The Century of Aging

A Graying Europe Wonders How to Pay Its Pensioners


October 4, 2003

For decades the Catholic Church's pleas asking governments to defend and support family life have often fallen on deaf ears. Now, in the midst of a birth dearth and a graying population, European governments are finally wakening up to the looming crisis in their pension plans.

This week Italian Prime Minister Silvio Berlusconi announced proposals to reform the pension system. During a televised speech he admitted that the current system is not sustainable. Yet implementing the plan will prove difficult, as evidenced by the decision of labor unions to stage a national strike later this month on the issue.

Demographers gathered at a recent meeting of the International Statistical Institute in
Berlin warned of problems due to population aging, Reuters reported Aug. 15. "While the 20th century was the century of population growth, we can already say from a demographic perspective that the 21st century will go into the history books as the century of aging," said Wolfgang Lutz of the International Institute for Applied Systems Analysis in Austria .

The United Nations predicts the percentage of the global population aged 65 or over will soar to 16% by 2050 from the current 7%. In some countries, more than a third of the population will be 65 or older by then.

Lutz said that
Europe 's population was likely to start shrinking, though the aging would mean an increase in the number of single-person households. This in turn would increase energy consumption and the emissions of greenhouse gases blamed for global warming -- a scenario that contrasts sharply with the hopes of zero-growth advocates who contend that fewer people would mean less pollution.

"Fertility is the engine of demographic growth and we don't see it going up," commented Joseph Chamie, director of the U.N. Population Division. He said most politicians were failing to address the challenges posed by their aging populations.

The latest demographic data from Eurostat, the official statistics body for the European Union, is not comforting. An Aug. 8 press release noted that the total fertility rate in the European Union last year remained virtually unchanged at 1.47 children per woman, compared with 2001 and 2000. Guaranteeing a stable population requires around 2.2 children per woman.

Coming in under-average are countries such as
Germany , at 1.40; Greece and Spain , at 1.25 each; and Italy , at 1.26. Eurostat also reported that the downward trend in the number of marriages continues, falling from 2.2 million in 1980 to 1.8 million in 2002, a 19% drop. Divorces increased by 42% in the same period, to 715,000. Overall, the EU population is estimated to have increased by 0.3% in 2002, compared with 0.4% in 2001. Around three-quarters of the increase was due to immigration.

The entry of more countries into the European Union will not solve the problem. According to a Eurostat report dated
July 9, 2001 , the enlargement of the Union will increase its population by 28%, to about 482 million. But "due to a dramatic and continuing population decline in most of these 12 candidate countries, instead of reversing the population decline of the EU expected over the coming decades, their accession would, on the contrary, hasten it," warned Eurostat.

According to Eurostat the share of the population above age 65 in the current 15 members of the EU will grow from around 16% in 2000 to about 21% in 2020, perhaps attaining 28% in 2050. From around 2010 onward, the share of the population of working age is expected to decline from around two-thirds to about 58% in 2050. The new entrants will do little to improve matters. Even though they have a younger population, this will only slightly slow down the overall aging in the expanded European Union in the short and medium term.

Rough road for reform

The Economist in its Sept. 27 issue published an analysis of state pensions in
Europe . Opposition to reducing pension entitlements caused a nationwide strike in France on June 3, and the same day more than a million people in Austria marched in the streets to protest reform proposals.

So far, leaders in
Austria , Germany and Spain have only been able to avoid strikes by means of cosmetic reforms, the British magazine noted. The leaders may not be able to avoid conflict for much longer. In Germany an advisory panel recommended last August that pension payments be cut by as much as 10% in real terms over the coming years, and that the retirement age be raised to 67 from 65.

The fundamental flaw in European state pension systems is that they are financed on a pay-as-you-go basis: Taxes on workers' pay finance the pensions of retirees. But an aging population, combined with longer life expectancy and few children, means the old system no longer works.

According to a Eurostat report dated
May 20, 2000 , overall expenditure on pensions in the current 15 EU members was 12.5% of gross domestic product. In Italy , this expenditure amounted to almost 15% of GDP, while the figures for Austria , France , the Netherlands and Germany fell between 13% and 14%. Of this amount, expenditure on old-age pensions topped the list of pension expenditure in every country, accounting for 75.8% of the total, or 9.6% of GDP. In real terms, expenditures on old-age pensions in the EU-15 rose by 32% between 1991 and 2000.

Some governments --
Britain , the Netherlands , Scandinavia and Switzerland -- have shifted much of the pension burden onto employers. Yet this move may only shift the responsibility without resolving the underlying problem, Newsweek reported in its Oct. 6 issue.

Many companies in the
United States , where employer-financed pensions are more common, are running into financial difficulties because of pension burdens. According to Newsweek, companies now face a $350 billion deficit in pension plans. Financing these pensions could well damage the country's economic recovery as resources flow into pensions rather than into new business investment.

Moral problems

Beneath the economic data the real problems are related to the state of the family and public morality during the past few decades. Last June 11-14 the presidents of the European bishops' commissions for the family and life examined the situation in the continent. The Pontifical Council for the Family organized the meeting held in
Rome .

The participants concluded that a number of factors have damaged family life:

-- Marriage is being questioned, and a growing number of young people live together before getting married.

-- The prevailing culture favors separation and divorce as solutions to a couple's problems.

-- Countries increasingly give legal recognition to cohabitating couples, even though these relations often do not imply an enduring commitment. Some European countries have given legal status to same-sex unions.

-- There is a tendency to relegate the family to the private sphere, ignoring the fundamental service it offers to society.

-- The use of contraception has increased steadily, and in almost every European nation, abortion-on-demand is available up to the 12th week of pregnancy.

John Paul II, in his postsynodal exhortation "Ecclesia in Europa" (No. 95) dated last June 28, commented on the falling birthrate and aging population. He observed that it "is in fact symptomatic of a troubled relationship with our own future. It is a clear indication of a lack of hope and a sign of the 'culture of death' present in contemporary society." Governments and pension reformers might overlook the advice of the Pope, but they won't long be able to overlook their graying populations.





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