1 in 5 Europeans will age in poverty - Urgent reforms needed in pension systems
One in five European citizens risks facing poverty in old age unless far-reaching reforms are made to pension systems, the European Insurance and Occupational Pensions Authority (EIOPA), based in Frankfurt, has warned. "This is a very high percentage. And for women, the risk is 30% higher," sources from the organisation said.
The situation is set to get worse. Europe's population is aging rapidly and, within 40 years, there will be only 1.5 workers for every pensioner, half the current ratio. In these circumstances, countries without supplementary pension systems face great risk.
For decades, the traditional European model has been to rely on state pensions to ensure well-being in old age. But with life expectancy increasing and birth rates falling, these systems have become very expensive. The additional costs of healthcare and services for the elderly are increasingly burdening taxpayers.
One of the most mentioned solutions is the establishment of supplementary pension systems, through private funds or occupational pensions linked to the workplace, so that people have a personal amount to withdraw when they retire.
Scandinavian countries are better prepared for the coming crisis. They combine state pensions with occupational funds and other investments in pension products. This gives retirees more sources of income and reduces dependence on the state. In contrast, many countries in Eastern and Southern Europe rely mainly on public pensions, which are lower compared to wages. In these countries, the difference between income during work and retirement is quite pronounced.
To respond to these challenges, the European Commission is expected to publish recommendations on savings and pensions in the coming months. By the end of the year, the Commission will propose the creation of digital accounts for every citizen, in which savings and investments for old age would be recorded, as well as information panels on possible benefits. It will also include tax incentives to encourage savings.
The most important measure in this package will be a system for the automatic inclusion of employees in occupational pension funds, following the model implemented in the United Kingdom, Poland and Italy. Citizens will be part of the funds automatically and will have to choose for themselves whether to opt out, unlike the current system, where inclusion requires active action and most people do not take this step.
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