EARLY RETIREMENT IN EUROPE: A CALL FOR ACTION

In most developed countries, major demographicchanges are challenging some of the fundamen-tal pillars of today’s social protection systems, such as the public retirement income systems. This observation is particularly true for the countries of continental Europe as they are facing a much more severe and rapid aging process than for example the US or Canada. This demographic aging process is the combined result of two mutually reinforcing trends, namely a strong decrease of fertility rates coupled with a secular decline in mortality rates at any given age.1 However, the strong exposure of continental European countries to the risk of demographic change is also due to the way the social protection systems are organized. The retire-ment income systems of most European countries rely heavily on a pay-as-you-go (PAYG) philoso-phy, which means that the benefits paid out to the current old are essentially financed through (ear-marked) contributions or general taxes on the young.2 This type of system has to be contrasted with a fully funded system, where any single gener-ation pays for its own retirement benefits. Contributions are capitalized and the principal and return then serve as the source of financing for their own retirement benefits in the future. This state of looming financial crisis seems to be well known, all across the different layers of society. On the other hand, the strong tendency towards earli-er retirement, be it compulsory or voluntary, is often erroneously considered as a totally separate issue. As I will illustrate below, it is partly the struc-ture of the European retirement systems and their close ties with other social insurance programs that gives rise to strong financial incentives for early retirement