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

Figure 2: Social protection expenditure, ESA, in million PPS, by country, UE-25
Source: Eurostat and author’s personal compilation.

Figure 2 underlines the total value of social protection expenditure of the EU-25 countries expressed in millions of Euros of PPP in 2002, and Figure 3 includes these figures as a percentage of GDP. The EU-25 average is 32.6%, furthermore, countries with established welfare states — Sweden, Denmark, France, Austria, Germany and Holland — have a much higher average percentage. In Sweden and Denmark expenditure is between 38-40% of GDP.
Nevertheless, international comparisons based on social protection expenditure as a percentage of GDP are not short of ambiguity given that similar percentages can in fact hide the varying level of endeavour carried out by each country. Thus, it is of greater interest to take into account the percentage that social protection expenditure represents of Government spending: in almost all the countries, this percentage is between 60 and 70% of total expenditure, and in Great Britain it reaches almost 80%. If no strong corrective measures are adopted, in 2050 this figure could escalate to 80-82% of total Government spending. How then will the remainder leave enough margin for essential expenditure on research, innovation, infrastructure, environmental protection, interterritorial solidarity etc., within the EU?

3. The ageing process of the European population

As a consequence of the ageing process, Europe, together with Japan, hosts some of the most ageing societies of the world. The baby-boom generation will reach retirement age in the near future and the low fertility rates in Europe fail to tackle its effects, nor do they manage to create an adequate population structure as far as age brackets are concerned. The latest demographic forecasts of the EU2 highlight the fact that at present, some EU-15 Member States have very low fertility rates — lower than 1.4 — in particular, Germany, Austria, Spain, Greece and Italy. Nonetheless, since 2000, fertility rate trends for EU-15 Member States have differed somewhat: in some countries, rates continue to fall, as is the case of Germany, Belgium, Greece and Luxembourg, whereas in other countries a slight upturn in fertility rates is starting to occur, namely in Spain, Finland, Great Britain, Holland, Ireland, Italy and Sweden. For some new Member States the drop in fertility rates started in the sixties. The fall of communist regimes caused a slowdown of fertility rates to below 1.4 in several countries and this trend has continued since then.
Not only do people live longer, but also nowadays a 60-year old European worker has the same life expectancy as a 35-year old citizen of 1900. Moreover, the European worker of today is in perfect health. In the Figures 4 and 5 we can see, as an example, life expectancy — of men and women — at the effective retirement age in some EU Member States. In France, for example, with one of the earliest effective retirement ages of Europe (around 58 years old), life expectancy stands at 22.2 years old for men and 27.5 years old for women.
The Council of Europe of Stockholm in March 2001 envisaged a three-fold strategy in order to come to terms with the effects of an ageing population on government economy and budget:
• Growth of employment rates, especially for women and older workers. In the same way, in the European Summit of Barcelona in March 2002, Heads of State set themselves the following objectives for 2010: employment levels of 60% for women and 50% for older workers (aged between 55 and 64).
• A quickening of the pace of the reduction in public sector borrowing.
• Health system and retirement pension reform.

2 European Commission (2005).

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