2 Population aging and financial and social sustainability challenges of pension systems in Europe: A cross-national perspective

This chapter examines the economic and demographic factors that threaten the viability of European pension systems over the next 50 years. In the short to medium term, the principal challenge is indeed a structural rebalancing of public finances, by applying austerity measures and reducing reliance on debt-financing, while at the same time promoting jobs growth and minimizing adverse impacts on vulnerable population groups. In the longer term, population aging remains the key challenge, although its magnitude, speed and timing vary across the European countries under review. Longevity gains and falling fertility levels, especially in Central and Eastern European countries where emigration is another contributing factor, imply that the cohorts of elderly are growing in number just as the cohorts of working population supporting them are starting to decline. The implications on the size and shape of public services and finances as well as on future growth and on living standards are considerable. This chapter argues that a review of fundamentals is required, for all concerned – individual countries as well as EU institutions – in moving forward, by examining whether, and how, recent policy reforms compromise the pension income adequacy of future retirees, and what policies can improve the prospects for both th