EUROPE - Just as many governments are now trying to rectify potential future shortfalls in retirement income, the European Commission has found the anticipated higher costs on domestic budgets will be at their lowest among some countries over the next decade before rising again in later years.

The 280-page document, entitled 2009 Ageing Report: economic and budgetary projections for the EU-27 Member States, is a follow-up to one produced in 2006 and looks at all aspects of government responsibility and funding concerning older people, including a 50-page section on pensions.

In launching the report, Vladimir Spidla, commissioner for employment, social affairs and equal opportunities, said improved ageing policies are vital as “simply sending people into early retirement - as we have done in the past - is not a solution this time around”, adding “we need to emerge with more employment opportunities for older people”.

The EU document suggested “the lion’s share” of the projected increase in public expenditure is as a result of old-age and early pensions, which are projected to increase by 2.4% of GDP between 2007 and 2060 in the EU.

Greece, Cyprus and Luxembourg are expected to see the increase rise to more than 10 percentage points of GDP in that period, while Malta, Spain, Romania, Italy and Slovenia will have to increase pensions spending by 5-10 percentage points, according to study, in part because women in Malta and Spain are not entitled to their own contributory old-age benefits but are covered by their spouses’ pensions.

The exact amount of GDP pensions amounts to at present varies across the region and will alter approximately every 20 years, according to the investigation, and stretches from less than 6% of GDP in Latvia, Lithuania and Ireland to 14% in Italy.

More specifically, however, projections suggest whereas many governments are targeting pension reforms, in 10 countries - namely the Czech Republic, Germany, Greece, Latvia, Lithuania, Luxembourg, Hungary, the Netherlands, Austria and Slovakia - the public pension ratio will decrease over the next two decades and reach then peak towards the end of the period ending 2060.

In 12 countries - Belgium, Denmark, Estonia, Spain, France, Italy, Latvia, Poland, Portugal, Slovenia, Finland and Sweden - the actual cost to GDP will peak before the projection period ends.

Yet in seven countries - Bulgaria, Ireland, Cyprus, Malta, Norway, Romania and the UK - “the public pension ratio increases over the entire projection period”, according to the study.

Interestingly, just Poland, Estonia, Italy, Latvia and Sweden are predicted to see the cost to their GDPs reduced by 2060

In the future, that sum is expected to decrease except in certain countries, such as Denmark and the Netherlands, where the accumulation phase allows private pensions to develop with tax exemptions, but eventually claims major tax revenues through the decumulation phase.

It also notes the governments of European countries have sought to implement pension reforms encouraging the build-up of private pensions which have been slow and have led to small disbursements at this stage, though “their importance should increase in the future”.

But the report claims the possible “inadequate income” for lower-paid people at the bottom end of the pay spectrum is likely to mean regardless of any reforms, the state of their financial positions “are likely to trigger ad-hoc interventions by governments in order to re-align the minimum income to the increased living standards”.

And while no further information was given, the report also noted pensions grow not only through contributions made but through their investment in financial markets, and claimed: “The design of the pension scheme can limit the final effect of the shocks on the value of the fund’s assets.”

A full copy of the report can be obtained from the EC website at
http://ec.europa.eu/economy_finance/thematic_articles/article14761_en.htm

 

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