Mounting concerns over workforce size
The EU issued some worrying population projections for the next 50 years, with a view to updating pension expenditure forecasts in the EU25. Also, the European Federation for Retirement Provision (EFRP) told the Commission that its push to eliminate tax discrimination of pension funds was moving ahead too slowly. The EFRP presented a series of findings, still in draft form, to taxation commissioner Lázló Kovacs that highlighted where particular problems remain.
Figures published on 8 April suggest that, if current population trends continue, the working age population of the EU25 will decrease by 52m by 2050. This represents a drop from the 2004 level of 67.2% to 56.7%.
At the same time, the proportion of elderly people is expected to double between 2004 and 2050, from 16.4% to 29.9%.
This will result in an elderly dependency ratio - the number of people older than 65 compared to those of working age - of 52.8% in 2050 (up from 24.5% in 2004).
A new report from the Survey of Health, Aging and Retirement in Europe (SHARE) suggests that the situation is worsened further by the under-usage of the working population, many of whom opt for early retirement, especially in countries that offer generous incentives for leaving work prematurely.
There is a particularly large under-usage of the workforce in “Austria, Italy and France” notes the survey. SHARE believes that “healthy” individuals should be enticed to remain in the workforce, while those in poor health should be given the option of early retirement.
On the basis of its latest population projections, Eurostat is expected to publish new estimates for pension and age-related expenditure in the EU25 by the autumn. The last time that this issue was looked at in any detail was a survey issued in 2001, which only considered the situation when there were 15 members.
The 2001 projections suggested that spending on public pensions will increase by between 3% and 5% of gross domestic product (GDP) in most member states, although the timing of these changes is expected to vary significantly from country to country. The UK was the only member state to actually project a decrease in public spending as a share of GDP.
Since these figures were released, a number of countries have embarked on ambitious pension system reforms - most notably Italy, France and the UK.
Many of the newcomers to the EU - Hungary, Poland, Sweden, Latvia, Lithuania and Slovakia - have recently taken steps to create second pillar (occupational) pension funds. Commission spokeswoman Amelia Torres highlighted that - as shown by the spring economic forecasts - this has had the effect of reducing the contributions to state pension systems and, therefore, increasing the deficit of these countries (or reducing the budget surplus).
The Commission is especially worried about the slow pace of pension reform in the Czech Republic, which is the second largest of the new member states and likely to face one of the most serious demographic crises of all EU members. A separate report published on 21 April by the Commission suggests that the elderly dependency ratio in the Czech Republic will almost triple over the next 50 years, the second largest increase in the EU25 after Slovakia.
The Commission criticises the Czech government for being slow to address the problem, saying that it has just been chipping away at the edges rather than introducing more systemic reforms, such as establishing a fully funded system to compliment the mandatory pay-as-you-go one. But the EU’s executive also recognises the difficulty of coming up with a “correct” solution for pension reform in the Czech Republic. A team of experts, set up to look into the issue, will shortly present their findings and recommendations to the government.
The Commission has broadly welcomed the draft reports from the EFRP that highlight the problem of tax discrimination of pension funds throughout the EU, but says that it will wait for the final versions, due to be published by the summer, before deciding if it needs to take any additional steps to force member states to comply with EU rules.
There are presently more than 150 complaints concerning pension tax discrimination before the Commission. Already, the Commission has launched infringement proceedings for tax discrimination against Belgium, Spain, France, Ireland, Italy, Portugal, the UK, Denmark and Sweden.
Most of these countries have promised to amend their national law to conform to EU legislation. The Commission notes that Sweden has been having particular difficulty in changing its legislation, as it was instructed to by the Skandia/Ramstedt Court of Justice ruling in 2003, although Jaap Maassen, EFRP chairman, who presented the reports to the Commission, thinks that the country is beginning to make good progress in resolving this issue.