argues for a redesign of benefits, saying that not every employee will be interested in the full array of benefits offered in a firm's bAV - not everyone needs an invalid pension, say - creating the opportunity for employer savings.

"It is clear that in the war for talent, the bAV will remain important and become more important," he concludes. "New scheme designs must therefore walk the line between human resources interests, funding cost and risk control."