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Europeans Face a Bleaker Old Age
Governments Push for Later Retirements as Pension Systems Are Depleted

By Keith B. Richburg, The Washington Post

November 7, 2003


Bernard Foultier lives life fast and full -- international travel, including trips to Japan and Bolivia, amateur photography, courses in history and art, and painting in his small home studio. He is bursting with energy at age 62.

Even though he retired three years ago with a full government pension, he barely has time to pursue all the interests he put aside during his working life.

"I can't find the time to satisfy all that I want to do," he said at his apartment in a western Paris suburb. "I need a second life. There are so many things, so many things!"

For Foultier, who worked for three decades as an engineer at the state-owned electricity company EDF, these busy retirement years are like a second chance at youth. But he recognizes that large pensions like his are increasingly viewed in France as a luxury that the country can no longer afford. Indeed, all over Europe, a continent famous for generous social welfare systems, the same conclusion is being reached.
"It's a problem," Foultier acknowledged. "People will have to work longer."

Speaking of his generation -- those who went to work in the 1960s and '70s with good pensions -- he said, "We had good luck." But that good luck means uncertainty for the generation just entering the workforce. Young people are paying into a government retirement system that many are not sure will even survive, and they face the prospect of working several years longer than the previous generation.

"If you don't save money by yourself, you won't be able to survive," said Romain Jolivet, a 28-year-old engineer who has been working for just over two years. Though his occupation and education are similar to Foultier's, he has very different long-term prospects. "My father told me I had to make enough money to fund my own retirement," said Jolivet. "There are lots of people from the baby boom, and they will have enough for their retirement. But we won't."

Between Foultier's comfort and Jolivet's uncertainty lurks Europe's demographic time bomb. 

Retirement ages across the continent are relatively low -- before 60 in Italy, for example, and 62 or 63 in Germany for public sector workers. But birthrates are also low, and Europe, unlike the United States, does not draw large numbers of immigrants each year to replenish its workforce. Medical advances also mean that people are living longer, and healthier, lives.

Here in France, every 10 workers now support four retirees. By 2040, without changes to the system, 10 workers will have to support seven pensioners, the government projects. Today in France, one person out of five is now over 60; by 2040, the number is projected to be one in three.
Like Social Security in the United States, pension systems in Europe have long been considered the deadly "third rail" of politics -- governments touch them at their peril.

Politicians know that older people tend to vote in larger numbers and are more politically active than the young. And labor unions, though lately losing some of their traditional clout, can still mobilize huge crowds when lawmakers are talking about changes in pensions. 

Still, there are signs that governments are finally taking on the issue.
In Germany, with about 20 million pensioners, Social Democrats under Chancellor Gerhard Schroeder have defied their own union backers to push ahead with a series of modest changes that will shore up a pension system officials say will run a deficit of 8 billion euros (about $9 billion) in 2004 unless Parliament votes for change.

Among the fixes proposed: There would be no cost-of-living increase next year, pensioners would have to pay some insurance premiums, and pension payments would be made at the end of the month, instead of the first of each month, giving the government an extra 30 days leeway.

A more radical proposal, to raise the retirement age to 67, was put off for now. The retirement age in Germany is officially 65, but most people retire much earlier, usually at 60.

In Italy, public sector workers staged a massive general strike at the end of October, grounding planes on runways and shutting down schools and museums. Unions were protesting Prime Minister Silvio Berlusconi's plan to effectively raise the official retirement age to 65 for men, and 60 for women (with variations depending on the type of job performed). 

According to Berlusconi, Italy begins each year with a 36 billion euro ($41 billion) shortfall in its pension system, and pensions now cost the country about 15 percent of its gross domestic product.

A similar attempt to tinker with the pension system brought down a former Berlusconi government in 1994, but this time the prime minister's faction in Parliament is strong enough to be able to push through the changes.

In France, the center-right government of Prime Minister Jean-Pierre Raffarin this year was able to force modifications to the public pension system, to compel workers to stay on the job longer. Under the new rules, public sector workers must stay on the job 40 years to receive full pension benefits, in contrast to the old system that required just 371/2 years of service.

As in Italy, when proposals like these were introduced in France in the mid-1990s, a series of paralyzing strikes began and a right-wing government collapsed. This time around, unions managed only to stage a series of half-hearted stoppages, and the government, with a solid legislative majority, approved the measures anyway.

The changing nature of European society and economic life helps explain the differences between now and a decade ago, analysts say.

Labor unions have grown weaker, as manufacturing jobs move elsewhere and the worldwide trend toward emphasis on market economics and individual self-reliance is felt in Europe.

Europe's monetary union, with 12 nations now using the single currency, the euro, has also weakened the standing of unions. The low inflation engineered by the monetary union means that labor organizations no longer play the role of bringing home big cost-of-living raises for members. The monetary union's rules on controlling national spending also give governments a strong argument for cutting social spending.

Organized labor's standing is also being compromised by plans to expand the European Union to former communist countries to the east next year. Wages are lower there, which means that businesses will have new leverage in dealing with unions at home.

In France and elsewhere, the pension-generous public sector, while still huge when compared with the U.S. public sector, is steadily shrinking, due to privatization. Foultier's former company, EDF, is soon to be privatized.

Changing lifestyles also affect pension patterns. The older generation tended to start work earlier in life and stay in the same job for a lifetime before retiring. Young people start later, because of the pressure for more advanced education. Jolivet, for example, did not finish his education until he was 25. Young people also switch jobs and even careers frequently, meaning they don't build up enough years with a single employer to qualify for a big pension payment.

Foultier offers the example of his own family. He has three sons, and the first, age 29, is an engineer with IBM. The second son, 27, is a publicist but is looking to change careers. And the third son, 25, is studying to be an osteopath, which requires six years of medical study.

"I worked all my life at EDF," Faultier said. "Now, they spend six months one place working, then six months at another place. Sometimes they go to another country. Now things are more fluid."

But not so for his pension payments. Those arrive on schedule and are big enough that he and his wife, Annie Janicot, like many retired French couples, own a second home in the countryside; theirs is in Correze, in central France, where they spend a week every two or three months.

As for his advantages over the younger generation, he thinks perhaps the young complain too much. They "have a better standard of living than we had," he said. "Now, if you ask a student to work, they won't do it. School for them is practically free. Transport is practically free. They even pay less to go to the movies if they are under 25."

But young people can only look at today's retirees with envy. "I'm not really jealous," said Jolivet. "I just hope it will be the same for me."
Jolivet knows he will need savings as well as a company pension for a comfortable retirement. But saving isn't easy with the high rents of Paris, the high cost of living, and the 40 percent of his salary that he pays each year in taxes. "You can't save money for your retirement when you're young," he said. "I count on my future salary to pay for my retirement."


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