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European Parliament paints gloomy forecast for pensions

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  • European Parliament paints gloomy forecast for pensions

EUROPE - The impact of population ageing in the European Union is ten-fold that of the damage caused by the economic crisis, a briefing paper presented to the European Parliament has suggested.

A report entitled Social impact of the crisis - Demographic challenges and the pension system was produced ahead of a meeting in Brussels today assessing the impact of the recent crisis. The paper argues while the impact of the economic crisis is "significant", the magnitude of ageing on pensions systems overshadows this position significantly.

The paper from the EU's Economic and Scientific Policies Department states the "impact of the [2008/09 economic] crisis on pensions is in the order of 5% to 15%, while the impact of ageing is doubling the burden on the younger generation, an increase in the order of more than 100% in many member states".

The paper continued: "While financial markets were the main culprit of the current crisis, they remain nolens volens [whether one likes it or not] part of the solution in tackling the challenges of demographic change".

The report claimed while the effect of the financial crisis may be felt "for a decade or more", population ageing will "not go away"… It is a century event".

The paper, which is highly relevant to today's meeting of the Parliament's Special Committee on the Financial, Economic and Social Crisis, delves into the history of bubble-type crises. It started with the famous tulip bubble of 1637, followed by the Asian crisis, the dot.com crisis, and so on.

"The demographic challenge, however, is unique …" it continued, and argued it is a far graver nature to national economies than any periodic collapse through trading bubbles. It claimed "ignorance, denial and political opportunism have in many member states undermined a consistent pension report [to defuse] the demographic time bomb".

Among analysis of technical issues, expanded on in the briefing, officials noted the impact of the pensions crisis is very different from one country to another but said the crisis is estimated to have reduced the wealth accumulated in pension funds overall by 15.8%.

The increase in old-age dependency ratio - the number of beneficiaries from old-age pensions divided by the of individuals who contribute to the pay-as-you-go system in Europe - has increased from 51% in Sweden, to 200% in Poland and the Slovak Republic.

The report claimed no current system can survive a doubling of the cost-to-payer ratio, so pressures will make public pension systems unsustainable in a very foreseeable future if appropriate policy actions are not taken in time.

In its conclusion, the paper warned "turning the clock backwards on reform", as has been done in some EU member states in response to the economic crisis, will "badly backfire".

The European Parliament's 10-page briefing not follows a 175-page report from the Commission in October that delves into country-by-country analyses. (See earlier IPE story: Ageing population costs to dwarf recent crisis).

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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