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Pension reform delay could lead to stagnation

EMU – Postponement of pension reform in the euro area could result in deterioration of economic performance, lower living standards and even higher fiscal burdens for future generations, says the annual report of the European Central Bank (ECB).

Apart from pension reform, euro area countries should implement labour market policies, which reduce structural unemployment and increase labour force participation, says the bank’s report. Eliminating remaining fiscal imbalances and reducing public debt are also important parts of the European development, if the foreseen problems are to be avoided.

The report points out to the changes in the parameters regarding benefits and contributions as “largely sufficient” so far, but “inadequate” in financing the projected increase in public spending on retirement. Further reforms of this type should be aimed at adjusting the indexation of pensions, says the bank.

The bank favours a gradual change to funded schemes from pay-as-you-go systems, and it says that governments should support the development by providing legal and fiscal frameworks to the reform.

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