Europe's retired face pension squeeze

back

Want to support Global Action on Aging?

Click below:

Thanks!

Europe's retired face pension squeeze

By Richard Bernstein, International Herald Tribune

June 30, 2003

BAD FÜSSING, Germany - This spa town in the Bavarian countryside, blessed with natural hot springs with reportedly curative powers, does not resemble Fort Lauderdale or Miami Beach, but it is the rough German equivalent, the place where retirees go for their comfort and well-being.

Bad Füssing is small compared with senior citizens' centers in the United States, but it nonetheless represents a big part of the future in Germany and elsewhere in Europe, where a population that is both living longer and producing fewer children is beginning to change some of the fundamentals of both social and political life.

The changing demographic picture has produced political uncertainty and crowds of angry demonstrators in European countries whose governments, reacting to the shift from youth to the aged, are moving to reduce social services, including the pensions that millions have been counting on for their golden years.

"We've only seen the beginning of that," said Wolfgang Lutz, a demographer at the Austrian Academy of Sciences who projects a steep upward curve in the average age of Europeans in the years ahead.

But while pension reform is the urgent political issue of the moment in Germany, Austria, France and other countries, many experts see it as a harbinger of things to come, a sign of a demographic shift with important implications not only for the welfare of retirees but also for European societies as a whole. The crucial factor is age.

One study by William Frey, a demographer at the Brookings Institution in Washington, predicts that the median age in the United States in 2050 will be 35.4, only a very slight increase from what it is now. In Europe, by contrast, it is expected to rise to 52.3 from 37.7.

The likely meaning of this "stunning difference," as the British weekly The Economist called the growing demographic disparity between Europe and the United States, is that American power - economic and military - will continue to grow relative to Europe's, which will also decline in comparison with other parts of the world like China, India and Latin America.

With its population not only aging but shrinking as well, Europe seems to face two broad possibilities: Either it will have to make up the population shortfall by substantial increases in immigration, which would almost surely create new political tensions in countries where anti-immigrant parties have gained strength in recent years, or it will have to accept being older and smaller and therefore, as some have been warning, less influential in world affairs.

"The European countries are aging in a world that is becoming younger," Frey said in a telephone interview. "And in a global economy, they're not going to share in the energy and vitality that comes with a younger population."

Lutz, who with Brian O'Neill and Sergei Scherbov wrote an article on the subject in Science, agrees that the crucial issue is less a smaller population than an older one.

"There is a fear that just as the world is entering its most competitive stage ever, Europe will be less competitive vis-à-vis the United States and the Asian economies, which are much younger and are benefiting from what you might call a demographic window of opportunity," he said.

The first effect of this has taken the form of efforts by European governments both of the left and of the right to trim the pay-as-you-go pension system, under which the taxes paid by current workers are used to pay the pensions of current retirees. This has produced angry protests. In Austria, which has one of the most generous social welfare systems, workers have staged the first general strikes in that country since the end of World War II. In France, there have been a series of national one-day work stoppages as the conservative government has put forward a proposal that would require workers to stay on the job several more years than at present to be eligible for pensions, which would be smaller.

But some experts are convinced that the reform efforts being proposed, difficult and controversial as they are, will prove inadequate to cope with an aging population.

"In reality a legal retirement age of 80 is what we should aim at," Erich Streissler, an Austrian economist, wrote in a newspaper article.

Streissler's basic argument is one that applies to most of the countries of the European Union: People are retiring well before the official retirement age of 60 to 65, depending on the country.

Across Europe, only 39 percent of men aged 55 to 65 still work, according to the Organization for Economic Cooperation and Development.

This means, given the historically low birthrates of "old" Europe, that a decreasing number of young people are paying into pension systems that have to support a larger number of people who, on average, will be in retirement for almost as many years as they worked to earn their pensions in the first place.

Or, as Streissler put it about his own country, the system works "to give every Austrian the right to retire in midlife with what is internationally a particularly high pension, so that he can waste an ever-increasing portion of his lengthening life expectancy in unemployment."

Here in Bad Füssing, the population trends in Germany are easy to see. Forty years ago, when this village decided to turn itself into a holiday resort, the local population was a grand total of 38, according to Rudolf Weinberger, the spa's director. Now, Weinberger says, Bad Füssing is the biggest spa in Europe, with 250,000 guests coming each year and a permanent population of 6,400, including 2,400 retirees.

For European governments, there is no alternative to reform, which means lower benefits and higher retirement ages. Austria has passed legislation cutting benefits by 10 percent and gradually raising the retirement age to 65 from 60. Similar legislation seems almost certain in France and here in Germany, which has one of Europe's lowest birthrates.