Why Europe needs optimal pension reforms

Equal opportunity is a core value of Europe. However, in the last decades, inequalities across European societies have been persistent or even increasing. This indicates that the current social security systems are not working for everyone equally. 

As the demographic shift is adding pressure on pension systems, our research shows that inequality will deepen; meanwhile the social contract between generations will weaken, as younger generations will receive lower rates of return. This will fundamentally jeopardise public pension systems, a key part of European social security structures.

That is, if governments do not start making changes now.

What's at stake

Pension reforms have moved to the top of policy agendas and public debates alike. These debates revolve around the fact that pension reforms bear considerable risks, which is true.

However, the fact that the existing pension systems already malfunction, is often missing when potential reforms are communicated to the public. They perpetuate or even exacerbate inequalities, and they can be expected to do so more very soon, as demographics change.

Through a life course perspective we understand that inequalities compound throughout people’s lives, which means that in a longevity society, the risk of old age inequality is rising. This is particularly true for women and people with lower-skilled professions receive lower rates of return from current pension systems than others, because of unfair labour market opportunities and uneven health risks respectively.

What policy can do

A balanced approach is the most promising path - both for inter- and intragenerational fairness. Such a balanced approach will combine reforms that improve long-term fiscal sustainability, along with those that better target redistribution.

The effectiveness of reforms varies considerably across countries and population groups. This means that there is no single pension reform that will meet the needs of all individuals and societies. Rather, context-sensitive policy solutions are the way forward. 

An finally, it cannot be overstated how important it is to communicate clearly to the public the consequences of continuing with the current pension system.

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