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World Bank urges tough pension reform in Europe

Rueters, May 8, 2003

WASHINGTON, (Reuters) - European countries urgently need to overhaul their pension systems or their rapidly aging populations will face a sharp fall in living standards after retirement, a World Bank report warned on Thursday.

Lack of consensus in Europe about how reform should be done, including among Europe Union accession countries, has led to far slower progress than is needed to tackle the problem, the bank said.

"European policymakers and citizens need to answer some tough questions for themselves in order to safeguard and improve their pension systems," said Robert Holzmann, director of the bank's social protection unit.

The report, which was due to be presented to the European Commission in Brussels on Thursday, said reform is essential to deal with the rising cost of pensions and changing economic and social conditions.

In 2000 the 15 EU member countries spent around 11 percent of gross domestic product on pensions and that cost is set to double as the population grows older. Life expectancy is likely to increase in the next 50 years by 4.2 years for women and 5 years for men.

On Wednesday, French Prime Minister Jean-Pierre Raffarin vowed to push ahead with controversial reforms of the country's creaking pension system, even if a planned union protest later this month brings France to a halt.

Trade unions have called a national strike for May 13 over changes that will bring pensions for state sector workers in line with the private sector.

The bank report also finds that in most European countries, the pension system has failed to take into account rising divorce rates and growing numbers of female workers.

"Benefit traps for women still exist in many countries," the bank said.

And pensions in Europe often fail to capture the increasing amount of part-time and self-employed workers.

"These people do not fare well under many current pension schemes, which are based on a full-time employment model," the report said. "Again, reform (and strict contribution-benefit relationships) are needed."

European economic integration also highlights the urgent need for reform, the bank said.

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