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15th Apr 2024

Ageing Europeans need to work longer and expect less, report says

  • 'Further steps need to be taken to raise the effective retirement age' (Photo: soylentgreen23)

EU finance ministers on Tuesday (15 May) are set to endorse a report on the impact of an ageing population on public finances, calling for further budget cuts and longer working periods.

The 470-page-long "2012 Ageing Report" drafted by EU commission and finance ministry officials and seen by this website casts a grim light on the perspectives retired people can have in the next decades.

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"Due to the expected dynamics of fertility, life expectancy and migration rates, the age structure of the EU population is projected to dramatically change in coming decades. The overall size of the population is projected to be slightly larger in 50 years time, but much older than it is now," the report reads.

With an increase of some five percent, the total EU population is to reach 526 million in 2040. Not counted in the statistics are potential further enlargements to populous countries such as Turkey.

The largest chunk of the population will continue to be the age group 15-64, but it will decrease from 67 percent in 2010 to 56 percent in 2060. "Those aged 65 and over will become a much larger share (rising from 17% to 30% of the population), and those aged 80 and over (rising from 5% to 12%) will almost become as numerous as the young population in 2060," the report predicts.

The labour force is going to to up slightly until 2020 as more women are joining the workforce, but after that a decline of almost 12 percent will be recorded by 2060, or 27.7 million less.

Statistics vary widely across the bloc - from a 25 percent increase in Ireland to a 38.5 drop in Romania over the same period up to 2060.

As women across the bloc are having on average less than two children, which is the natural replacement rate for a society and as life expectancy is going up, the pensioner-to-worker ratio will rise from 39 percent in 2010 to 71 percent in 2060. The lowest rate - 55 percent - is projected in Denmark, the UK and Ireland, while the highest rates - over 90 percent are to be hit in Hungary, Slovakia, Poland and Romania in 2060.

Meanwhile, economic growth is projected to remain low, around 1.5 percent up to 2020 and 1.6 percent in 2021-2030 followed by a slow-down to 1.3 percent by 2060, as labour productivity will increase in the poorer states.

The experience of the past three years, however, is showing how hard these long-term growth predictions are to make.

The report says that "Following the largest economic crisis in many decades, potential GDP growth has been revised downwards in 2010 and the surrounding years, compared with the baseline projection in the 2009 Ageing Report [which was based on data preceding the financial and economic crisis]."

As a consequence, "the fiscal impact of ageing is projected to be substantial in almost all member states, with effects becoming apparent already during the next decade."

"The current projection results indeed confirm, overall, that population ageing is posing a major challenge for public finance

sustainability, as identified in previous projection exercises. They also show that age-related spending in 2010 was higher than projected in the 2009 Ageing Report, reflecting the crisis."

Even if some member states, notably Greece, Italy, Spain, France and the Czech Republic have pushed through pensions reforms, reducing the public expenditure, "the scale of reforms has been insufficient to stabilise public finance trends and they need to be pursued further to cope with the inexorable increasing share of older persons in Europe."

Raising the retirement age "in line with changes in life expectancy" still needs to be pursued, as well as introducing "additional measures that enable higher employment rates of older workers."

According to draft conclusions to be adopted on Tuesday and seen by EUobserver, finance ministers are set to call for "reducing government debt at a fast pace, raising employment rates and productivity, and reforming pension, health care and long-term care systems."

In line with the report's recommendations, ministers are set to note that "further steps need to be taken to raise the effective retirement age, including by avoiding early exit from the labour market and by linking the statutory retirement age or pension benefits to life expectancy."

The ageing report's findings should also be factored in when the EU commission assesses the countries' budgets as part of the eurozone's strengthened economic surveillance, ministers are expected to say.

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