EUROPE - Replacement rates at European pay-as-you-go (PAYG) pension plans are set to shrink to just 40% of wages by 2060, but the second and third pillars will struggle to offset those losses, new research has found.

According to the report ‘European Pension Observatory 2012’, published by consultancy Debory-Eres, the replacement rate in several European countries is set to drop significantly due to increasing demographic pressures.

The report cited Italy and Poland, which will see replacement rates drop respectively from 68% and 56% in 2007 to 47% and 26% in 2060.

Jérôme Dedeyan, president at Debory-Eres, said: “The European pension shortfall is estimated at between 100% and 200% of the EU’s GDP, and the current financial crisis is aggravating those issues.

“Governments will, therefore, have no other choice than to increase the number of years spent at work, encourage part-time work in retirement and review pension contributions.”

Meanwhile, statistics published recently by the European Commission have shown that one-third of Europe’s current workforce would like to continue working even after reaching legal retirement age.

Lázló Andor, commissioner for employment, social affairs and inclusion, said: “[The] Eurobarometer survey shows people are ready to remain active as they grow older.

“I am confident the European year [of active ageing] will act as a catalyst to mobilise citizens, stakeholders and decision-makers to take action to promote active ageing and to tackle the challenges of ageing in a positive way.”

However, Debory-Eres warned that any measures would need to be implemented soon, as the capitalised pensions savings within the second and third pillars would be insufficient to offset the drop in the PAYG system.

“Despite the lack of data, we can estimate the current capitalised pensions savings in Europe at between 25% and 150% of countries’ GDP,” it said in its report.

“The demographic pressure means this amount is insufficient. The EU should accumulate up to four times its GDP in capitalised pensions savings to compensate the fall of the first pillar.”

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