EU pensions in peril

Date: 02/10/03

EUROPE must get to grips with the problems posed by its greying population or face a falling growth rate and ever-increasing pension liabilities, according to the Centre for European Reform (CER) think-tank.

In a new pamphlet, Old Europe? Demographic Change and Pension Reform, author David Willetts argues that, while France and Germany must reform their state pensions systems, Britain needs to tackle a low savings rate and the crisis in company pension funds. The EU workforce is destined to fall by 20% by 2050, with a consequent drop in gross domestic product. Meanwhile, thanks to increased life expectancy and a fall in the birth-rate since the 1970s, state-pension schemes, which enable today's employees to finance the pensions of yesterday's workers, are based on the assumption that the latter hugely outnumber the retired. This may no longer be sustainable.

The Economist estimates that the current worker-pensioner ratio in Europe has fallen to around three workers to each pensioner, and looks set to fall to a mere three workers for every two pensioners within 30 years.

A pamphlet published by the Centre for European Reform in October 2003 argues that Europe must deal with the issues posed by an ageing population and falling birth-rate.