A current ETUC study shows that the improved labour market integration of people of working age into good jobs is the best way to ensure the adequacy and sustainability of pensions in the long-term.
Within the scope of the SociAll Project of the European Trade Union Confederation (ETUC) , which was funded by the European Commission, a study has been prepared with the cooperation of experts of the Austrian Chamber of Labour, which shows the key role played by the labour market for the long-term adequacy and sustainability of pensions.
It is obvious that with almost all pension schemes, the length and the quality of employment significantly (co)-determine the amount of individual pension claims and their funding. In spite of this, the public pension debate – against the background of the demographic development – has for a long time been restricted almost exclusively to aspects of financial sustainability, whilst at the same time broadly concentrating on the alleged domineering influence of ageing. In doing so, deferring the relation between the retirement age population and working age population was and still is frequently simply equated with deferrals in the relation between the number of pensioners and people in work and reinterpreted as evidence for the impending lack of sustainability. Thus, sustainability could only be guaranteed if the age limit between work and pension phase – hence, the retirement age – was significantly increased.
However, this equalization is completely missing the point and distorts the view of key options for action: it is not the relation of the number of people in age groups to each other that is relevant for the financial feasibility of pension schemes and social systems overall, but the relation of the number of people dependent on transfers to the number of people in work, hence those, who fund these transfers. The future development of this relation – the economic dependency ratio – is thereby by no means only dependent on demographic changes but is significantly co-determined by the extent of future integration into gainful employment. Or put another way, a significantly improved integration into gainful employment can significantly reduce the demographically dependent increase of economic dependency relations.
In its analysis, the ETUC study points to the substantial labour market weaknesses and the considerable potentials for a significantly improved integration into gainful employment in the European Union: Many million unemployed, people out of work, who are not registered as unemployed in the official statistics, and underemployed people of all ages, , characterise the current situation.
By comparing a “standard scenario” and a “scenario with high employment” it has been shown, what an enormous potential an inclusive labour market strategy has within the meaning of an upward convergence to contain the future rise of economic dependency ratios:
- Whilst according to current EUROSTAT projections, the old-age dependency ratio (65+/20 to 64) in the EU27 will probably rise by 72 % between 2019 and 2070, the economic dependency ratio – even with the pessimistic “standard scenario”, which follows the assumptions of the European Commission’s Ageing Report – will at an 29 % increase be significantly weaker. Here too, it becomes evident once again, how misguided an equalization of deferrals in purely demographic relations and actual economic dependency relations is.
- In the “scenario with high employment”, where it is assumed that the current employment and unemployment rates of the Best Performers by 2070 in the EU 27 would be achieved overall, the increase of the economic dependency ratio with unchanged demographic assumptions is reduced to only 8 %.
- This means that an inclusive labour market strategy could reduce the increase of the economic dependency ratio to a third, thereby limiting it, in spite of massive ageing, to an extremely moderate extent.
Far-reaching and sometimes also exuberant reforms across Europe have led to the situation that the future adequacy of pensions in many cases is no longer guaranteed. It is high time to direct the focus at last towards significantly improved employment opportunities and inclusive labour markets. Doing so, would not only solve or lessen the present serious problems, such as far too high unemployment figures, poor and missing employment opportunities respectively, in particular of significantly disadvantaged groups; it would also be the best way to ensure the adequacy and sustainability of pensions in the long-term.