To what extent does the current pension policy approach hinder or promote intergenerational equity?
Pension policies are fully aligned with the goal of achieving intergenerational equity.
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9
Denmark
One challenge in the Danish system is that means testing of public pension protection leads to a lower level of income for all pensioners. This implies that the economic gain from postponing retirement may be low for groups affected by means testing. To address this problem, recent reforms of the tax system have strengthened incentives to save and postpone retirement. Retirement ages remain significantly influenced by the statutory retirement age, which has been increased incrementally and is now indexed to longevity developments.
There is an ongoing discussion about whether indexation based on an absolute target of 14.5 years in retirement (excluding early retirement) is too strict, and whether it should be replaced by a relative target (an extra expected life-year being split between a fraction of 0.8 in work and 0.2 in retirement). Indexation of retirement is a crucial reason why fiscal policy in Denmark is sustainable.
Recent initiatives have strengthened the incentive to postpone retirement through senior premiums for individuals working beyond the statutory retirement age, revisions to the means testing of pensions to make them less dependent on partner income and an earned-income tax credit for seniors.
The Danish pension system stands out by preventing poverty among pensioners while also ensuring high replacement rates for a large part of the population.
There is an ongoing discussion about whether indexation based on an absolute target of 14.5 years in retirement (excluding early retirement) is too strict, and whether it should be replaced by a relative target (an extra expected life-year being split between a fraction of 0.8 in work and 0.2 in retirement). Indexation of retirement is a crucial reason why fiscal policy in Denmark is sustainable.
Recent initiatives have strengthened the incentive to postpone retirement through senior premiums for individuals working beyond the statutory retirement age, revisions to the means testing of pensions to make them less dependent on partner income and an earned-income tax credit for seniors.
The Danish pension system stands out by preventing poverty among pensioners while also ensuring high replacement rates for a large part of the population.
Citations:
Commission on Withdrawal from and Attrition in the Danish Labour Market. 2022. A Robust Pension System Denmark in the Future. https://bm.dk/media/20703/fremtidssikring-af-et-staerkt-pensionssystem.pdf
Commission on Withdrawal from and Attrition in the Danish Labour Market. 2022. A Robust Pension System Denmark in the Future. https://bm.dk/media/20703/fremtidssikring-af-et-staerkt-pensionssystem.pdf
Finland
The rapid aging of Finland’s population and a steep decline in birth rates in recent years have created challenges for maintaining the labor force and ensuring the financial sustainability of the pension system. Current strategies focus on encouraging later retirement in order to secure the financial stability of the public pension system in the future.
A major reform of the pension system in 2005 aimed to increase flexibility and create more incentives for workers to remain employed longer. In 2011, a national guarantee pension was introduced. While these reforms were successful, another significant reform came into effect in 2017, with the main goal again being to extend working lives and ensure the financial sustainability of the pension system. Major changes included a gradual rise in the lowest age of retirement eligibility, the harmonization of pension accrual, an increase in deferred retirement to incentivize longer working lives, the introduction of a flexible part-time retirement status, and amendments to the accumulation rate. A new pension reform is already under preparation. Orpo’s government program states that by January 2025, the government will work with the principal labor market organizations on a tripartite basis to assess the measures necessary to stabilize the level of pension insurance contributions over the long term, and significantly reinforce the public finances as a whole over a sustained period using a rule-based fiscal stabilization system.
A recent evaluation by Torben Andersen (2021) found the Finnish pension system to be robust and well-functioning. The key challenges identified included the financial viability of the system, the regulatory framework for pension providers’ investment policies, and the widening gap between pensioners and those active in the labor market. The report also found a long-term tendency toward increasing inequality within the group of pensioners.
A major reform of the pension system in 2005 aimed to increase flexibility and create more incentives for workers to remain employed longer. In 2011, a national guarantee pension was introduced. While these reforms were successful, another significant reform came into effect in 2017, with the main goal again being to extend working lives and ensure the financial sustainability of the pension system. Major changes included a gradual rise in the lowest age of retirement eligibility, the harmonization of pension accrual, an increase in deferred retirement to incentivize longer working lives, the introduction of a flexible part-time retirement status, and amendments to the accumulation rate. A new pension reform is already under preparation. Orpo’s government program states that by January 2025, the government will work with the principal labor market organizations on a tripartite basis to assess the measures necessary to stabilize the level of pension insurance contributions over the long term, and significantly reinforce the public finances as a whole over a sustained period using a rule-based fiscal stabilization system.
A recent evaluation by Torben Andersen (2021) found the Finnish pension system to be robust and well-functioning. The key challenges identified included the financial viability of the system, the regulatory framework for pension providers’ investment policies, and the widening gap between pensioners and those active in the labor market. The report also found a long-term tendency toward increasing inequality within the group of pensioners.
Citations:
Andersen, Torben. 2021. “Pension adequacy and sustainability – An evaluation of the Finnish pension system.” https://urn.fi/URN:ISBN:978-951-691-336-3
Melbourne Mercer Global Pension Index 2023. https://www.mercer.com/insights/investments/market-outlook-and-trends/mercer-cfa-global-pension-index/
“Topical development projects.” https://www.etk.fi/en/finnish-pension-system/pension-reforms/topical-development-projects/
Andersen, Torben. 2021. “Pension adequacy and sustainability – An evaluation of the Finnish pension system.” https://urn.fi/URN:ISBN:978-951-691-336-3
Melbourne Mercer Global Pension Index 2023. https://www.mercer.com/insights/investments/market-outlook-and-trends/mercer-cfa-global-pension-index/
“Topical development projects.” https://www.etk.fi/en/finnish-pension-system/pension-reforms/topical-development-projects/
Norway
The universal, tax-financed old-age pension system was radically reformed in 2011. The previous defined-benefit system was transformed to install a mechanism for adjusting pension rights in relation to increased life expectancy. This average increase in longevity results in a reduction in the pension received by those choosing to retire early. Consequently, future cohorts will need to work longer to receive the same generous level of pension as earlier cohorts. The economic incentives to work longer are strong.
The system remains a pay-as-you-go structure, where the younger, working population funds the pensions of the elderly. However, there are guarantees that if the elderly do not extend their working careers in line with increased longevity, pension levels will fall to avoid placing an undue burden on the younger workforce. This combination of intergenerational solidarity and a significant element of individual choice among the elderly is widely considered a fair system. It is economically sustainable and robust against a likely future increase in longevity.
However, for individuals with health challenges who cannot realistically choose between retirement and work, the system may produce socially unfair consequences. As a result, a new and separate disability pension has been introduced, paying roughly two-thirds of former income regardless of the number of years in employment.
The system remains a pay-as-you-go structure, where the younger, working population funds the pensions of the elderly. However, there are guarantees that if the elderly do not extend their working careers in line with increased longevity, pension levels will fall to avoid placing an undue burden on the younger workforce. This combination of intergenerational solidarity and a significant element of individual choice among the elderly is widely considered a fair system. It is economically sustainable and robust against a likely future increase in longevity.
However, for individuals with health challenges who cannot realistically choose between retirement and work, the system may produce socially unfair consequences. As a result, a new and separate disability pension has been introduced, paying roughly two-thirds of former income regardless of the number of years in employment.
Citations:
https://www.nav.no/alderspensjon
https://www.nav.no/alderspensjon
Pension policies are largely aligned with the goal of achieving intergenerational equity.
8
Australia
Australia’s superannuation system focuses on future sustainability, with around 17 million Australians collectively owning about AUD 3.5 trillion in assets, expected to grow significantly over the next 40 years, providing capital to fund an aging population (Commonwealth of Australia 2023). The retirement income system could better support unpaid care work, which has an important intergenerational dimension, as carers make occupational sacrifices to raise future generations.
The public pension (Age Pension) is available to all people aged 67 and over, subject to income and assets tests, while the private pension system (superannuation) is accessible from age 60. This can incentivize early retirement, with individuals drawing down their superannuation before moving to the Age Pension at 67. For individuals with limited work capability, this may be desirable. However, for higher-income individuals, the superannuation system, being mostly “defined contribution,” incentivizes later retirement as superannuation balances and retirement living standards increase with later retirement. The average retirement age has been increasing over the last 20 years.
The superannuation system combined with the Age Pension generally provides adequate or better living standards in retirement for most retirees (The Treasury 2023). The economic well-being of retirees has improved substantially since the mid-1990s, reflecting increases in the generosity of the Age Pension and maturation of the superannuation system. However, retirees renting in the private market with limited work histories depend on the Age Pension and Commonwealth Rent Assistance, which do not provide adequate income.
The public pension (Age Pension) is available to all people aged 67 and over, subject to income and assets tests, while the private pension system (superannuation) is accessible from age 60. This can incentivize early retirement, with individuals drawing down their superannuation before moving to the Age Pension at 67. For individuals with limited work capability, this may be desirable. However, for higher-income individuals, the superannuation system, being mostly “defined contribution,” incentivizes later retirement as superannuation balances and retirement living standards increase with later retirement. The average retirement age has been increasing over the last 20 years.
The superannuation system combined with the Age Pension generally provides adequate or better living standards in retirement for most retirees (The Treasury 2023). The economic well-being of retirees has improved substantially since the mid-1990s, reflecting increases in the generosity of the Age Pension and maturation of the superannuation system. However, retirees renting in the private market with limited work histories depend on the Age Pension and Commonwealth Rent Assistance, which do not provide adequate income.
Citations:
Commonwealth of Australia. 2023. Intergenerational Report 2023: Australia’s Future to 2063. The Treasury, Australian Government. https://treasury.gov.au/sites/default/files/2023-08/p2023-435150.pdf
The Treasury. 2020. “Retirement Income Review.” The Treasury, Australian Government. https://treasury.gov.au/publication/p2020-100554
Commonwealth of Australia. 2023. Intergenerational Report 2023: Australia’s Future to 2063. The Treasury, Australian Government. https://treasury.gov.au/sites/default/files/2023-08/p2023-435150.pdf
The Treasury. 2020. “Retirement Income Review.” The Treasury, Australian Government. https://treasury.gov.au/publication/p2020-100554
Canada
Intergenerational equity can be influenced by the sustainability of pension programs. Canada, like many other developed nations, faces demographic challenges, including an aging population and a relatively low birth rate. This can impact the financial sustainability of pension programs, raising questions about the burden on future generations to fund pensions for the growing elderly population.
Canada has a multi-tiered pension system that includes both public and private components, as well as federal and provincial plans. The two major public pension programs in most of the country are the Canada Pension Plan (CPP) and Old Age Security (OAS). Quebec opted out of CPP when it was created in the mid-1960s and has since operated its own Quebec Pension Plan, which is very similar to CPP in terms of social benefits (Simeon 1972; Banting 1982).
The CPP and QPP are contributory, earnings-related social insurance programs that provide retirement, disability, and survivor benefits. They are designed to replace a limited portion of individuals’ earnings upon retirement. The CPP and QPP operate on a contributory basis, meaning that individuals contribute a portion of their earnings throughout their working years. The benefits received in retirement are tied to those contributions and matched by employers.
Recently, both CPP and QPP contributions have been increased to grant higher pensions to people who will retire several decades from now. The CPP and QPP are also fiscally sound for the predictable future, with stable anticipated contribution rates for decades to come (Béland and Weaver, 2019).
Old Age Security (OAS): OAS is a universal, non-contributory pension available to Canadians aged 65 and older. It provides a basic level of income support and, since it is inflation-adjusted, has taken on an increasingly significant role in the system.
Governments commonly implement reforms or adjustments to pension programs to address changing demographics and economic conditions.
Canada has a multi-tiered pension system that includes both public and private components, as well as federal and provincial plans. The two major public pension programs in most of the country are the Canada Pension Plan (CPP) and Old Age Security (OAS). Quebec opted out of CPP when it was created in the mid-1960s and has since operated its own Quebec Pension Plan, which is very similar to CPP in terms of social benefits (Simeon 1972; Banting 1982).
The CPP and QPP are contributory, earnings-related social insurance programs that provide retirement, disability, and survivor benefits. They are designed to replace a limited portion of individuals’ earnings upon retirement. The CPP and QPP operate on a contributory basis, meaning that individuals contribute a portion of their earnings throughout their working years. The benefits received in retirement are tied to those contributions and matched by employers.
Recently, both CPP and QPP contributions have been increased to grant higher pensions to people who will retire several decades from now. The CPP and QPP are also fiscally sound for the predictable future, with stable anticipated contribution rates for decades to come (Béland and Weaver, 2019).
Old Age Security (OAS): OAS is a universal, non-contributory pension available to Canadians aged 65 and older. It provides a basic level of income support and, since it is inflation-adjusted, has taken on an increasingly significant role in the system.
Governments commonly implement reforms or adjustments to pension programs to address changing demographics and economic conditions.
Citations:
Banting, K. G. 1982. The Welfare State and Canadian Federalism. Kingston: Queen’s University Institute of Intergovernmental Relations.
Béland, D., and R. K. Weaver. “Federalism and the Politics of the”
Richez, Emmanuelle. 2019. “Canada and Quebec Pension Plans.” Journal of International and Comparative Social Policy 35 (1): 25-40.
Simeon, Richard. 1972. Federal-Provincial Diplomacy: The Making of Recent Policy in Canada. Toronto: University of Toronto Press, Scholarly Publishing Division.
Banting, K. G. 1982. The Welfare State and Canadian Federalism. Kingston: Queen’s University Institute of Intergovernmental Relations.
Béland, D., and R. K. Weaver. “Federalism and the Politics of the”
Richez, Emmanuelle. 2019. “Canada and Quebec Pension Plans.” Journal of International and Comparative Social Policy 35 (1): 25-40.
Simeon, Richard. 1972. Federal-Provincial Diplomacy: The Making of Recent Policy in Canada. Toronto: University of Toronto Press, Scholarly Publishing Division.
Sweden
The pension system is designed to encourage people to work longer. As with most national pension schemes, the longer a person waits to draw their pension, the higher their monthly benefits. However, people with low enough incomes to qualify for the minimum Guarantee Pension might not benefit from postponing their pension benefits (Pensionsmyndigheten, 2024).
Further incentives to keep working have been implemented in recent years, such as a tax rate reduction for the elderly population’s disposable income in 2021. In 2022, a tax allowance for people over 66 years of age was expanded (OECD, 2023). If a person has to exit the labor market before age 62 due to health reasons, they can apply for disability benefits at the Swedish Social Insurance Agency. If the person has been part of the labor market, these benefits are at 64.7% of their mean income from their last year in the workforce, with a ceiling of 23,171 SEK before tax monthly (approximately €2,070). Those with low or no previous income receive minimum compensation. Although the amount fluctuates with age, those over 30 years old receive 13,275 SEK before tax monthly (approximately €1,185) (Försäkringskassan, 2023).
To address the challenges posed by rising life expectancy in Sweden, the retirement age is continuously being adjusted. In 2023, the minimum age to draw a pension was raised from 62 to 63. The age for the Guarantee Pension increased from 65 to 66, and the right to remain employed was extended from 68 to 69. The official retirement age for the years 2026 – 2029 is set at 67 (Regeringskansliet, 2023).
Further incentives to keep working have been implemented in recent years, such as a tax rate reduction for the elderly population’s disposable income in 2021. In 2022, a tax allowance for people over 66 years of age was expanded (OECD, 2023). If a person has to exit the labor market before age 62 due to health reasons, they can apply for disability benefits at the Swedish Social Insurance Agency. If the person has been part of the labor market, these benefits are at 64.7% of their mean income from their last year in the workforce, with a ceiling of 23,171 SEK before tax monthly (approximately €2,070). Those with low or no previous income receive minimum compensation. Although the amount fluctuates with age, those over 30 years old receive 13,275 SEK before tax monthly (approximately €1,185) (Försäkringskassan, 2023).
To address the challenges posed by rising life expectancy in Sweden, the retirement age is continuously being adjusted. In 2023, the minimum age to draw a pension was raised from 62 to 63. The age for the Guarantee Pension increased from 65 to 66, and the right to remain employed was extended from 68 to 69. The official retirement age for the years 2026 – 2029 is set at 67 (Regeringskansliet, 2023).
Citations:
Försäkringskassan. 2023. “Sjukersättning.” https://www.forsakringskassan.se/privatperson/sjuk/funktionsnedsattning-eller-langvarig-sjukdom/sjukersattning
OECD. 2023. Pensions at a Glance 2023: OECD and G20 Indicators. Paris: OECD Publishing. https://doi.org/10.1787/678055dd-en
Pensionsmyndigheten. 2024. “Jobba längre ger högre pension.” https://www.pensionsmyndigheten.se/ga-i-pension/planera-din-pension/pensionalderns-betydelse
Regeringskansliet. 2023. “Riktålder för pension för år 2029 beslutad.” https://www.regeringen.se/pressmeddelanden/2023/05/riktalder-for-pension-for-ar-2029-beslutad/
Försäkringskassan. 2023. “Sjukersättning.” https://www.forsakringskassan.se/privatperson/sjuk/funktionsnedsattning-eller-langvarig-sjukdom/sjukersattning
OECD. 2023. Pensions at a Glance 2023: OECD and G20 Indicators. Paris: OECD Publishing. https://doi.org/10.1787/678055dd-en
Pensionsmyndigheten. 2024. “Jobba längre ger högre pension.” https://www.pensionsmyndigheten.se/ga-i-pension/planera-din-pension/pensionalderns-betydelse
Regeringskansliet. 2023. “Riktålder för pension för år 2029 beslutad.” https://www.regeringen.se/pressmeddelanden/2023/05/riktalder-for-pension-for-ar-2029-beslutad/
Switzerland
The Swiss pension system is composed of three pillars (see also P14.1). The first pillar is highly redistributive since the spread between minimum and maximum pensions is low (i.e., maximum pensions are twice minimum pensions) while contributions to the first pillar are basically linear to income. This corresponds to a social democratic model of redistributive social policy.
The second pillar is conservative, since its benefits are linear to income during working life. While the first pillar is a pay-as-you-go system, the second pillar is a capital accumulation fund in the name of the contributor.
The third pillar is liberal and regressive, since only well-to-do citizens can afford to contribute to these tax-deductible funds; the higher the income, the greater the beneficial effects of this pillar (Armingeon 2001; Bonoli and Fossati 2022; 2023).
The pension system offers few incentives to work longer. In the first pillar, pensions can be deferred if individuals work beyond age 65. This leads to slightly higher pension payments afterward. There is also the possibility of early retirement with reduced pensions in both the first and second pillars. However, this is mainly a feasible option for high-income groups who will receive sufficiently high pensions from the second and perhaps also the third pillar.
Given demographic developments, the first pillar is particularly vulnerable. In the second pillar, there are also some opportunities to redistribute from younger generations to older ones. Notwithstanding the likely unsustainability of the first pillar due to demographic aging, the political left supports the extension of the first pillar because of its redistributive logic and its aim to minimize old-age poverty. This implies either a shrinking of the size of the second pillar or higher taxes or social contributions. Hence, the values of intergenerational and intragenerational equity are in conflict, and it depends on political views which solution is preferred.
A recent study finds that there is no majority for substantial retrenchment of pension systems, particularly regarding an increase in the retirement age. Likewise, there is no majority for increasing the generosity of the system if this endangers its financial sustainability (Häusermann et al. 2019). Hence, major reforms in the coming years do not seem very likely.
In sum, while there are certainly some demographic challenges for the Swiss pension system, given its three-pillar construction it is more robust than national systems that rely only on pay-as-you-go pension systems.
The second pillar is conservative, since its benefits are linear to income during working life. While the first pillar is a pay-as-you-go system, the second pillar is a capital accumulation fund in the name of the contributor.
The third pillar is liberal and regressive, since only well-to-do citizens can afford to contribute to these tax-deductible funds; the higher the income, the greater the beneficial effects of this pillar (Armingeon 2001; Bonoli and Fossati 2022; 2023).
The pension system offers few incentives to work longer. In the first pillar, pensions can be deferred if individuals work beyond age 65. This leads to slightly higher pension payments afterward. There is also the possibility of early retirement with reduced pensions in both the first and second pillars. However, this is mainly a feasible option for high-income groups who will receive sufficiently high pensions from the second and perhaps also the third pillar.
Given demographic developments, the first pillar is particularly vulnerable. In the second pillar, there are also some opportunities to redistribute from younger generations to older ones. Notwithstanding the likely unsustainability of the first pillar due to demographic aging, the political left supports the extension of the first pillar because of its redistributive logic and its aim to minimize old-age poverty. This implies either a shrinking of the size of the second pillar or higher taxes or social contributions. Hence, the values of intergenerational and intragenerational equity are in conflict, and it depends on political views which solution is preferred.
A recent study finds that there is no majority for substantial retrenchment of pension systems, particularly regarding an increase in the retirement age. Likewise, there is no majority for increasing the generosity of the system if this endangers its financial sustainability (Häusermann et al. 2019). Hence, major reforms in the coming years do not seem very likely.
In sum, while there are certainly some demographic challenges for the Swiss pension system, given its three-pillar construction it is more robust than national systems that rely only on pay-as-you-go pension systems.
Citations:
Armingeon, Klaus. 2001. “Institutionalising the Swiss Welfare State.” West European Politics 24 (2): 145-168.
Bonoli, Giuliano, and Fossati, Flavia. 2023. “Social Policy.” In Emmenegger, Patrick, Fossati, Flavia, Häusermann, Silja, Papadopoulos, Yannis, Sciarini, Pascal, and Adrian Vatter, eds., The Oxford Handbook of Swiss Politics. Oxford: Oxford University Press, 695–713. https://doi.org/10.1093/oxfordhb/9780192871787.013.36
Bonoli, Giuliano, and Flavia Fossati. 2022. “Les politiques sociales.” In Handbuch der Schweizer Politik, eds. Yannis Papadopoulos, Pascal Sciarini, Adrian Vatter, Silja Häusermann, Patrick Emmenegger, and Flavia Fossati. 7th ed. 883-902.
Häusermann, Silja, Thomas Kurer, and Denise Traber. 2019. “The Politics of Trade-Offs: Studying the Dynamics of Welfare State Reform With Conjoint Experiments.” Comparative Political Studies 52: 1059-1095.
Armingeon, Klaus. 2001. “Institutionalising the Swiss Welfare State.” West European Politics 24 (2): 145-168.
Bonoli, Giuliano, and Fossati, Flavia. 2023. “Social Policy.” In Emmenegger, Patrick, Fossati, Flavia, Häusermann, Silja, Papadopoulos, Yannis, Sciarini, Pascal, and Adrian Vatter, eds., The Oxford Handbook of Swiss Politics. Oxford: Oxford University Press, 695–713. https://doi.org/10.1093/oxfordhb/9780192871787.013.36
Bonoli, Giuliano, and Flavia Fossati. 2022. “Les politiques sociales.” In Handbuch der Schweizer Politik, eds. Yannis Papadopoulos, Pascal Sciarini, Adrian Vatter, Silja Häusermann, Patrick Emmenegger, and Flavia Fossati. 7th ed. 883-902.
Häusermann, Silja, Thomas Kurer, and Denise Traber. 2019. “The Politics of Trade-Offs: Studying the Dynamics of Welfare State Reform With Conjoint Experiments.” Comparative Political Studies 52: 1059-1095.
7
Czechia
To fulfill the right to material security in retirement guaranteed by the constitution, the pension system must combine both solidarity and merit functions. While it provides reasonable protection against poverty, the replacement ratios for high-income groups are significantly lower. The additional costs imposed by an aging population – increasing the number of people above the pension age – have been offset by lower pensions relative to earnings and a slightly higher burden on the incomes of the working generation.
Increasing the working population can further ensure balance. Citizens can continue to be employed without restriction while receiving a retirement pension. If social insurance is paid on this income, one can apply to the ČSSZ to recalculate the pension at regular intervals, but any increase is minimal. The employment rate of people aged 55 – 64 (72.9%) is higher than the OECD average, and the trend is upward due to gradual adjustments to the retirement age. In the Czech Republic, it is possible to receive a retirement pension and work simultaneously without restrictions. In 2021, the share of working pensioners was 10.7% of all employed people.
Increasing the working population can further ensure balance. Citizens can continue to be employed without restriction while receiving a retirement pension. If social insurance is paid on this income, one can apply to the ČSSZ to recalculate the pension at regular intervals, but any increase is minimal. The employment rate of people aged 55 – 64 (72.9%) is higher than the OECD average, and the trend is upward due to gradual adjustments to the retirement age. In the Czech Republic, it is possible to receive a retirement pension and work simultaneously without restrictions. In 2021, the share of working pensioners was 10.7% of all employed people.
France
Before the 2023 pension reform, the elderly were provided for rather generously. Rather liberal early retirement schemes used to allow firms to get rid of high-salary employees and replace them with early-career workers who might work at higher levels of productivity. This policy has changed as a result of successive reforms, culminating in the 2023 reform. As a result, early retirement schemes have been gradually abolished, the legal age of retirement has increased, and the number of years of contribution necessary to receive a full-term pension has gone up. The long-term effects of this reform are difficult to predict, but one of the crucial goals is to increase the employment rate among older people. In terms of intergenerational equity, the generations born after 1980 will have to pay more for their pensions than older generations. Their replacement rate (the percentage of their pension compared to their past working incomes) will be lower, but the duration of their employment will also be shorter, and they will on average receive their pensions for a longer time (COR 2023: 209 – 219).
Pension policies do not account for intergenerational differences in wealth. It is true that wealth distribution appears to cluster among older generations that are living longer and transfer their wealth later than previous generations.
Pension policies do not account for intergenerational differences in wealth. It is true that wealth distribution appears to cluster among older generations that are living longer and transfer their wealth later than previous generations.
Citations:
COR. 2023. “Comité d’orientation des retraites, Évolutions et perspectives des retraites en France. Rapport annuel, Juin 2023.” https://www.cor-retraites.fr/sites/default/files/2023-06/RA_2023.pdf
COR. 2023. “Comité d’orientation des retraites, Évolutions et perspectives des retraites en France. Rapport annuel, Juin 2023.” https://www.cor-retraites.fr/sites/default/files/2023-06/RA_2023.pdf
New Zealand
The New Zealand Superannuation (NZ Super) has features that may influence individuals’ decisions about retirement and continued work. NZ Super is typically available from age 65, encouraging people to consider retirement around that age. However, there is no official requirement to retire upon reaching this age, providing flexibility for those who wish to continue working. NZ Super also allows individuals to receive a partial pension while continuing to work. This option encourages phased retirement, enabling individuals to gradually reduce their work hours while supplementing their income with pension benefits.
The NZ Super operates on a “pay-as-you-go” model – that is, current contributions from working individuals fund the pensions for current retirees. This means an aging population with a decreasing ratio of working-age individuals to retirees poses challenges. With fewer workers contributing to the NZ Super for each retiree, sustainability might become a concern in the long term.
To address this concern, the OECD has recommended that New Zealand raise its superannuation age. The newly elected National government agrees with the OECD’s recommendation and plans to increase the age of eligibility to 67 (Shepherd and Ensor 2023). However, a report by the Retirement Commission concludes that raising the age will likely disadvantage manual workers and groups with lower life expectancies – including Māori and Pasifika – and further entrench social inequality (Walton 2022).
The NZ Super operates on a “pay-as-you-go” model – that is, current contributions from working individuals fund the pensions for current retirees. This means an aging population with a decreasing ratio of working-age individuals to retirees poses challenges. With fewer workers contributing to the NZ Super for each retiree, sustainability might become a concern in the long term.
To address this concern, the OECD has recommended that New Zealand raise its superannuation age. The newly elected National government agrees with the OECD’s recommendation and plans to increase the age of eligibility to 67 (Shepherd and Ensor 2023). However, a report by the Retirement Commission concludes that raising the age will likely disadvantage manual workers and groups with lower life expectancies – including Māori and Pasifika – and further entrench social inequality (Walton 2022).
Citations:
Shepherd, S., and Ensor, J. 2023. “Superannuation age: Debate flares over future of pension, call for it to be raised to 70, not given to rich.” Newshub, April 1. https://www.newshub.co.nz/home/politics/2023/04/superannuation-age-debate-flares-over-future-of-pension-call-for-it-to-be-raised-to-70-not-given-to-rich.html
Walton, F. 2022. “Retirement Commission review suggests more people set to retire without a nest egg.” RNZ, November 29. https://www.rnz.co.nz/news/business/479687/retirement-commission-review-suggests-more-people-set-to-retire-without-a-nest-egg
Shepherd, S., and Ensor, J. 2023. “Superannuation age: Debate flares over future of pension, call for it to be raised to 70, not given to rich.” Newshub, April 1. https://www.newshub.co.nz/home/politics/2023/04/superannuation-age-debate-flares-over-future-of-pension-call-for-it-to-be-raised-to-70-not-given-to-rich.html
Walton, F. 2022. “Retirement Commission review suggests more people set to retire without a nest egg.” RNZ, November 29. https://www.rnz.co.nz/news/business/479687/retirement-commission-review-suggests-more-people-set-to-retire-without-a-nest-egg
Slovenia
Since 2012, the full retirement age in Slovenia has been 65, or 60 for employees with at least 40 years of pensionable service. Incentives are provided for people who continue to work after the official retirement age. Despite having one of the highest labor force participation rates in the 20–64 age group, Slovenia still has one of the lowest participation rates among older individuals (60–64). In the second quarter of 2022, the labor force participation rate for the 60–64 age group was 36.5% (EU: 72.1%). Activity in this age group is increasing due to the high demand for labor and later retirement prompted by pension legislation, which has enhanced incentives to remain in the workforce longer. In Slovenia, income-related pensions are calculated based on earnings from only 24 years of employment.
At the end of 2023, the Minister of Labour, Family, Social Affairs, and Equal Opportunities emphasized that pension reform will be a key project for the ministry in 2024. The initial plans have already been prepared, and the social partners and key departments are familiar with them. The reform aims to ensure the sustainability of the pension system. The government seeks to address the issue of providing adequate pensions and maintaining a sustainable system in an aging society.
At the end of 2023, the Minister of Labour, Family, Social Affairs, and Equal Opportunities emphasized that pension reform will be a key project for the ministry in 2024. The initial plans have already been prepared, and the social partners and key departments are familiar with them. The reform aims to ensure the sustainability of the pension system. The government seeks to address the issue of providing adequate pensions and maintaining a sustainable system in an aging society.
Citations:
N1. 2023. “Pokojninska reforma prva prioriteta ministra Mesca v novem letu.” N1, December 20. https://n1info.si/novice/slovenija/pokojninska-reforma-prva-prioriteta-ministra-mesca-v-novem-letu/
N1. 2023. “Pokojninska reforma prva prioriteta ministra Mesca v novem letu.” N1, December 20. https://n1info.si/novice/slovenija/pokojninska-reforma-prva-prioriteta-ministra-mesca-v-novem-letu/
Spain
In Spain, fewer than one in ten individuals aged 65-69 are employed. The 2023 pension reform aims to incentivize longer working lives. For the first time, the average retirement age surpassed 65 years in 2023. According to the reform, individuals who postpone retirement receive a 4% bonus for each full year worked beyond the retirement age. This bonus can be received as a lump sum, which depends on the initial pension amount and the period of contributions, or as a combination of both. The new regulation reduces the early retirement period from 24 to 21 months for those previously taking early retirement, mitigating the higher penalty for the additional three months.
To address the anticipated rapid growth in pension expenditures until 2049, the reform includes an increase in the contribution base and a restrained increase in the maximum pension. It also introduces an Intergenerational Equity Mechanism. Beginning in January 2023, the contribution rate will increase by 0.6% (0.1% for workers and 0.5% for employers) from 2023 to 2032 to fund this mechanism. Contributions have been raised for high earners through a new solidarity contribution on earnings exceeding the maximum contribution base, which does not contribute to pension entitlements (AIReF 2023).
Withdrawals from the Intergenerational Equity Mechanism will be permitted starting in 2032 to support pension spending. The annual drawdown is capped at 0.2% of GDP, and until approximately 2040, inflows into the fund must surpass outflows.
Collectively, these measures, coupled with a reform in contributions by the self-employed, are projected to ensure intergenerational equity.
To address the anticipated rapid growth in pension expenditures until 2049, the reform includes an increase in the contribution base and a restrained increase in the maximum pension. It also introduces an Intergenerational Equity Mechanism. Beginning in January 2023, the contribution rate will increase by 0.6% (0.1% for workers and 0.5% for employers) from 2023 to 2032 to fund this mechanism. Contributions have been raised for high earners through a new solidarity contribution on earnings exceeding the maximum contribution base, which does not contribute to pension entitlements (AIReF 2023).
Withdrawals from the Intergenerational Equity Mechanism will be permitted starting in 2032 to support pension spending. The annual drawdown is capped at 0.2% of GDP, and until approximately 2040, inflows into the fund must surpass outflows.
Collectively, these measures, coupled with a reform in contributions by the self-employed, are projected to ensure intergenerational equity.
Citations:
AIReF. 2023. “El impacto de las reformas del sistema de pensiones entre 2021 y 2023.” https://www.airef.es/wp-content/uploads/2023/03/OPINIÓN-SOSTENIBILIDAD/230324.-DT.2.23_-Evaluación-impacto-reformas-sistema-de-pensiones-2021-y-2023.pdf
AIReF. 2023. “El impacto de las reformas del sistema de pensiones entre 2021 y 2023.” https://www.airef.es/wp-content/uploads/2023/03/OPINIÓN-SOSTENIBILIDAD/230324.-DT.2.23_-Evaluación-impacto-reformas-sistema-de-pensiones-2021-y-2023.pdf
Netherlands
The recent pension reform (see “Policies Aimed at Old-Age Poverty Prevention”) explicitly aims to improve intergenerational equity. In the current system, both young and old workers are promised the same amount of future benefits for every euro they contribute. However, a young person’s contribution is worth more because it can accrue interest over a longer period. This effectively creates an implicit subsidy from younger to older workers. This subsidy isn’t problematic as long as most employees remain with the same employer throughout their careers; during the first half of their career, they receive less pension accrual, which is rectified in the second half. Problems arise if employees leave the pension fund halfway through, such as when they become self-employed. In such cases, they are not compensated for the years when they received less pension entitlement.
Predicting whether the new system will incentivize people to work longer, exit the workforce as they see fit, or if it will accommodate those with diminishing work capacity is challenging. It seems reasonable to expect that individuals may choose to work longer if their individualized pension benefits are insufficient, and to retire early if their benefits are adequate to allow for early retirement.
The more individualized nature of the new system does not guarantee adequate future pension income. Pension benefits will become more dependent on international and macroeconomic fluctuations. While nudging theory offers some hope, it does not guarantee that younger people will start behaving more responsibly about pension planning.
Predicting whether the new system will incentivize people to work longer, exit the workforce as they see fit, or if it will accommodate those with diminishing work capacity is challenging. It seems reasonable to expect that individuals may choose to work longer if their individualized pension benefits are insufficient, and to retire early if their benefits are adequate to allow for early retirement.
The more individualized nature of the new system does not guarantee adequate future pension income. Pension benefits will become more dependent on international and macroeconomic fluctuations. While nudging theory offers some hope, it does not guarantee that younger people will start behaving more responsibly about pension planning.
Citations:
Rijksoverheid. 2023. “Wet toekomst pensioenen aangenomen. Overgang naar nieuw pensioenstelsel start op 1 juli 2023.” rijksoverheid.nl
Rijksoverheid. 2023. “Wet toekomst pensioenen aangenomen. Overgang naar nieuw pensioenstelsel start op 1 juli 2023.” rijksoverheid.nl
UK
There is no obligatory retirement age in the UK, and the public pension system offers incentives to remain in employment by providing higher pensions for those who defer retirement. According to the Mercer index, the UK ranks just below the Nordic countries and is among the better-performing systems globally.
The state pension is pay-as-you-go and is not directly linked to the level of national insurance payments made by individuals, though it does reflect years of contributions. The relatively low level of the state pension means the burden on the working-age population is contained, although there are complementary benefits for poorer pensioners. For the majority of retirees, occupational pensions are a more substantial source of income. Despite the increasing number of pension-age individuals and the rising pension age, the pension burden is higher than in the 2000s but remains well below the OECD average.
Provisions already in place should ensure that the pension system remains adequately funded and intergenerationally fair. According to the Institute for Fiscal Studies, some pensioners “are close to or above the relative poverty line, even if they have no other income,” and it asserts that “the state pension is not in need of wholesale change.” The key debate in the UK is about the “triple lock,” credited with raising the relative value of the state pension. However, it could increase the burden on younger generations in the long term and is likely to be a policy question in the next general election.
Wealth distribution, especially mortgage-free property, presents a challenge for younger generations, as does the likelihood of increased health and social care spending for the elderly.
The state pension is pay-as-you-go and is not directly linked to the level of national insurance payments made by individuals, though it does reflect years of contributions. The relatively low level of the state pension means the burden on the working-age population is contained, although there are complementary benefits for poorer pensioners. For the majority of retirees, occupational pensions are a more substantial source of income. Despite the increasing number of pension-age individuals and the rising pension age, the pension burden is higher than in the 2000s but remains well below the OECD average.
Provisions already in place should ensure that the pension system remains adequately funded and intergenerationally fair. According to the Institute for Fiscal Studies, some pensioners “are close to or above the relative poverty line, even if they have no other income,” and it asserts that “the state pension is not in need of wholesale change.” The key debate in the UK is about the “triple lock,” credited with raising the relative value of the state pension. However, it could increase the burden on younger generations in the long term and is likely to be a policy question in the next general election.
Wealth distribution, especially mortgage-free property, presents a challenge for younger generations, as does the likelihood of increased health and social care spending for the elderly.
Citations:
https://ifs.org.uk/publications/future-state-pension
https://ifs.org.uk/publications/future-state-pension
6
Belgium
The Belgian pension system is organized around three pillars. The first pillar is the legal, publicly funded, pay-as-you-go pension that offers basic coverage, between €1500 and €2380 per month. The second pillar is fully funded and financed by the employer, who invests in private funds. The third pillar is fully funded and financed by the individual, with a tax exemption up to €1270 of savings per year. The universality of the first pillar and the large share of early retirements make it costly: according to Eurostat data, it accounted for 12.6% of GDP in 2021, compared with Germany’s 12.2%, Norway’s 10.3%, and France’s 14.9%
As detailed under the previous indicator, several reforms have been introduced to increase the legal and effective retirement age, cap legal pensions, and tighten accessibility conditions. However, the Belgian pension system is still considered financially fragile and on the verge of being unsustainable by most observers.
As detailed under the previous indicator, several reforms have been introduced to increase the legal and effective retirement age, cap legal pensions, and tighten accessibility conditions. However, the Belgian pension system is still considered financially fragile and on the verge of being unsustainable by most observers.
Citations:
https://www.sfpd.fgov.be/fr/montant-de-la-pension/calcul/pension-maximale
https://www.sfpd.fgov.be/fr/montant-de-la-pension/calcul/pension-maximale
Japan
Japanese governments have increasingly set incentives for elderly workers to continue working after reaching the retirement age of 65. Between the age of 65 and 70 benefits can increase by 8.7% for every year retirement is postponed. It is permitted to combine the receipt of a pension with work, though after exceeding a certain base amount, the earnings-related pension payment is reduced. Employees above 70 years old are exempt from paying pension contributions.
The labor market participation rates of elderly workers have always been high in Japan but were declining until 2012. Since 2012, they have increased, which may also reflect that public pension benefits, payments from corporate pension schemes and severance pay have declined. Since a large part of financial security stems from assets accrued during working life, continuing work can be a way of compensating for reductions in wages, pension payments and lower returns on investments due to low interest rates.
The adjustment of benefit and contribution levels is partially technocratic and provides the government with tools to curb benefit increases. Since 2004, the government can use the so-called macroeconomic slide to keep pension raises below wage increases and inflation, which in 2024 will be used for the second time in a row. A key structural problem is that the ratio of pensioners and working-age population is continuously worsening. In the 2004 pension reform, the practice of raising contributions to maintain a stable level of benefits was replaced with contributions capped at 18.3% of salaries and a demographically modified indexation program.
The financial integrity and generational equity of the pension system is supported further by the Government Pension Investment Fund (GPIF), one of the largest public pension funds in the world. It manages the reserves of the public pension system and GPIF investments have successfully increased the return on investment over the years. The reserves are meant to stabilize the ratio between benefits and contributions over a period of 100 years.
Younger cohorts in Japan will still receive lower benefits in the future and must compensate for these decreases by saving through other means. To encourage this, Nippon Individual Savings Accounts (NISA) and Individual Defined Contribution Accounts (iDeCo) have been introduced and expanded over the last decade. However, for these accounts to work as desired, workers need to earn enough to save for old age in addition to traditional pension schemes. Non-regular and low-wage workers, whose wages hardly increase over the life cycle and who rarely receive bonus payments, thus face a particularly high risk of poverty in old age.
The labor market participation rates of elderly workers have always been high in Japan but were declining until 2012. Since 2012, they have increased, which may also reflect that public pension benefits, payments from corporate pension schemes and severance pay have declined. Since a large part of financial security stems from assets accrued during working life, continuing work can be a way of compensating for reductions in wages, pension payments and lower returns on investments due to low interest rates.
The adjustment of benefit and contribution levels is partially technocratic and provides the government with tools to curb benefit increases. Since 2004, the government can use the so-called macroeconomic slide to keep pension raises below wage increases and inflation, which in 2024 will be used for the second time in a row. A key structural problem is that the ratio of pensioners and working-age population is continuously worsening. In the 2004 pension reform, the practice of raising contributions to maintain a stable level of benefits was replaced with contributions capped at 18.3% of salaries and a demographically modified indexation program.
The financial integrity and generational equity of the pension system is supported further by the Government Pension Investment Fund (GPIF), one of the largest public pension funds in the world. It manages the reserves of the public pension system and GPIF investments have successfully increased the return on investment over the years. The reserves are meant to stabilize the ratio between benefits and contributions over a period of 100 years.
Younger cohorts in Japan will still receive lower benefits in the future and must compensate for these decreases by saving through other means. To encourage this, Nippon Individual Savings Accounts (NISA) and Individual Defined Contribution Accounts (iDeCo) have been introduced and expanded over the last decade. However, for these accounts to work as desired, workers need to earn enough to save for old age in addition to traditional pension schemes. Non-regular and low-wage workers, whose wages hardly increase over the life cycle and who rarely receive bonus payments, thus face a particularly high risk of poverty in old age.
Citations:
Keohane, David. 2023. “Japan government pension acts on population strain.” Financial Times October 2. https://www.ft.com/content/2aaf07fd-3f53-4376-9d8c-7322ba2e3203
Komamura, Kohei. 2007. “The 2004 Pension Reform and the Impact of Rapid Aging in Japan.” The Japanese Journal of Social Security Policy 6 (1): 144-156.
Nakagawa, Takemi. 2023. “Japan to Curb Pension Benefit Increases for 2nd Straight Year.” NikkeiAsia November 16. https://asia.nikkei.com/Politics/Japan-to-curb-pension-benefit-increases-for-2nd-straight-year
OECD. 2023. “Pensions at a Glance 2023: OECD and G20 Indicators.” https://doi.org/10.1787/678055dd-en
OECD. 2023. “Pensions at a Glance 2023: Country Profiles – Japan.” https://www.oecd.org/els/public-pensions/PAG2023-country-profile-Japan.pdf
Siripala, Thisanka. 2023. “Surviving Old Age Is Getting Harder in Japan.” The Diplomat January 19. https://thediplomat.com/2023/01/surviving-old-age-is-getting-harder-in-japan
Keohane, David. 2023. “Japan government pension acts on population strain.” Financial Times October 2. https://www.ft.com/content/2aaf07fd-3f53-4376-9d8c-7322ba2e3203
Komamura, Kohei. 2007. “The 2004 Pension Reform and the Impact of Rapid Aging in Japan.” The Japanese Journal of Social Security Policy 6 (1): 144-156.
Nakagawa, Takemi. 2023. “Japan to Curb Pension Benefit Increases for 2nd Straight Year.” NikkeiAsia November 16. https://asia.nikkei.com/Politics/Japan-to-curb-pension-benefit-increases-for-2nd-straight-year
OECD. 2023. “Pensions at a Glance 2023: OECD and G20 Indicators.” https://doi.org/10.1787/678055dd-en
OECD. 2023. “Pensions at a Glance 2023: Country Profiles – Japan.” https://www.oecd.org/els/public-pensions/PAG2023-country-profile-Japan.pdf
Siripala, Thisanka. 2023. “Surviving Old Age Is Getting Harder in Japan.” The Diplomat January 19. https://thediplomat.com/2023/01/surviving-old-age-is-getting-harder-in-japan
Latvia
As of June 17, 2023, individuals residing in third countries are eligible for old-age pensions in Latvia. The retirement age in Latvia is gradually increasing and is set to reach 65 years by January 1, 2025. To qualify for a pension, one must have an insurance period of 15 years, which will increase to 20 years starting January 1, 2025. Early retirement is available two years before the legal retirement age for those with a minimum insurance period of 30 years. Early retirees receive the same pension amount throughout their lives, but the conditions for its disbursement change upon reaching the official retirement age.
Additional early retirement rights are granted to parents or guardians with a minimum of 25 years of insurance who have cared for five or more children or a disabled child for at least eight years until the child turns 18. Other categories eligible for early retirement include those working in harmful and heavy work conditions, Chernobyl disaster liquidators, dwarfs, blind individuals, and politically repressed persons with specific insurance periods (Valsts Sociālās Apdrošināšanas aģentūra, 2022).
Currently, around 37% of pension recipients continue working at 65, while about one in four, or 25%, are still employed at 68. Starting January 1, 2023, when an old-age pension is granted, if a participant of the second pension level purchases a life insurance (annuity) policy with their accumulated capital in the second level pension, the amount of the lifetime annuity will reduce the corresponding minimum pension amount, preserved disability or service pension amount, or the state social security benefit due to the person.
Working recipients of old-age pensions are entitled to recalculate their retirement once a year based on their accumulated pension capital after the pension has been granted or recalculated. This calculation can be requested by the pension recipient at any time, either upon ending employment or during any other period. However, the subsequent recalculation can only be requested precisely 12 months after the last recalibration, regardless of the number of months worked since then (Valsts Sociālās Apdrošināšanas aģentūra, 2024).
Additional early retirement rights are granted to parents or guardians with a minimum of 25 years of insurance who have cared for five or more children or a disabled child for at least eight years until the child turns 18. Other categories eligible for early retirement include those working in harmful and heavy work conditions, Chernobyl disaster liquidators, dwarfs, blind individuals, and politically repressed persons with specific insurance periods (Valsts Sociālās Apdrošināšanas aģentūra, 2022).
Currently, around 37% of pension recipients continue working at 65, while about one in four, or 25%, are still employed at 68. Starting January 1, 2023, when an old-age pension is granted, if a participant of the second pension level purchases a life insurance (annuity) policy with their accumulated capital in the second level pension, the amount of the lifetime annuity will reduce the corresponding minimum pension amount, preserved disability or service pension amount, or the state social security benefit due to the person.
Working recipients of old-age pensions are entitled to recalculate their retirement once a year based on their accumulated pension capital after the pension has been granted or recalculated. This calculation can be requested by the pension recipient at any time, either upon ending employment or during any other period. However, the subsequent recalculation can only be requested precisely 12 months after the last recalibration, regardless of the number of months worked since then (Valsts Sociālās Apdrošināšanas aģentūra, 2024).
Citations:
Valsts sociālās apdrošināšanas aģentūra. 2022. “Izmaiņas VSAA pakalpojumos no 2023. gada.” https://lvportals.lv/skaidrojumi/347718-izmainas-vsaa-pakalpojumos-no-2023-gada-2022#a4
2. Valsts sociālās apdrošināšanas aģentūra. 2024. “Vecuma pensija.” https://www.vsaa.gov.lv/lv/pakalpojumi/vecuma-pensija
Valsts sociālās apdrošināšanas aģentūra. 2022. “Izmaiņas VSAA pakalpojumos no 2023. gada.” https://lvportals.lv/skaidrojumi/347718-izmainas-vsaa-pakalpojumos-no-2023-gada-2022#a4
2. Valsts sociālās apdrošināšanas aģentūra. 2024. “Vecuma pensija.” https://www.vsaa.gov.lv/lv/pakalpojumi/vecuma-pensija
Lithuania
Pension policies aim to achieve intergenerational equity. Lithuania’s three-pillar pension system, which combines public and private pension programs, seeks to ensure equity among old-age pensioners, the active labor force and the younger generation. Since 2004, there have been two privately funded pillars: a statutory pillar that receives a portion of mandatory state social insurance contributions, and a voluntary pillar funded through private contributions. These complement the pay-as-you-go (PAYG) state insurance fund.
However, this system as a whole suffered from instability and uncertainty, particularly during the global financial crisis in 2009, when most budgetary expenditures were cut in an attempt to manage public finances. In recent years, governments have avoided cutting pensions during the COVID-19 pandemic and the cost-of-living crisis, instead indexing benefit amounts to compensate for inflation. However, the governments have continued introducing modifications to the three-pillar pension system that might negatively affect participants’ confidence in the sustainability of the privately funded pension system.
In terms of fiscal stability, Lithuania’s pension system faces unfavorable demographic changes ahead (Bank of Lithuania, 2023). The old-age dependency ratio is projected to more than double by 2060 as the working-age population shrinks by a projected 35.8%. The parliament approved a gradual increase in the age of pension eligibility to 65 years by 2026 and changed the pension system’s second pillar to allow for a possible gradual increase in the share of social contributions received by private funds. According to the Bank of Lithuania, in the first half of 2023, 1.4 million people had savings in the second pillar worth a total of €6.5 billion. Additionally, 105,000 had savings in the third pillar worth a total of €256 million. However, due to demographic changes, the PAYG pillar continues to pose a risk to the sustainability of public finances overall.
However, this system as a whole suffered from instability and uncertainty, particularly during the global financial crisis in 2009, when most budgetary expenditures were cut in an attempt to manage public finances. In recent years, governments have avoided cutting pensions during the COVID-19 pandemic and the cost-of-living crisis, instead indexing benefit amounts to compensate for inflation. However, the governments have continued introducing modifications to the three-pillar pension system that might negatively affect participants’ confidence in the sustainability of the privately funded pension system.
In terms of fiscal stability, Lithuania’s pension system faces unfavorable demographic changes ahead (Bank of Lithuania, 2023). The old-age dependency ratio is projected to more than double by 2060 as the working-age population shrinks by a projected 35.8%. The parliament approved a gradual increase in the age of pension eligibility to 65 years by 2026 and changed the pension system’s second pillar to allow for a possible gradual increase in the share of social contributions received by private funds. According to the Bank of Lithuania, in the first half of 2023, 1.4 million people had savings in the second pillar worth a total of €6.5 billion. Additionally, 105,000 had savings in the third pillar worth a total of €256 million. However, due to demographic changes, the PAYG pillar continues to pose a risk to the sustainability of public finances overall.
Citations:
Lithuanian Ministry of Social Security and Labor. “System of savings for pensions” (in Lithuanian). https://socmin.lrv.lt/lt/veiklos-sritys/socialinis-draudimas/pensiju-kaupimo-sistema?lang=lt
Bank of Lithuania. 2023. “The Results of the Pension Funds in the First Half of 2023 (in Lithuanian).” https://www.lb.lt/lt/naujienos/pensiju-fondu-pusmecio-rezultatai-gera-zinia-kaupiantiesiems-senatvei
Lithuanian Ministry of Social Security and Labor. “System of savings for pensions” (in Lithuanian). https://socmin.lrv.lt/lt/veiklos-sritys/socialinis-draudimas/pensiju-kaupimo-sistema?lang=lt
Bank of Lithuania. 2023. “The Results of the Pension Funds in the First Half of 2023 (in Lithuanian).” https://www.lb.lt/lt/naujienos/pensiju-fondu-pusmecio-rezultatai-gera-zinia-kaupiantiesiems-senatvei
Poland
In 2019, an additional benefit called the “13th pension” was introduced to the system, equal to the minimum pension amount. Starting in 2023, another additional benefit called the “14th pension” was paid, with its amount determined annually by the government. The payment of these additional benefits burdens the state budget, although the Solidarity Fund is formally responsible for the disbursement. This fund does not have its own independent source of revenue; rather, it borrows resources from the state.
The reduction in the official retirement age in Poland – one of the PiS’ priorities – has resulted in lower pensions, prompting the government to encourage people to work longer. According to average calculations, delaying retirement by one year translates into an 8% increase in the recipient’s pension benefits. Various assessments of the stability of the Polish Social Insurance Fund have been made. The fund may face financial problems in the future as the post-World War II baby boom generations reach retirement age, and as the demographic situation becomes unfavorable. However, the situation may improve due to immigration from Ukraine. On the other hand, according to the OECD (2023), the share of public pension and retirement expenditures in Poland’s GDP will remain stable, staying at around 10% in 2060.
The reduction in the official retirement age in Poland – one of the PiS’ priorities – has resulted in lower pensions, prompting the government to encourage people to work longer. According to average calculations, delaying retirement by one year translates into an 8% increase in the recipient’s pension benefits. Various assessments of the stability of the Polish Social Insurance Fund have been made. The fund may face financial problems in the future as the post-World War II baby boom generations reach retirement age, and as the demographic situation becomes unfavorable. However, the situation may improve due to immigration from Ukraine. On the other hand, according to the OECD (2023), the share of public pension and retirement expenditures in Poland’s GDP will remain stable, staying at around 10% in 2060.
Citations:
OECD. 2023. “Pensions at a Glance 2023: OECD and G20 Indicators.” Paris: OECD Publishing. https://doi.org/10.1787/678055dd-en
OECD. 2023. “Pensions at a Glance 2023: OECD and G20 Indicators.” Paris: OECD Publishing. https://doi.org/10.1787/678055dd-en
Portugal
Portugal’s pension policy aims to balance intergenerational equity, encourage continued employment, and maintain financial sustainability. However, it faces significant challenges regarding the long-term viability of the pension system. These challenges potentially compromise its goals and leave it vulnerable to future demographic and economic shifts.
In Portugal, workers who continue their professional activities at or beyond the legal retirement age are rewarded with a pension bonus, the value of which is contingent on their years of contributions. This creates a clear incentive for prolonged workforce participation. Conversely, early retirement is possible before reaching the legal age, but it usually comes with a penalty, resulting in a reduced pension.
Since 2016, the legal retirement age has been dynamically linked to changes in life expectancy at 65. This system, known as the sustainability factor, automatically adjusts the value of pensions based on demographic trends. It factors in the positive trajectory of average life expectancy, recalculating pension benefits downward to account for an extended retirement period. However, this penalty for increased life expectancy is designed to affect only those who do not proportionally delay their retirement. In 2023, the official retirement age was set at 66 years and four months, and this remains unchanged in 2024.
Despite implementing the sustainability factor, Portugal’s pension system faces medium- and long-term financial challenges, impacting its intergenerational equity. Between 1995 and 2021, pension expenditures as a percentage of GDP rose from 9.2% to 14.3% – one of the most significant increases in the European Union. The Mercer Global Pension Index Report (2022) reflects this complexity, assigning Portugal an index value of 62.8 out of 100. This value indicates a system with commendable features but also considerable risks that threaten its long-term effectiveness and sustainability.
Looking ahead, the Bank of Portugal’s Economic Bulletin (2023) suggests that pension expenditures might start to decline post-2035, despite an aging population. This anticipated decrease is attributed to a reduction in both the average pension amount and the pension replacement rate. Currently, Portugal’s replacement rate, one of the highest in the Euro Zone, is projected to drop significantly by 2070, potentially aligning with the EU average. However, projections from the Portuguese Government’s 2024 State Budget Proposal indicate these adjustments may not be enough to prevent an imminent financial imbalance in the social security system, where expenses are expected to exceed revenues in the coming decade. This scenario underscores the need for continual reassessment and adaptation of the pension system to ensure its long-term viability and fairness across generations (Ministry of Finance, 2023).
In Portugal, workers who continue their professional activities at or beyond the legal retirement age are rewarded with a pension bonus, the value of which is contingent on their years of contributions. This creates a clear incentive for prolonged workforce participation. Conversely, early retirement is possible before reaching the legal age, but it usually comes with a penalty, resulting in a reduced pension.
Since 2016, the legal retirement age has been dynamically linked to changes in life expectancy at 65. This system, known as the sustainability factor, automatically adjusts the value of pensions based on demographic trends. It factors in the positive trajectory of average life expectancy, recalculating pension benefits downward to account for an extended retirement period. However, this penalty for increased life expectancy is designed to affect only those who do not proportionally delay their retirement. In 2023, the official retirement age was set at 66 years and four months, and this remains unchanged in 2024.
Despite implementing the sustainability factor, Portugal’s pension system faces medium- and long-term financial challenges, impacting its intergenerational equity. Between 1995 and 2021, pension expenditures as a percentage of GDP rose from 9.2% to 14.3% – one of the most significant increases in the European Union. The Mercer Global Pension Index Report (2022) reflects this complexity, assigning Portugal an index value of 62.8 out of 100. This value indicates a system with commendable features but also considerable risks that threaten its long-term effectiveness and sustainability.
Looking ahead, the Bank of Portugal’s Economic Bulletin (2023) suggests that pension expenditures might start to decline post-2035, despite an aging population. This anticipated decrease is attributed to a reduction in both the average pension amount and the pension replacement rate. Currently, Portugal’s replacement rate, one of the highest in the Euro Zone, is projected to drop significantly by 2070, potentially aligning with the EU average. However, projections from the Portuguese Government’s 2024 State Budget Proposal indicate these adjustments may not be enough to prevent an imminent financial imbalance in the social security system, where expenses are expected to exceed revenues in the coming decade. This scenario underscores the need for continual reassessment and adaptation of the pension system to ensure its long-term viability and fairness across generations (Ministry of Finance, 2023).
Citations:
PORDATA. 2023. “Pensões: despesa total em % do PIB.”
https://www.pordata.pt/Europa/Pens%C3%B5es+despesa+total+em+percentagem+do+PIB-1579
Mercer. 2022. “Mercer CFA Institute Global Pension Index 2022.”
https://www.mercer.com/assets/global/en/shared-assets/global/attachments/attachment-2022-global-pension-index-full-report.pdf
Bank of Portugal. 2023. Boletim Económico outubro 2023. Lisboa: Departamento de Estudos Económicos.
https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/be_out2023_p.pdf
Ministry of Finance. 2023. “Relatório do Orçamento do Estado 2024.”
https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBQAAAB%2BLCAAAAAAABAAzNLY0NAQA8%2BjEBAUAAAA%3D
PORDATA. 2023. “Pensões: despesa total em % do PIB.”
https://www.pordata.pt/Europa/Pens%C3%B5es+despesa+total+em+percentagem+do+PIB-1579
Mercer. 2022. “Mercer CFA Institute Global Pension Index 2022.”
https://www.mercer.com/assets/global/en/shared-assets/global/attachments/attachment-2022-global-pension-index-full-report.pdf
Bank of Portugal. 2023. Boletim Económico outubro 2023. Lisboa: Departamento de Estudos Económicos.
https://www.bportugal.pt/sites/default/files/anexos/pdf-boletim/be_out2023_p.pdf
Ministry of Finance. 2023. “Relatório do Orçamento do Estado 2024.”
https://www.portugal.gov.pt/download-ficheiros/ficheiro.aspx?v=%3D%3DBQAAAB%2BLCAAAAAAABAAzNLY0NAQA8%2BjEBAUAAAA%3D
Pension policies are only somewhat aligned with the goal of achieving intergenerational equity.
5
Austria
Regarding public expenditure on old-age and survivors’ benefits as a percentage of GDP, Austria has consistently ranked in the top five among OECD countries. Recent initiatives by the Austrian government include the creation of a new system allowing citizens to work beyond the standard retirement age in exchange for special pension benefits.
Still, as noted above, the de facto pension age is below 61 years and is projected to rise only in very small steps until 2030. At the same time, public expenditures to support the pension system are expected to increase. Given rising life expectancy, a gradual increase in the actual retirement age is necessary. The last government avoided discussing pension reform, and the current chancellor’s election manifesto does not mention it either.
While specific projections, such as those by the Chamber of Labor, suggest that the key challenge of “intergenerational equity” is being addressed comparatively well in Austria, others point to the system’s unsustainability in the medium run (see above).
In a report commissioned by the European Commission, the average elderly-to-non-elderly spending ratio in Austria increased from 1.71 to 2.10 between 2002 and 2017.
Still, as noted above, the de facto pension age is below 61 years and is projected to rise only in very small steps until 2030. At the same time, public expenditures to support the pension system are expected to increase. Given rising life expectancy, a gradual increase in the actual retirement age is necessary. The last government avoided discussing pension reform, and the current chancellor’s election manifesto does not mention it either.
While specific projections, such as those by the Chamber of Labor, suggest that the key challenge of “intergenerational equity” is being addressed comparatively well in Austria, others point to the system’s unsustainability in the medium run (see above).
In a report commissioned by the European Commission, the average elderly-to-non-elderly spending ratio in Austria increased from 1.71 to 2.10 between 2002 and 2017.
Citations:
https://www.arbeiterkammer.at/interessenvertretung/arbeitundsoziales/pensionen/AK_OEGB_Handout_GerechtigkeitfuerPensionen.pdf
https://www.kleinezeitung.at/wirtschaft/17810395/laenger-arbeiten-so-rechnet-es-sich
Raitano, M., Karagiannaki, E., Premrov, T., Geyer, L., Fuchs, M., Bloise, F., and De Micheli, B. 2021. Study on Intergenerational Fairness, Report for the EC.
https://www.arbeiterkammer.at/interessenvertretung/arbeitundsoziales/pensionen/AK_OEGB_Handout_GerechtigkeitfuerPensionen.pdf
https://www.kleinezeitung.at/wirtschaft/17810395/laenger-arbeiten-so-rechnet-es-sich
Raitano, M., Karagiannaki, E., Premrov, T., Geyer, L., Fuchs, M., Bloise, F., and De Micheli, B. 2021. Study on Intergenerational Fairness, Report for the EC.
Estonia
The low share of public investment in old-age pensions and the low levels of pensions relative to work incomes have resulted in one of the highest shares of employment among older people. Recent policy initiatives have sought to incentivize the reconciliation of working and retirement or deferring retirement. During the deferral period, the worker continues to contribute and earn extra entitlement. In the case of combining work and pension, contributions are paid, and the pension is recalculated annually.
However, funding scarcities, the country’s deteriorating dependency ratio, the diminished share of private contributions related to policy changes in 2021, and the relatively high share of special pensions and early retirements continue to challenge the sustainability of the Estonian pension system. These issues create a need for governments to continue making changes to cope with new social risks posed by broader demographic and labor market changes.
However, funding scarcities, the country’s deteriorating dependency ratio, the diminished share of private contributions related to policy changes in 2021, and the relatively high share of special pensions and early retirements continue to challenge the sustainability of the Estonian pension system. These issues create a need for governments to continue making changes to cope with new social risks posed by broader demographic and labor market changes.
Germany
The statutory retirement age in Germany is 67, but individuals have the option to retire earlier or later. Most people can retire as early as age 63, although this results in reduced pensions for the rest of their lives (Deutsche Rentenversicherung, n.d.A). Conversely, it is possible to work beyond the usual retirement age, with each additional month of work increasing the monthly pension payments by 0.5%. Seniors can draw their pension while still working (Deutsche Rentenversicherung, n.d.B). Continuing to work after early retirement is also an option, with job income not limiting or reducing pension payments (Deutsche Rentenversicherung, 2023: 4).
Additionally, the statutory pension insurance covers individuals who are not old enough to retire but are unable to work due to health reasons or can only work a limited number of hours. If the insured person is determined to be able to work a few hours per week, they are required to do so and receive reduced pension payments while also earning job income. Eligibility requires that the person has been insured for at least five years, with contributions paid for at least three of those years (Deutsche Rentenversicherung, n.d.C).
The German statutory pension insurance is financed by contributions from employers and employees, along with government grants. In 2020, receipts consisted of approximately €250 billion in contributions and about €75 billion in grants. The underlying principle is a pay-as-you-go system, meaning that each year’s revenue covers that same year’s expenditures. Without the government grants, the insurance would incur losses annually (Bundeszentrale für politische Bildung, 2022). The imbalance between contributions and payments is expected to grow in the coming decades due to the retirement of the baby boomer generation and increased life expectancies (Deutschlandfunk, 2022).
The statutory pension insurance can be supplemented with private or company plans. The use of private insurance has been subsidized by the government since 2002 under the “Riester-Rente” scheme, which was made more generous in 2018. The goal is to reduce Germany’s reliance on the pay-as-you-go pension system. Slightly fewer than 10.5 million people participated in the program in 2020, costing the government around €4 billion (BMF, 2023).
The German Council of Economic Experts (Sachverständigenrat, SVR) calls for a reform of the German pension system to stabilize funding and address demographic changes. Without reform, there is a risk of lower pensions, leading to a higher risk of poverty among seniors, combined with higher future contributions (Sachverständigenrat, 2023). Proposed solutions to address the demographic challenge include raising the retirement age, increasing contributions, reducing pension payments, or providing additional government grants (Deutschlandfunk, 2022).
Furthermore, a public pension fund is planned, with financial resources to be invested in assets, generating revenue to address the pension insurance’s future financing problems. However, it is still unclear where the money for the fund will come from and how much relief the fund and its revenue can provide (Deutschlandfunk, 2023).
Additionally, the statutory pension insurance covers individuals who are not old enough to retire but are unable to work due to health reasons or can only work a limited number of hours. If the insured person is determined to be able to work a few hours per week, they are required to do so and receive reduced pension payments while also earning job income. Eligibility requires that the person has been insured for at least five years, with contributions paid for at least three of those years (Deutsche Rentenversicherung, n.d.C).
The German statutory pension insurance is financed by contributions from employers and employees, along with government grants. In 2020, receipts consisted of approximately €250 billion in contributions and about €75 billion in grants. The underlying principle is a pay-as-you-go system, meaning that each year’s revenue covers that same year’s expenditures. Without the government grants, the insurance would incur losses annually (Bundeszentrale für politische Bildung, 2022). The imbalance between contributions and payments is expected to grow in the coming decades due to the retirement of the baby boomer generation and increased life expectancies (Deutschlandfunk, 2022).
The statutory pension insurance can be supplemented with private or company plans. The use of private insurance has been subsidized by the government since 2002 under the “Riester-Rente” scheme, which was made more generous in 2018. The goal is to reduce Germany’s reliance on the pay-as-you-go pension system. Slightly fewer than 10.5 million people participated in the program in 2020, costing the government around €4 billion (BMF, 2023).
The German Council of Economic Experts (Sachverständigenrat, SVR) calls for a reform of the German pension system to stabilize funding and address demographic changes. Without reform, there is a risk of lower pensions, leading to a higher risk of poverty among seniors, combined with higher future contributions (Sachverständigenrat, 2023). Proposed solutions to address the demographic challenge include raising the retirement age, increasing contributions, reducing pension payments, or providing additional government grants (Deutschlandfunk, 2022).
Furthermore, a public pension fund is planned, with financial resources to be invested in assets, generating revenue to address the pension insurance’s future financing problems. However, it is still unclear where the money for the fund will come from and how much relief the fund and its revenue can provide (Deutschlandfunk, 2023).
Citations:
BMF (Federal Ministry of Finance). 2023. “Statistische Auswertungen zur Riester-Förderung.” https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Steuerliche_Themengebiete/Altersvorsorge/2023-11-15-Statistische-Auswertungen-Riester-Foerderung-bis-2022.html
Bundeszentrale für politische Bildung. 2022. “Einnahmen und Ausgaben der gesetzlichen Rentenversicherung (GRV).” https://www.bpb.de/kurz-knapp/zahlen-und-fakten/soziale-situation-in-deutschland/61857/einnahmen-und-ausgaben-der-gesetzlichen-rentenversicherung-grv/
Deutsche Rentenversicherung. 2023. “Altersrente. Unbegrenzt hinzuverdienen.” 34. Auflage [7/2023], Nr. 206.
Deutsche Rentenversicherung. n.d.A. “Altersrenten für langjährig und besonders langjährig Versicherte.” https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Allgemeine-Informationen/Rentenarten-und-Leistungen/Altersrente-fuer-langjaehrig-Versicherte/altersrente-fuer-langjaehrig-versicherte_node.html
Deutsche Rentenversicherung. “Zahlt sich aus: Arbeiten über die Rentenaltersgrenze hinaus.” https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Allgemeine-Informationen/Wissenswertes-zur-Rente/FAQs/Gesetzesaenderungen/Flexirente/Flexirente_Regelaltersgrenze.html#d57d5c7c-e685-4db9-ae58-7b199086b245
Deutsche Rentenversicherung. n.d. “Erwerbsminderungsrenten.” https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Allgemeine-Informationen/Rentenarten-und-Leistungen/Erwerbsminderungsrente/erwerbsminderungsrente_node.html
Deutschlandfunk. 2022. “Wie können die Renten finanzierbar bleiben?” https://www.deutschlandfunk.de/reform-der-altersvorsorge-rente-deutschland-100.html
Deutschlandfunk. 2023. “Wie Christian Lindner mit Aktien die Rente sichern will.” https://www.deutschlandfunk.de/-rente-altersvorsorge-aktienrente-christian-lindner-fdp-risiken-kritik-100.html
Sachverständigenrat. 2023. “Kein Weiter so bei der Rente: Eine Kombination mehrerer Reformmaßnahmen ist unverzichtbar.” https://www.sachverstaendigenrat-wirtschaft.de/jahresgutachten-2023-pressemitteilung/kapitel-5.html
BMF (Federal Ministry of Finance). 2023. “Statistische Auswertungen zur Riester-Förderung.” https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Steuerliche_Themengebiete/Altersvorsorge/2023-11-15-Statistische-Auswertungen-Riester-Foerderung-bis-2022.html
Bundeszentrale für politische Bildung. 2022. “Einnahmen und Ausgaben der gesetzlichen Rentenversicherung (GRV).” https://www.bpb.de/kurz-knapp/zahlen-und-fakten/soziale-situation-in-deutschland/61857/einnahmen-und-ausgaben-der-gesetzlichen-rentenversicherung-grv/
Deutsche Rentenversicherung. 2023. “Altersrente. Unbegrenzt hinzuverdienen.” 34. Auflage [7/2023], Nr. 206.
Deutsche Rentenversicherung. n.d.A. “Altersrenten für langjährig und besonders langjährig Versicherte.” https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Allgemeine-Informationen/Rentenarten-und-Leistungen/Altersrente-fuer-langjaehrig-Versicherte/altersrente-fuer-langjaehrig-versicherte_node.html
Deutsche Rentenversicherung. “Zahlt sich aus: Arbeiten über die Rentenaltersgrenze hinaus.” https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Allgemeine-Informationen/Wissenswertes-zur-Rente/FAQs/Gesetzesaenderungen/Flexirente/Flexirente_Regelaltersgrenze.html#d57d5c7c-e685-4db9-ae58-7b199086b245
Deutsche Rentenversicherung. n.d. “Erwerbsminderungsrenten.” https://www.deutsche-rentenversicherung.de/DRV/DE/Rente/Allgemeine-Informationen/Rentenarten-und-Leistungen/Erwerbsminderungsrente/erwerbsminderungsrente_node.html
Deutschlandfunk. 2022. “Wie können die Renten finanzierbar bleiben?” https://www.deutschlandfunk.de/reform-der-altersvorsorge-rente-deutschland-100.html
Deutschlandfunk. 2023. “Wie Christian Lindner mit Aktien die Rente sichern will.” https://www.deutschlandfunk.de/-rente-altersvorsorge-aktienrente-christian-lindner-fdp-risiken-kritik-100.html
Sachverständigenrat. 2023. “Kein Weiter so bei der Rente: Eine Kombination mehrerer Reformmaßnahmen ist unverzichtbar.” https://www.sachverstaendigenrat-wirtschaft.de/jahresgutachten-2023-pressemitteilung/kapitel-5.html
Hungary
Hungary has an aging population, and older people are active supporters of the Fidesz party of Prime Minister Orbán. It is no surprise, therefore, that pensions play an essential role in the government’s social policy. The Hungarian pension system, primarily state-funded and operating on a pay-as-you-go (PAYG) basis, has faced several challenges and criticisms, particularly regarding its long-term sustainability and impact on intergenerational equity. One key aspect of the Hungarian pension system is its reliance on state funding, with private pension schemes playing a lesser role. The Hungarian government has committed to aligning pension increases with inflation rates. In 2023, pensions were raised by 15% to offset inflation, with the potential for additional supplementation if inflation exceeds expectations. This approach is part of the government’s broader strategy to maintain the purchasing power of pensions amidst economic fluctuations.
Despite these measures, there are critical predictions about the sustainability of the Hungarian pension system. Hungary needs more flexible retirement options, such as partial retirement for employees aged 62 – 66. This flexibility is required to address the growing strain on the pension system due to the aging population and a decreasing ratio of workers to pensioners. The aging demographic trend suggests that by 2070, the number of pensioners per employee could double from current levels.
Moreover, a noted decline in the average pension-to-income ratio indicates a potential decrease in the relative pension value over time. It is expected that the retirement age limit may increase in the coming years, aligning with rising life expectancy and efforts to address the gender gap in retirement age, which currently strongly favors women. Although working beyond the pension age is not specifically incentivized by the government, many healthcare and education professionals continue working to offset labor shortages after reaching the pension age. The average age of general practitioners in medical practice is well above 50 years (Papp et al. 2019).
Despite these measures, there are critical predictions about the sustainability of the Hungarian pension system. Hungary needs more flexible retirement options, such as partial retirement for employees aged 62 – 66. This flexibility is required to address the growing strain on the pension system due to the aging population and a decreasing ratio of workers to pensioners. The aging demographic trend suggests that by 2070, the number of pensioners per employee could double from current levels.
Moreover, a noted decline in the average pension-to-income ratio indicates a potential decrease in the relative pension value over time. It is expected that the retirement age limit may increase in the coming years, aligning with rising life expectancy and efforts to address the gender gap in retirement age, which currently strongly favors women. Although working beyond the pension age is not specifically incentivized by the government, many healthcare and education professionals continue working to offset labor shortages after reaching the pension age. The average age of general practitioners in medical practice is well above 50 years (Papp et al. 2019).
Citations:
Papp, M., Kőrösi, L., Sándor, J., Nagy, C., Juhász, A., and Ádány, R. 2019. “Workforce Crisis in Primary Healthcare Worldwide: Hungarian Example in a Longitudinal Follow-up Study.” BMJ Open 9(7): e024957.
Papp, M., Kőrösi, L., Sándor, J., Nagy, C., Juhász, A., and Ádány, R. 2019. “Workforce Crisis in Primary Healthcare Worldwide: Hungarian Example in a Longitudinal Follow-up Study.” BMJ Open 9(7): e024957.
Ireland
As of 2024, the public pension system in Ireland has incentivized individuals to work longer, with limited provisions for exiting before the formal pension age of 66 if work capability is low. There is no specific pre-retirement allowance; individuals must exit to state non-age-specific disability or invalidity schemes, creating gaps between private retirement at 65 and the state pension at 66. The pension system is not realistically funded to guarantee an adequate old-age income in the future. Despite recent policy shifts to fund future pensions, there are serious concerns relating to generational inequity. On average across the OECD, a worker entering the labor market in 2022 will receive a net pension at 61% of net wages, but Ireland is among a group of countries where this figure is 40% or below (OECD 2023). The pension system comprises three pillars: the state old-age pension, occupational pensions and individual pension plans. Changes in the old-age contributory scheme include new qualification criteria and higher state pensions for those who delay accessing pensions between ages 66 and 70 (starting in 2024). Policy will ensure greater access to private pensions through auto-enrollment (commencing in 2024) to encourage earlier entry to private pensions, aiming to increase coverage from 55% of the private workforce.
Generous tax subsidization of private pensions, although costly, un-progressive and a drain on tax revenues, remains a central mechanism to encourage individual investment in private pensions (Collins 2020). Largely contributory rather than defined benefit, private pensions do not necessarily provide full financial security. Public sector employees enjoy relatively generous occupational defined benefit pension entitlements. State and public sector pensions are paid for largely on a pay-as-you-go system, with some recent provisions for a pension fund, creating significant intergenerational inequity in pensions policy. Additionally, there are demographic pressures associated with aging populations and increased dependency ratios.
Generous tax subsidization of private pensions, although costly, un-progressive and a drain on tax revenues, remains a central mechanism to encourage individual investment in private pensions (Collins 2020). Largely contributory rather than defined benefit, private pensions do not necessarily provide full financial security. Public sector employees enjoy relatively generous occupational defined benefit pension entitlements. State and public sector pensions are paid for largely on a pay-as-you-go system, with some recent provisions for a pension fund, creating significant intergenerational inequity in pensions policy. Additionally, there are demographic pressures associated with aging populations and increased dependency ratios.
Citations:
Collins, M. 2020. “Private Pensions and the Gender Distribution of Fiscal Welfare.” Social Policy and Society 19 (3): 500-516.
Kearns, D. 2019. “Oireachtas Committee: ‘Discretionary’ tax relief is costing Ireland 21.4 billion.” February 7.
euros each year. University College Dublin. https://www.ucd.ie/newsandopinion/news/2019/february/7/oireachtascommitteediscretionarytaxreliefiscostingireland214bneachyear/
OECD. 2023. Pensions at a Glance 2023: OECD and G20 Indicators. Paris: OECD Publishing.
https://doi.org/10.1787/678055dd-en
Collins, M. 2020. “Private Pensions and the Gender Distribution of Fiscal Welfare.” Social Policy and Society 19 (3): 500-516.
Kearns, D. 2019. “Oireachtas Committee: ‘Discretionary’ tax relief is costing Ireland 21.4 billion.” February 7.
euros each year. University College Dublin. https://www.ucd.ie/newsandopinion/news/2019/february/7/oireachtascommitteediscretionarytaxreliefiscostingireland214bneachyear/
OECD. 2023. Pensions at a Glance 2023: OECD and G20 Indicators. Paris: OECD Publishing.
https://doi.org/10.1787/678055dd-en
Israel
Current policies encourage people to continue working after the retirement age of 67. For each additional year of work, the old-age benefit provided through the National Insurance Institute increases. Since 2019, people receive an additional 2% to the old-age benefit for every year they pay into the insurance scheme, up to a maximum of 50%. Additionally, if a senior citizen decides to postpone eligibility for an old-age benefit, they will receive an additional 5% for each year.
The retirement age is currently 65 for women and 67 for men. Only after this age can people receive their pension and old-age benefits.
The pension system does not guarantee elderly people sufficient income following retirement, because pension payments are based on defined contributions not defined benefits. As a result, people who did not start saving early enough for their pensions or who did not save enough will not have sufficient income following retirement.
National Insurance Institute funding is insufficient and, unless this situation changes (e.g., an increase in payments or a curtailment of rights), the institute will run out of resources in the next 10–20 years (Koreh 2019).
The retirement age is currently 65 for women and 67 for men. Only after this age can people receive their pension and old-age benefits.
The pension system does not guarantee elderly people sufficient income following retirement, because pension payments are based on defined contributions not defined benefits. As a result, people who did not start saving early enough for their pensions or who did not save enough will not have sufficient income following retirement.
National Insurance Institute funding is insufficient and, unless this situation changes (e.g., an increase in payments or a curtailment of rights), the institute will run out of resources in the next 10–20 years (Koreh 2019).
Citations:
Koreh, Michal. 2019. “The Deficit Crisis in the National Insurance Budget Towards the Year 2027 - Description of the Causes, Analysis of the Consequences and Proposed Solutions” (Hebrew). Social Security 108.
Koreh, Michal. 2019. “The Deficit Crisis in the National Insurance Budget Towards the Year 2027 - Description of the Causes, Analysis of the Consequences and Proposed Solutions” (Hebrew). Social Security 108.
Italy
The 2011 Fornero reform of Italian pension policy raised the retirement age to 67, reduced benefit levels for higher-income groups, and linked retirement age to rising life expectancies, achieving a satisfactory level of sustainability. Thanks to this reform, no major changes to the retirement system would have been needed for the next few years, despite the demographic imbalance between the aged and the young.
The current situation is less positive in terms of intergenerational fairness, as younger generations will receive significantly smaller amounts upon retirement. Furthermore, the real average retirement age in 2022 was still 63.8 years due to various regulations allowing early retirement. The problem is exacerbated by the delayed or uncertain entry of younger cohorts into the labor market, a structural issue in the Italian labor market. Additionally, many unemployed individuals, especially women, face the challenge of receiving little or no pension. The issue of poverty prevention, already significant for a considerable portion of the population, will become even more relevant for today’s younger cohorts when they reach retirement age.
Supplementary pension schemes have been growing, with more than 9 million workers enrolled in a collective or individual supplementary pension scheme in 2022. However, this solution does not help younger workers in unstable and precarious jobs, as most enrollees have stable employment. An early retirement incentive scheme approved during the first Conte government, under pressure from the Northern League, added a burden on general taxation. The Draghi government limited this law’s impact, while the Meloni government has approved many small regulations in the 2023 and 2024 budget laws, which do not seem appropriate to strengthen the pension system’s coherence.
Structural conditions affecting the future performance of the Italian pension system include a decreasing birth rate, lack of planning for immigration, and low economic system productivity. These challenges are still not adequately addressed on the political agenda. Without policy intervention, those with interrupted careers and periods of precariousness risk receiving very low pensions. Although establishing a guaranteed pension system for younger generations has been a frequent topic of discussion, no decision has been made.
The current situation is less positive in terms of intergenerational fairness, as younger generations will receive significantly smaller amounts upon retirement. Furthermore, the real average retirement age in 2022 was still 63.8 years due to various regulations allowing early retirement. The problem is exacerbated by the delayed or uncertain entry of younger cohorts into the labor market, a structural issue in the Italian labor market. Additionally, many unemployed individuals, especially women, face the challenge of receiving little or no pension. The issue of poverty prevention, already significant for a considerable portion of the population, will become even more relevant for today’s younger cohorts when they reach retirement age.
Supplementary pension schemes have been growing, with more than 9 million workers enrolled in a collective or individual supplementary pension scheme in 2022. However, this solution does not help younger workers in unstable and precarious jobs, as most enrollees have stable employment. An early retirement incentive scheme approved during the first Conte government, under pressure from the Northern League, added a burden on general taxation. The Draghi government limited this law’s impact, while the Meloni government has approved many small regulations in the 2023 and 2024 budget laws, which do not seem appropriate to strengthen the pension system’s coherence.
Structural conditions affecting the future performance of the Italian pension system include a decreasing birth rate, lack of planning for immigration, and low economic system productivity. These challenges are still not adequately addressed on the political agenda. Without policy intervention, those with interrupted careers and periods of precariousness risk receiving very low pensions. Although establishing a guaranteed pension system for younger generations has been a frequent topic of discussion, no decision has been made.
Citations:
Centro Studi e Ricerche Itinerari Previdenziali. 2023. Il Bilancio del Sistema Previdenziale italiano. https://www.uilpa.it/wordpress/wp-content/uploads/2023/02/itinerari-prev.-decimo-rapporto.pdf
- Commissione Vigilanza Fondi Pensione. 2023. “Relazione per l’anno 2022.” https://www.covip.it/sites/default/files/relazioneannuale/covip_relazione_per_lanno_2022_20230607.pdf
Padula, M. 2023. “Pensioni senza un’idea di futuro.” https://lavoce.info/archives/103043/pensioni-senza-unidea-di-futuro/
Centro Studi e Ricerche Itinerari Previdenziali. 2023. Il Bilancio del Sistema Previdenziale italiano. https://www.uilpa.it/wordpress/wp-content/uploads/2023/02/itinerari-prev.-decimo-rapporto.pdf
- Commissione Vigilanza Fondi Pensione. 2023. “Relazione per l’anno 2022.” https://www.covip.it/sites/default/files/relazioneannuale/covip_relazione_per_lanno_2022_20230607.pdf
Padula, M. 2023. “Pensioni senza un’idea di futuro.” https://lavoce.info/archives/103043/pensioni-senza-unidea-di-futuro/
USA
Social Security, the U.S. federal pension program, acts as a basic social safety net for American retirees. Although many Americans believe Social Security is a personal benefit accrued through workplace contributions during their working lives, this is a misconception. Instead, current workers pay for the current generation of retirees. Demographic shifts, therefore, could pose challenges to the system. The U.S. retiree population is growing, as is the overall U.S. population. However, the ratio of workers to retirees has shrunk. If this trend continues, there are concerns about the continued viability of Social Security in its current form.
Changes to the Social Security system impact intergenerational inequality because they deny younger generations the benefits they have paid for the current generation of retirees. Consequently, maintaining Social Security in its current form is seen as politically important. Since George W. Bush’s politically disastrous attempt to change the system, few major politicians have sought to alter it. This reluctance spans both the left and the right. Indeed, one of Donald Trump’s major social policy pledges was to protect Social Security from cuts.
Changes to the Social Security system impact intergenerational inequality because they deny younger generations the benefits they have paid for the current generation of retirees. Consequently, maintaining Social Security in its current form is seen as politically important. Since George W. Bush’s politically disastrous attempt to change the system, few major politicians have sought to alter it. This reluctance spans both the left and the right. Indeed, one of Donald Trump’s major social policy pledges was to protect Social Security from cuts.
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Greece
Current pension arrangements in Greece primarily serve the interests of middle-aged and older groups, often at the expense of younger workers. Research by the IMF (Kangur et al. 2021) suggests that Greece’s pension system fails to incentivize individuals to build long contribution histories, leading to widespread evasion of social security contributions. This pattern has negatively affected Greece’s fiscal policy mix, and burden-sharing across generations is not as equitable as it should be.
The pension system also fails to provide sufficient incentives for individuals to either extend their working lives or retire early if their capacity is diminished. Meanwhile, the government faces challenges in funding a pension system that guarantees adequate old-age income in the future. In short, current pension policies do not adequately address intergenerational equity.
The pension system also fails to provide sufficient incentives for individuals to either extend their working lives or retire early if their capacity is diminished. Meanwhile, the government faces challenges in funding a pension system that guarantees adequate old-age income in the future. In short, current pension policies do not adequately address intergenerational equity.
Citations:
Kangur, A., N. Kalavrezou, and D. Kim. 2021. “Reforming the Greek Pension System.” IMF Working Paper, WP/21/188. https://www.imf.org/en/Publications/WP/Issues/2021/07/16/Reforming-the-Greek-Pension-System-461838
Kangur, A., N. Kalavrezou, and D. Kim. 2021. “Reforming the Greek Pension System.” IMF Working Paper, WP/21/188. https://www.imf.org/en/Publications/WP/Issues/2021/07/16/Reforming-the-Greek-Pension-System-461838
Slovakia
The pension system encourages individuals to work longer because the level of the individual pension increases with each additional year of employment. Receiving both wages and pensions simultaneously is allowed without restriction.
The state pension system (first pillar) is funded on the pay-as-you-go principle, with current workers funding pensioners. It does not guarantee an adequate old-age income for lower-income groups and some other social groups, like the long-term unemployed. According to the European Semester (European Union, 2023: 4): “The aging population poses challenges to the long-term sustainability of public finances. Pension expenses are estimated to increase from 8.3% of GDP in 2019 to 13.4% in 2050, one of the largest increases in the EU.”
The minimum pension, available only for those with 30 years of pension insurance, was set at 145% of the subsistence minimum. Since October 2023, it has increased from €365.70 to €389.90 per month. Pensioners unable to secure basic living conditions can also apply for the “Assistance in Material Need” benefit.
The state pension system (first pillar) is funded on the pay-as-you-go principle, with current workers funding pensioners. It does not guarantee an adequate old-age income for lower-income groups and some other social groups, like the long-term unemployed. According to the European Semester (European Union, 2023: 4): “The aging population poses challenges to the long-term sustainability of public finances. Pension expenses are estimated to increase from 8.3% of GDP in 2019 to 13.4% in 2050, one of the largest increases in the EU.”
The minimum pension, available only for those with 30 years of pension insurance, was set at 145% of the subsistence minimum. Since October 2023, it has increased from €365.70 to €389.90 per month. Pensioners unable to secure basic living conditions can also apply for the “Assistance in Material Need” benefit.
Citations:
Europan Union. 2023. 2023 Country Report – Slovakia. Brussels: European Union.
Europan Union. 2023. 2023 Country Report – Slovakia. Brussels: European Union.
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Pension policies are not at all aligned with the goal of achieving intergenerational equity.
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