In Europe, due to the discrepancy between life and birth rates, too few employees contribute to the state pension systems, writes Wall Street Journal.
State pension systems is at the heart of Europe’s social model, protecting people from extreme poverty in old age.
Most European countries have not put aside almost nothing to pay these benefits simply, financing them from tax revenue annually. Now, European countries are facing the prospect of a demographic tsunami as a growing gap between low birth rates and longer life expectancy, and few countries are prepared to cope. Europe’s retired population, already the largest in the world, continues to grow.
Regarding Europeans aged 65 or more who do not work, the ratio is 42 per 100 employees, and it will grow up to 65/100 in 2060, according to Statistic agency of the European Union. For comparison, the US ratio is 24 to 100, according to data from the Bureau of Statistics labor, which does not have a projection for 2060. Although the problem is an old one, it has become urgent given that the debt problems of European countries governments must reassess their priorities.
Greece, which is facing the worst situation in this respect has been forced to reduce the pension system generosity repeatedly. The Greek government is not the only who is forced to admit that it has extended promises on pensions that can not honor.”Western European governments are on the verge of bankruptcy because of the crisis pensions,” says Roy Stockell, director of asset management at Ernst & Young. Even the US with a social security fund of 2,800 billion dollars, are criticized for that promise more than they can afford.It is expected that the fund can no longer provide the amounts needed to cover all the benefits in the coming years and to face a crisis situation in 2035. Europe is more serious. Demographic pressures could be mitigated by the wave of over a million migrants arrived in the last year. If many of them will join the working population, the result could be higher tax revenues that could keep afloat pension model. However, before giving them work, migrants need housing, food, education and medical treatment.
Their arrival will have an effect on public finance officials only now beginning to evaluate them. Some governments have to face the biggest demographic challenges, such as Austria and Slovenia have launched among the harshest criticism of Greece. The Germans, meanwhile, “promotes fiscal rules in Spain and other countries, but ease regulations in the field locally, according to Christoph Muller, EU consultant on pension issues.
This indicates a recent change that allows some employees to collect benefits two years early at the age of 63 years. State pension plans in Europe abounds with special provisions. In Germany, employees governments do not pay pension contributions. In the UK, pensioners receive an additional payment for heating in winter.
While several countries, including Norway, the UK and the Netherlands have considerable savings in public funds or pension plans sponsored by employers, many others have almost nothing set aside.Annual costs for public pensions governments is one-tenth of GDP, according to Statistic agency. This percentage should remain stable in the coming decades, estimates Statistic agency, although this depends on many economic projections. In Europe, the birth rate fell by 40% in the 60s to about 1.5 children per woman, according to the United Nations. During this period, life expectancy increased to about 80 years from 69. EU urges European governments to show more clarity regarding pension-related costs. They are required to publish annual estimates of pension-related payments.
Only a few countries estimated the total cost related to pension promises they have made. 2017, European Governments will be required to calculate the total amount you have to pay for current and future retirees. It will thus be clear that the current situation is not sustainable,” says Hans Hoogervorst, chairman of the International Accounting Standards Board and former Minister of Finance in the Netherlands. Achieving this could cause major decisions.