Written by Marketa Pape.
People in Europe are living and staying healthy for longer, and this is considered to be one of the great developments of the last hundred years. However, in combination with low birth rates and economic uncertainties, this phenomenon puts into question the future financial sustainability of pension systems and several welfare state parameters.
Pension systems are a key element of social protection for older people. They are meant to provide older citizens beyond working age with an income in the future. However, the way pension systems are currently designed leaves growing numbers of people at risk of old-age poverty. This trend runs contrary to EU efforts to reduce poverty.
In the EU, pension systems are a Member State competence. While the EU cannot regulate pension system design, the EU legal framework does covers some aspects relating to pensions, such as protection of rights in cases of cross-border mobility, consumer protection of pension savings, gender equality to secure equal pension benefits and the single market for supplementary pensions.
While EU pension systems differ in many respects, they all have one main challenge in common: finding ways to keep pensions financially sustainable in the long term, against a background of an ageing population with an increasing ratio of pensioners to working age population. In parallel, Member States seek to ensure pension adequacy (a sufficient level of pension benefits and protection of the elderly from poverty), while the future evolution of wages and prices remains unknown. Recent national pension reforms address these issues to varying degrees.
The right to a pension that ensures an income enabling dignity in old age is enshrined in the European Pillar of Social Rights. A number of EU policies seek to achieve progress towards a more social Europe. The EU ensures coordination and monitoring, and provides analyses, guidance and funding to support social area reform and to co-finance projects.
Expert groups and stakeholders have put forward a number of recommendations to strengthen both the sustainability and the adequacy of EU pension systems. It remains to be seen how policy makers will manage to translate these into their national systems.
Read the complete briefing on ‘Understanding EU action on pensions‘ in the Think Tank pages of the European Parliament.