Pension Policy in EU25 and its Possible Impact on Elderly Poverty

We are happy to announce our second Policy Brief “Pension Policy in EU25 and its Possible Impact on Elderly Poverty”, by Asghar Zaidi. This Policy Brief complements his first Policy Brief “Poverty of Elderly People in EU25”, as it reviews the most recent changes in pension policies in EU25 and provides a description of how these policy reforms might affect the risk of poverty for future pensioners. The analyses point to key policy responses necessary to meet the key social objectives of sustainability as well as adequacy of pensions in the European Union.

The author stipulates that the pension landscape in Europe is fast changing. In most countries, the pension reforms had been driven mainly by demographic pressures and fiscal sustainability concerns and the impact of these reforms on income adequacy and pensioner poverty have not always been given sufficient priority.

This research, supported by the European Commission under the Community Action Plan to Combat Social Exclusions, provides insights into how pension reforms may impact on retirement incomes and risk of poverty among future pensioners. One common trend is that the generosity of pension benefits drawn from the public pension systems is on the decline. Moreover, reforms have changed in most instances the nature of pension provision from defined-benefit type provision to defined-contribution type provision. In general, this type of change shifts more pension risks towards the generation of current working age individuals, and also results in a more restrictive possibilities of redistribution to lower income individuals. In turn, it is likely that more and more pensioners will fall back on the means-tested social assistance benefits (where available) or else experience poverty.

Policy-makers need to remember that pension arrangement were the result of the social consensus that poverty among the elderly must be eliminated, thus – if pension systems end up failing this main objective – it is very probable that they will be forced to unravel some of these reforms.