The Pension Storm Is Coming To Europe -- It May Be The End Of Europe As We Know It


I’ve written a lot about U.S. public pension funds lately. Many of them are underfunded and will never be able to pay workers the promised benefits—at least without dumping a huge and unwelcome bill on taxpayers.


Readers outside the U.S. might have felt safe reading those stories. There go those Americans again… However, if you live outside the U.S., your country may be more like ours than you think.

This week the spotlight will be on Europe.

The U.K. Is Headed to a Retirement Implosion

The U.K. now has a $4 trillion retirement savings shortfall, which is projected to rise 4% a year and reach $33 trillion by 2050.


Plus, these figures are based mostly on calculations made before the U.K. left the European Union. Brexit is a major economic shift that could certainly change the retirement outlook. Whether it would change it for better or worse, we don’t yet know.

A 2015 OECD study found workers in the developed world could expect governmental programs to replace on average 63% of their working-age incomes. Not so bad. But in the U.K. that figure is only 38%, the lowest in all OECD countries.

This means U.K. workers must either build larger personal savings or severely tighten their belts when they retire. Working past retirement age is another choice, but it could put younger workers out of the job market.



A report this summer from the International Longevity Centre suggested that younger workers in the U.K. need to save 18% of their annual earnings in order to have an “adequate” retirement income.

But no such thing will happen, so the U.K. is heading toward a retirement implosion that could be at least as damaging as the US’s.

The Swiss Are No Different Despite the Prudence

Americans often have romanticized views of Switzerland. They think it’s the land of fiscal discipline, among other things. To some extent that’s true, but Switzerland has its share of problems too. The national pension plan there has been running deficits as the population grows older.





Switzerland and the U.K. have mandatory retirement pre-funding with private management and modest public safety nets, as do Denmark, the Netherlands, Sweden, Poland and Hungary.


France, Belgium, Germany, Austria, Spain Are in Deep Trouble

The European nations noted above have nowhere near the crisis potential that the next group does: France, Belgium, Germany, Austria and Spain.



Let’s look at some details.






Overall, public pension plans in the pay-as-you-go countries would now replace about 60% of retirees’ salaries. Plus, several of these countries let people retire at less than 60 years old. In most countries, fewer than 25% of workers contribute to pension plans. That rate would have to double in the next 30 years to make programs sustainable.

Sell that to younger workers.

The Wall Street Journal recently did a rather bleak report on public pension funds in Europe. Quoting:




The WSJ continues:



This Coming Crisis Is Beyond the Power of Politicians

I could go on on reviewing the retirement problems in other countries, but I hope you begin to see the big picture. This crisis isn’t purely a result of faulty politics—though that’s a big contributor.


Worse, generations of politicians have convinced the public that their entitlements are guaranteed. Many politicians actually believe it themselves. They’ve made promises they aren’t able to keep and are letting others arrange their lives based on the assumption that the impossible will happen. It won’t.

How do we get out of this jam?

We’re all going to make big adjustments. If the longevity breakthroughs that I expect to happen do so soon (as in the next 10–15 years), we may be able to adjust with minimal pain. We’ll work longer years, and retirement will be shorter, but it will be better because we’ll be healthier.


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