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BackBetter integration of people of working age into a labour market with good jobs is the best way to secure pensions. This is the conclusion of a recent study by the European Trade Union Confederation. As part of the SociAll project funded by the EU Commission, the effects that would result from the implementation of the European Pillar of Social Rights Action Plan were analysed with the involvement of experts from the Chamber of Labour. Better integration of people of working age into a labour market with good jobs is the best way to secure pensions. This is the conclusion of a recent study by the European Trade Union Confederation. As part of the SociAll project funded by the EU Commission, the effects that would result from the implementation of the European Pillar of Social Rights Action Plan were analysed with the involvement of experts from the Chamber of Labour.
Principle 15 of the European Pillar of Social Rights reaffirms the right to a pension commensurate to the contributions and ensuring an adequate income. In 2021, the Commission adopted a European Pillar of Social Rights Action Plan. This Action Plan contains three key targets to be achieved by 2030. One of the three key targets is for at least 78% of the population aged 20 to 64 to be in employment. Important sub-targets for improving labour market integration include halving the gender employment gap, significantly decreasing the number of young people (aged 15-29) who are not in employment, education or training (NEET) and focusing on quality employment.
But what would it mean for pensions if the employment target of the Action Plan was achieved with high-quality jobs? This question is the subject of a current ETUC study as part of the SociAll project with the collaboration of experts from the Chamber of Labour.
The study welcomes the focus on improving the labour market integration of people of working age. Over the last 30 years, most pension reforms have been aimed at ensuring financial sustainability and containing the increase in costs due to an ageing population. This has led to lower income replacement rates in pensions, restricted access to disability pensions and early retirement schemes as well as an increase in the statutory retirement age.
Achieving the employment target would have a positive impact on pensions
There are currently around 34 people of old age (65+) for every 100 people of working age between 20 and 64. By 2030, this figure is expected to rise to 43 people of old age per 100 people of working age, which represents an increase of 25%.
However, this says nothing about the ratio of benefit recipients to employed persons, which is the ratio that is actually relevant. There are currently around 73 benefit recipients (unemployment benefits and pensions) for every 100 people in employment. This ratio is known as the Economic Dependency Ratio. Based on the pessimistic labour market assumptions in the latest Ageing Report (2021), the ratio is expected to rise to around 81 benefit recipients per 100 people in employment by 2030. The existing employment potential here remains largely untapped.
The ETUC study examines the question of how achieving the employment target of the European Pillar of Social Rights Action Plan would affect the Economic Dependency Ratio.
Achieving the Action Plan's employment target would mean the following:
- an increase of 7.2 million in the number of people in employment,
- a decrease in the number of unemployed by 5.9 million and
- a decrease of 6.7 million in the number of pensioners under the age of 65
Achieving these targets would result in 71 benefit recipients (unemployment benefits and pensions) for every 100 people in employment in 2030. The Economic Dependency Ratio would therefore develop positively – despite the ageing population – and fall by 3% by 2030 compared to the base year 2019.
Positive effects in many respects
In addition to the positive impact on the Economic Dependency Ratio, the study also emphasises other positive effects that would result from the implementation of the employment target of the European Pillar of Social Rights Action Plan:
- Adequacy of pensions: Improving the labour market integration of people of working age would, above all, significantly increase the pension entitlements of those who are currently poorly integrated or not integrated at all.
- Retirement age: "More and better" jobs for people of working age would significantly counteract unfavourable developments in the Economic Dependency Ratio (the relationship between benefit recipients and the employed population) and offer a much better alternative to a further increase in the statutory retirement age.
- Financial sustainability: The more people are employed (in good jobs), the greater the increase in public revenue.
- Solidarity between the generations: Better utilisation of the existing employment potential of people of working age would not only significantly improve the financial and social situation of younger people themselves, but would also make it easier for them to support older people.
Further information:
ETUC: EPSR 2030 Scenario – What would it mean for pensions if the Action Plan’s 78% employment target was achieved, with quality jobs
ETUC: SociAll Project
AK EUROPA: Report of the High-Level Group: Social protection and welfare state must become more inclusive to be sustainable
AK EUROPA Policy Brief: Action Plan on the Pillar of Social Rights and EU Social Summit – Social Realignment of the EU needed
AK EUROPA: Labour market’s primary importance for pensions’ adequacy and sustainability
AK EUROPA: Commission publishes Demography Report