Europe continues to suffer from a savings crisis which could blight the lives of future generations of older people.
Research by Deloitte for Aviva, considered what European citizens retiring between 2011 and 2051 would need to save to achieve the OECD standard replacement rate (70% of pre-retirement income). They calculated Europe’s annual ‘pensions gap’ as €19 trillion. This is equivalent to almost 20% of the EU’s 2010 GDP (Aviva & Deloitte, 2012).
Disaggregated to the individual level, UK citizens retiring between 2011 and 2051 will need to save an additional €12,300 each year – higher than citizens of any other country. For Germany, the figure is €11,600 per year, for Ireland it is €9,100, and in France individuals will need to save an additional €7,900 each year before retirement.
The Global Ageing Preparedness Index, produced by the Center for Strategic and International Studies and supported by Prudential recommended that at least a quarter of retirees’ income should come from pensions saving by 2040. Of the eight EU countries studied, only the Netherlands is projected to reach this threshold.
During 2012, ILC-UK, supported by Prudential, explored how different European countries were adapting their pension provision as a result of an ageing society, economic globalisation, post industrialisation and the economic crisis – Boosting Retirement Saving Across Europe.
Our work found remarkable similarities in the factors which support saving across Europe. Age positively influences retirement savings as does income. And ‘living in a country with mandatory or a long tradition of private pension plans (such as Sweden and the UK) has a positive effect on saving for retirement.
As European pension provision has changed rapidly over recent years there has been an apparent move towards convergence across Europe. But reform has continued to be shaped by extant national-level institutions and practices.
European institutions are however responding to the challenges of increasing retirement provision. The European White Paper on Pensions set out argued that ‘following a decade of reforms that have altered pension systems in most Member States, there is now a need to thoroughly review the EU framework’. The subsequent Green Paper, the proposed revision of the IORP directive and Solvency II highlighted the interest of European policy makers in pension reform.
Europeans need to be saving more. Demographic and economic change demands reform that makes pensions system more sustainable. National and European policy makers are right to ensure that individual savings are safe, particularly if we are being given greater responsibility for our own retirement provision.
The most urgent task for policymakers at both national and supranational levels, however, is to ensure that appropriate support and incentive structures are in place. 60% of EU citizens have no workplace-based pension. Widening access to pensions saving, most realistically through decent defined contribution-based provision, should be the main priority.