A golden age

“Dealing with the impact of an ageing population in the EU,” a communication from the European Commission, kicks off with the joyful view that: “For the first time in history, the vast majority of Europe’s citizens are able to lead active, healthy and participative lives well into old age.”

However, this ageing will result in associated challenges, which are outlined in the Commission’s paper. Many of the problems boil down to the fact that by 2060 the EU will have moved from having four people of working age (aged 15-64) for every person aged over 65, to only two. The Commission specifies detailed recommendations to soften the impact. None of its ideas is really new, but as an update from 2006, the communication wraps them neatly together.

Overall, the Commission reports, there are notable differences in the future impact of ageing across the EU member states. The increase in public spending to 2060 is likely to be 7% of GDP, or more in countries like the Netherlands, Spain and Ireland.
In others, such as Germany, the UK and Belgium, the cost of ageing will be 4-7%, “still very high”. More moderate increases, 4% or lower, are forecast for the likes of France, Sweden and Poland. Most of these countries have already implemented substantial pension reforms.

Demographic developments differ significantly from country to country, but the overall population in the EU, which previously was projected to decline, is now forecast to remain the same in 2060 as it is today. The improvement is thanks to a slight rebound in the fertility rate in some member states, plus increased immigration.

Nevertheless, the new demographic projections confirm that factors such as a low birth rate and rising life expectancy are likely to result in the population ageing rapidly. Against this, employment rates are forecast to rise from 65.5% in 2007 to about 70% in 2060. However, the number of people employed in 2060 will have shrunk by about 19m.
Among the Commission’s general suggestions is the need to prolong working life. This is against the current background that only around 50% of people in the EU is still in employment by the age of 60.

In seeking solutions, the Commission’s paper also notes that its employment recommendations also apply to young people and women. It suggests revisions to tax and benefit systems, in order to make work worthwhile.

Reforms, it proposes, should respect the ‘flexicurity’ principle, that is, the welfare state model that combines easy hiring and firing (flexibility for employers) and high benefits for the unemployed (security for the employees).

While almost all EU nations have already tightened the eligibility requirements for receiving a public pension, notably by raising the retirement age and restricting access to early retirement schemes, the paper calls for further advances as “there is still a lot of room for further progress”.

It believes that a stronger link between pension benefits and pension contributions could provide a greater incentive for older people to remain at work. Other steps suggested include encouraging changing attitudes of the general population to older workers, effective lifelong learning to develop their skills and employability and provision of “suitable working conditions”, and an increase in flexible working-time rules.

Turning to immigration, the paper cites “effective integration of migrants” as important. It advocates “further development of a properly managed policy of legal immigration to meet future labour needs”.

The Commission says that optimism can be drawn from a recent analysis that confirms that there is now a window of opportunity for implementing the structural reforms needed by ageing societies. This prospect will remain open for about 10 years, while labour forces will continue to increase.

Overall, the reforms suggest are not just for “economic” reasons. They will also promote good quality of life. “This is an agenda that will allow Europe to look to the future with confidence,” the paper concludes.

Questioned about average retirement age of the Commission’s own staff, Valerie Rampi, an official, says that, taking out the invalidity cases, the average is 61 years 3 months. This compares “relatively well” with the EU average of 59.

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