current and future income adequacy in old age in the EU

396 Pages·2015·11.72 MB·English

The 2015 Pension
Adequacy Report:
current and future income
adequacy in old age in the EU
Volume I
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ISBN 978-92-79-51683-2 - doi:10.2767/1907 (print)
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European Commission
Directorate-General for Employment, Social Affairs and Inclusion
Social Protection Committee

The 2015 Pension Adequacy Report: current and
future income adequacy in old age in the EU

Volume I

Joint Report prepared by the Social Protection Committee (SPC)
and the European Commission (DG EMPL)

2015

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Acknowledgements
This report has been prepared by the European Commission services of the Directorate
General for Employment, Social Affairs and Inclusion (Directorate D, Europe 2020: Social
Policies, led by Director Lieve Fransen, Unit D3: Social Protection, headed by Ralf Jacob) in
collaboration with the Member States delegates in the Social Protection Committee's (SPC,
chaired by Tom Dominique) Working Group on Ageing Issues (SPC WG-AGE, chaired by
Costas Stavrakis) and the SPC Indicators Subgroup (ISG, chaired by Volker Schmidt and
Rudi Van Dam). The report, which consists of two volumes (main report and country profiles)
was adopted by the SPC on 17 September 2015 and its Main Messages formed the basis for a
set of Council conclusions adopted at the EPSCO meeting on 5 October 2015.
In Unit D3, Krzysztof Iszkowski and Audronė Balkytė were responsible for the Secretariat of
the SPC WG-AGE. The report was drafted by the pension team of D3 led by Fritz von
Nordheim Nielsen. The main contributors were Marc Vothknecht, Audronė Balkytė,
Krzysztof Iszkowski, Vanda Crnjac-Paukovic, Ettore Marchetti and Valdis Zagorskis. We
also thank Jörg Peschner for his contributions.
The drafting has integrated important external contributions from the ENEGE1 and the ESPN2
networks and from the pensions team in the OECD Social Policy Division, where
Anna Cristina d’Addio, in particular, provided support and feedback. We thank John Morley
for his numerous editorial suggestions and comments.
The report used projections of the budgetary impact of ageing population in the Member
States of the European Union (EU) from the 2015 Ageing Report. Other data used in the
report were provided by Eurostat, Member States and the OECD.

1 The European Network of Experts on Gender Equality: http://www.enege.eu/
2 The European Social Policy Network: http://ec.europa.eu/social/main.jsp?catId=1135&langId=en

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Members of the Working Group on Ageing Issues of the Social Protection
Committee (SPC WG-AGE)
Chairman / Cyprus
Mr Costas STAVRAKIS Ministry of Labour, Welfare and Social Insurance

Belgium
Mr Michel ENGLERT Federal planning Bureau
Mr Dirk MOENS FOD Sociale Zekerheid

Bulgaria
Mr Mihail ILIEV Ministry of Labour and Social Policy

Czech Republic
Mr Jan SKORPIK Ministry of Labour and Social Affairs
Mr Marek SUCHOMEL Ministry of Labour and Social Affairs

Denmark
Mr Torben HEDE Ministry of Employment
Ms Anna AMILON SFI - The Danish National Centre for Social Research

Germany
Mr Thomas SALZMANN Federal Ministry of Labour and Social Affairs
Mr Volker SCHMIDT Federal Ministry of Labour and Social Affairs

Estonia
Prof. Lauri LEPPIK

Ireland
Mr Paul MORRIN Department of Social Protection
Mr Robert NICHOLSON Department of Social Protection

Greece
Mrs Aspassia STRANTZALOU Ministry of Labour, Social Security and Welfare

Spain
Ms María Teresa QUÍLEZ FÉLEZ Ministry of Employment and Social Security
Mr Antonio BLÁZQUEZ MURILLO Ministry of Employment and Social Security

France
Mr Denis MAGUAIN Ministère des affaires sociales et de la santé
Ms Céline CAREL Ministère de l'économie et des finances

Croatia
Ms Sandra FRANKIĆ The Ministry of Labour and Pension System
Ms Ljiljana MARUŠIĆ Croatian Institute for Pension Insurance

Italy
Prof. Giovanni GEROLDI Ministry of Labour and Social Policy
Mr Marco MARINO Ministry of Labour and Social Policy
Ms Antonella DALLE MONACHE Ministry of Labour and Social Policy

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Latvia
Mrs Inese UPITE Ministry of Welfare of the Republic of Latvia

Lithuania
Ms Vidija PAŠTUKIENĖ Ministry of Social Security and Labour of the
Republic of Lithuania

Luxembourg
Mr Gérard JOHANNS Inspection générale de la Sécurité sociale IGSS

Hungary
Mr Ádám RÉZMOVITS Central Administration of National Pension Insurance
Ms Erika Ildikó LUKÁCS The Ministry of Human Capacities

Malta
Mr Edward BUTTIGIEG Ministry for the Family and Social Solidarity
Mr Malcolm SCICLUNA Ministry for the Family and Social Solidarity

The Netherlands
Mr Lennart JANSSENS Ministry of Social Affairs and Employment

Austria
Mr Johann STEFANITS Federal Ministry of Labour, Social Affairs and
Consumer Protection
Ms Irene SASSIK Federal Ministry of Labour, Social Affairs and
Consumer Protection

Poland
Mr Wojciech KURASZYK Ministry of Labour and Social Policy
Mr Krzysztof SZYMAŃSKI Ministry of Labour and Social Policy

Portugal
Ms Rute GUERRA Ministry of Solidarity, Employment and Social
Security
Ms Rita FIGUEIRAS Ministry of Solidarity, Employment and Social
Security

Romania
Mr Ion POPESCU National House of Public Pensions

Slovenia
Dr. Andraž RANGUS The Ministry of Labour, Family, Social Affairs and
Equal Opportunities

Slovakia
Mr Slavomir DURISKA Ministry of Labour, Social Affairs and Family of the
Slovak Republic

Finland
Ms Marjukka HIETANIEMI Finnish Centre for Pensions (ETK)

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Sweden
Mrs Sara Örnhall LJUNGH Ministry of Health and Social Affairs
Mr Kristian ÖRNELIUS Ministry of Health and Social Affairs

United Kingdom
Mr Richard BROOKES Department for work and pensions
Mr Richard GOULSBRA Department for work and pensions

The Pension Team of DG EMPL D3
Ralf JACOB (Head of Unit)
Fritz VON NORDHEIM NIELSEN (Deputy Head of Unit, Team leader)
Audronė BALKYTĖ
Vanda CRNJAC-PAUKOVIC
Krzysztof ISZKOWSKI
Ettore MARCHETTI
Marc VOTHKNECHT
Valdis ZAGORSKIS

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TABLE OF CONTENTS

MAIN MESSAGES .................................................................................................................. 1
SUMMARY ............................................................................................................................... 9
1. INTRODUCTION .............................................................................................................. 49
1.1. Purpose and scope ..................................................................................................... 49
1.2. A multi-dimensional approach to the adequacy of pensions ................................. 52
2. CURRENT LIVING STANDARDS OF OLDER PEOPLE .......................................... 61
2.1. Relative incomes of older people .............................................................................. 61
2.2. Poverty risks and material deprivation among older Europeans ......................... 66
2.3. The wealth of older people ........................................................................................ 74
2.3.1. Housing ........................................................................................................................ 74
2.3.2. Financial wealth ........................................................................................................... 82
2.4. Access to services and non-pension benefits............................................................ 85
2.5. Working until and after the pensionable age .......................................................... 93
2.5.1. Pensionable ages versus effective retirement ages....................................................... 94
2.5.2. Reasons people give for leaving the labour market at career end ................................ 96
2.5.3. Employment rates of older workers in Europe ............................................................ 97
2.5.4. The waning of late-career employment across the EU .............................................. 101
2.5.5. Working beyond 65 and combining income from work with pension ....................... 104
3. THE ROLE OF PENSION SYSTEMS IN SECURING ADEQUATE LIVING
STANDARDS IN OLD AGE FOR MEN AND WOMEN ................................................ 111
3.1. Income replacement ................................................................................................ 111
3.1.1. Assessing the income replacement capacity of pension systems ............................... 111
3.1.2. Pension adequacy in 2013: current theoretical replacement rates ............................. 116
3.2. Minimum income provision .................................................................................... 128
3.2.1. Types of minimum income provision and their prevalence across the EU ................ 129
3.2.2. Dependency of older people on minimum income provisions ................................... 132
3.2.3. Effectiveness of minimum income provisions in preventing/mitigating poverty ...... 136
3.2.4. Trends and challenges ................................................................................................ 139
3.3. Pension credits and pension accrual during periods out of labour market ....... 140
3.3.1. Maternity, paternity and child care ............................................................................ 141
3.3.2. Unemployment ........................................................................................................... 143
3.3.3. Other types of career breaks....................................................................................... 144
3.4. Derived pension rights............................................................................................. 145
3.5. The gender pension gap .......................................................................................... 149
3.5.1. The gender pension gap indicator .............................................................................. 149
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3.5.2. The central pension gender gap across EU-28 in 2012 .............................................. 150
3.5.3. The pension gender gap: mapping diversity according to individual characteristics 156
3.5.4. Career breaks ............................................................................................................. 160
3.5.5. The intra-household gender gap in pensions .............................................................. 161
3.5.6. An overview of the results ......................................................................................... 162
3.5.7. The drivers of gender differences .............................................................................. 164
3.5.8. The pension gender gap and policy regimes .............................................................. 166
3.5.9. Transition issues: what to do with current gender gaps? ........................................... 167
4. PENSION REFORMS AND THEIR LIKELY IMPACTS .......................................... 169
4.1. Two waves of pension reforms ............................................................................... 169
4.2. Changes to national pension systems from the early 1990s to the mid-
2000s 170
4.3. Changes to European pension systems since the start of the crisis ..................... 173
4.3.1. Short-term changes to pensions in response to the public finance crisis ................... 174
4.3.1.1. Reductions of pension benefits in payment ............................................................ 175
4.3.1.2. The role of the Constitutional Courts ...................................................................... 177
4.3.1.3. The expansion of prefunded schemes halted and partly reversed ........................... 178
4.3.1.4. Phasing out special retirement schemes .................................................................. 181
4.4. Impact of pension reforms that aim to extend working lives - by restricting
access to early retirement and raising pensionable ages ..................................... 181
4.4.1. Restricting access to early retirement ........................................................................ 182
4.4.2. Increasing increments for late and decrements for early retirement .......................... 183
4.4.3. Increasing the pensionable ages ................................................................................. 184
4.4.4. Changing the marginal returns to work - by tightening the link between
contributions and benefits ......................................................................................... 187
4.4.5. Working longer and deferring pension take-up or combining earnings with
pension receipts ........................................................................................................ 188
4.4.6. Linking pension age to higher life expectancy .......................................................... 189
4.5. EU recommendations and national reforms ......................................................... 192
4.6. The challenge to labour markets and the risks to pension adequacy from
pension reforms aiming to extend working lives .................................................. 194
5. ADEQUATE PENSIONS IN A LONG-TERM PERSPECTIVE ................................ 197
5.1. Impact of population changes on pension adequacy ............................................ 197
5.2. Prospective theoretical replacement rates ............................................................. 205
5.2.1. Theoretical replacement rates in 2053 ....................................................................... 205
5.2.2. Comparing the evolution of TRRs between 2013 and 2053 ...................................... 213
5.2.3. Prospective TRRs for different career patterns .......................................................... 218
5.3. Alternative approaches to assess future pension adequacy ................................. 222
5.3.1. Future pensions levels for different career scenarios ................................................. 222
5.3.2. The potentials of microsimulations to assess future risks of old-age poverty ........... 226
5.3.3. From TRRs to pension wealth: getting a fuller picture of financial pull factors ....... 229
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