Europe Confronts Aging Workforce, Pension Shortfall

Global HR Focus Area

By Stephenie Overman

Government leaders, employers and individual citizens in European Union nations must reach a new consensus on what retirement means in the era of global aging and pension shortfalls, the director of AARP’s Global Aging said at a March international conference on retirement income reform.

“The challenge of retirement income is more than economics. It is also cultural and attitudinal,” said Nancy LeaMond at a conference hosted in Brussels by AARP’s Global Aging Program and the Centre for European Policy Studies.

LeaMond called for weighing various policy options — “from creating opportunities for older people to continue working if they want to work, to promoting private investment; from increasing payroll taxes to cuts in benefits; from expanded immigration to increasing birthrates” — to “try to strike a balance that is humane, fair and politically viable.”

Retirement income from private savings is at historic lows around the developed world, LeaMond said, and occupational pensions still represent a small percentage of retirement income. Attempts by Germany, France, Austria and Italy to change their public pension plans have met with protest.

Now, said LeaMond, continued employment is emerging as a major contributor to retirement income in many European nations.

Continued Employment vs. Mandatory Retirement

The participation rate of workers in the EU between 55 and 64 years old has declined steadily over the past three decades. An EU Labour Force Survey, meanwhile, found that the participation of older workers in Europe in 2000 was 40.6 percent, compared to 59.2 percent in the United States and 66.5 percent in Japan. Still, continued employment is controversial in Europe because mandatory retirement laws still exist in many countries.

While the United Kingdom and the Netherlands are taking steps to change their laws, said Ladan Mateghi, project manager in AARP’s office of international affairs, most other European countries “are just talking about it.” (The United States has no such law.)

Current EU statutes require member nations to introduce anti-age discrimination legislation by the end of 2006, but most have yet to do so.

Some European Union states, including the United Kingdom, do not have a State Retirement Age (SRA) — and cannot introduce one, said Samantha Mercer, director of the U.K.’s Employers Forum on Age, because it would be regarded as regressive.

“But those EU states with an SRA effectively set a mandatory retirement age,” Mercer added, “and may continue to do so after 2006 if they wish.”

Pension Policy Changes Sweep Across EU

Many EU nations are now reforming, or working to reform, their state pension systems.

In March a plan to reform Germany’s state-backed pension system passed a vote in parliament. The plan changes the formula that determines how pension benefit levels are set.

A proposal in Italy, meanwhile, would prevent workers from retiring before they make 40 years of contributions to the state pension system, or have reached minimum ages of 65 for men and 60 for women. Italians can retire at 57 if they have paid into the system for 35 years. The controversial pension bill was scheduled to be sent to the Italian Senate on April 19.

And the French parliament passed a pension reform plan in July 2003 that requires civil servants to work 40 years, rather than 37.5, to qualify for a full pension.

But ensuring that European workers prepare an adequate nest egg while their countries struggle with public pension reform, Mateghi said, remains a crucial issue that will require attitudinal change for all parties involved. “There needs to be a sound system on the public side,” she said, “and individual responsibility. These are tough, tough issues.”

In the end continued work, according to Mateghi, is unlikely to go away as
a key source of retirement income. “[Creating] opportunities to
extend working lives,” including phased retirement and worker retraining,
“has to be a factor.”

Reprinted with the permission of HR Magazine published by the Society
for Human Resource Management (www.shrm.org