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BackThe financial and economic crisis has ripped large holes into national budgets; domestic debt has risen, putting the sustainability of public finances in jeopardy. The most logical consequence - at least in the opinion of the Economics and Finance Ministers at this week’s conference in Brussels - is cutting back on pensions! Admittedly, population ageing represents a great challenge; however, it must not be used as a pretext to squeeze those who have not caused the crisis in the first place even further.
The 2012 Ageing Report provides details on future public spending
The 2012 Ageing Report with economic and budget projections for the 27 EU Member States (2010–2060), which was prepared by the Economic Policy Committee (Ageing Working Group "The impact of ageing on public expenditure") and the Commission (GD ECFIN) on the basis of jointly determined underlying assumptions and projection methodologies, forms the basis for the analysis of the Economics and Finance Ministers (ECOFIN Council). Similar to previous Ageing Reports, the Report for 2012 also includes prognoses on age-related public spending for pensions, healthcare, long-term care, education and unemployment. The ECOFIN Council considers it a matter of fact that population ageing will have a significant impact on public finance. Hence, the assumption is being made that public spending in the EU, which can be directly linked to age-related factors (without taking employment benefits into account), will probably have risen by further 4.1 percentage points of GDP between 2010 and 2060. The projected increase of age-related expenditure is also reflected in the rise of state pensions by 1.5 percentage points of GDP within the EU by 2060.
According to Ministers, linking the state pension age to rising life expectancy is part of the solution
If one can believe the Economics and Finance Ministers, the recent reform of pension systems in the Member States has shown a noticeable positive effect and put a halt to the rise in public spending; part of this success was based on the fact that some countries had raised the state pension age in line with life expectancy. Other countries had yet to fully implement or quantify the reforms, commented the Ministers. However, far too little consideration has been given to the fact that any pension reform, which includes raising or adjusting the state pension age, will not be successful if priority is not given to providing better opportunities for older women and men to remain in the labour market, to promote life-long learning, to the reconciliation between work and family life or to tackle the reduction of youth unemployment. It should also be the primary target to raise the actual and not the state pension age. Combined with an increase in the rate of employment, including younger age groups, this would be sufficient to minimise the increase in the share of GDP for public sector pensions (for example on the basis of already implemented pension reforms). In their conclusion on the 2012 Ageing Report, the Economics and Finance Ministers reaffirm that appropriate political measures within the EU will still be required. This includes, for example, the implementation of the Europe 2020 strategy and the three-pronged strategy to deal with the implications of population ageing on economic growth and budgets, and which calls for countries to raise employment and productivity, reduce public debt and reform pension, healthcare and long-term care systems. Unfortunately, the conclusions of the Council on population ageing give the impression that priority has not been given to investing in the labour market. On the contrary, the demand is for more reforms as otherwise population ageing could become a powder keg for the sustainability of public finances. The fact, however, that reforms and raising the state pension age do not automatically result in urgently needed growth in employment, is not even mentioned.
Further information:
Conclusions of the Economics and Finance Ministers on the sustainability der public finances against the backdrop of population ageing
2012 Ageing Report
The 2012 Ageing Report with economic and budget projections for the 27 EU Member States (2010–2060), which was prepared by the Economic Policy Committee (Ageing Working Group "The impact of ageing on public expenditure") and the Commission (GD ECFIN) on the basis of jointly determined underlying assumptions and projection methodologies, forms the basis for the analysis of the Economics and Finance Ministers (ECOFIN Council). Similar to previous Ageing Reports, the Report for 2012 also includes prognoses on age-related public spending for pensions, healthcare, long-term care, education and unemployment. The ECOFIN Council considers it a matter of fact that population ageing will have a significant impact on public finance. Hence, the assumption is being made that public spending in the EU, which can be directly linked to age-related factors (without taking employment benefits into account), will probably have risen by further 4.1 percentage points of GDP between 2010 and 2060. The projected increase of age-related expenditure is also reflected in the rise of state pensions by 1.5 percentage points of GDP within the EU by 2060.
According to Ministers, linking the state pension age to rising life expectancy is part of the solution
If one can believe the Economics and Finance Ministers, the recent reform of pension systems in the Member States has shown a noticeable positive effect and put a halt to the rise in public spending; part of this success was based on the fact that some countries had raised the state pension age in line with life expectancy. Other countries had yet to fully implement or quantify the reforms, commented the Ministers. However, far too little consideration has been given to the fact that any pension reform, which includes raising or adjusting the state pension age, will not be successful if priority is not given to providing better opportunities for older women and men to remain in the labour market, to promote life-long learning, to the reconciliation between work and family life or to tackle the reduction of youth unemployment. It should also be the primary target to raise the actual and not the state pension age. Combined with an increase in the rate of employment, including younger age groups, this would be sufficient to minimise the increase in the share of GDP for public sector pensions (for example on the basis of already implemented pension reforms). In their conclusion on the 2012 Ageing Report, the Economics and Finance Ministers reaffirm that appropriate political measures within the EU will still be required. This includes, for example, the implementation of the Europe 2020 strategy and the three-pronged strategy to deal with the implications of population ageing on economic growth and budgets, and which calls for countries to raise employment and productivity, reduce public debt and reform pension, healthcare and long-term care systems. Unfortunately, the conclusions of the Council on population ageing give the impression that priority has not been given to investing in the labour market. On the contrary, the demand is for more reforms as otherwise population ageing could become a powder keg for the sustainability of public finances. The fact, however, that reforms and raising the state pension age do not automatically result in urgently needed growth in employment, is not even mentioned.
Further information:
Conclusions of the Economics and Finance Ministers on the sustainability der public finances against the backdrop of population ageing
2012 Ageing Report