Financial sustainability of social protection systems (with particular reference to retirement pensions)

1. Introduction

The fact that the serious problems facing the European social protection system are frequently overlooked, is not an outcome of the different political or cultural viewpoints. Instead, it has more to do with a complete shift away from any link with reality. This alteration is endangering the current welfare of society and, above all, the welfare of future generations. European governments are aware of this fact, however, they are, on the whole, reluctant to take on unpopular, albeit necessary, proposals that could put the relation between production and resource consumption back on track.

2. Evolution of total social protection expenditure

Figure 1 describes the current situation very clearly indeed. From the total of social protection expenditure of the ESA1 the EU-25 spends, on average, two thirds exclusively on the elderly and the sick: 23% on health, 6% on the disabled, 33% go to retirement pensions, 4% go to widows’ pensions; to which 5% can be added for unemployment benefits. Expenditure that does have a view to overhauling the population only accounts for 22% of the total amount: 16% is allocated to education and 6% to Family and Infant schemes.
Following the terrorist attacks in Madrid on the 11th of March, 2004, Il Foglio published the following editorial, from which the following extracts are reproduced, as they provide an insight into the situation referred to above:
“The profound phenomenon with which we must come to terms, is as follows: The Western world is tired. It has been tired for a long time and it is indeed difficult to keep up with the number of gurus prophesising its decadence or its twilight with sound reasoning. However, this tiredness is no longer a theoretical premonition or textbook account, nor a literary kind or even a philosophical hypothesis for the wise who question the meaning of life. The real truth is that we are in fact morally exhausted, we work little, we now find ourselves far removed from the earth’s products and industry because everything has become dependent on technology and services, we are a society of agents of culture and the tertiary sector, we are all part-students, part- teachers, part-base priests and ants of the neighbourhood, we are all real or potential retired persons; the words that really count in our world are volunteering, searching for higher reaching ideals, solidarity, equality, sheltering, holidays, 35 hours, protection, guarantees, insurance, welfare, the right to health, free assistance, defence in the face of the market and its risks (…) We are worn out (…) and we want to be left alone”. (G. Ferrara, Il Foglio, 16.3.2004).

Figure 1: Social protection expenditure by function, ESA, EU-25, 2002
Source: Eurostat and author’s personal compilation.

Maite Barea: Professor of Applied Economics, Autonoma University of Madrid.
1 According to the ESA (European System of National Accounts), social protection expenditure includes: health, invalidity, old age and survivor’s pensions, unemployment, family and infants, education, housing and social exclusion.

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