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EPSR 2030 Scenario – What would it mean for pensions if the Action Plan’s 78% employment target was achieved, with quality jobs

Over the past 30 years, most of major pension reforms implemented aimed at ensuring financial sustainability and containing the cost increase due to population ageing. This resulted in reduced income replacement capacity of pension schemes, restricted access to disability pensions and early retirement, raise of statutory retirement age. Little attention was paid to improving the labour market integration of people of working age in response to demographic change.

The Action Plan for the implementation of the European Pillar of Social Rights (EPSR) sets the ambitious target that at least 78% of people aged 20 to 64 should be in employment by 2030.

Against the background of an expected 25% increase of the ‘old-age to working-age ratio’ – the number of people aged 65+ relative to those aged 20-64 – over the course of this decade this study examines what would be the impact on the ‘economic dependency ratio’ and on pensions if the Action Plan’s employment goal was achieved.

Meeting the Action Plan’s employment target would allow

  • an increase of 7.2 million people in employment,
  • a decrease of 5.9 million among the unemployed
  • a decrease of 6.7 million in the number of pensioners aged below 65

As a result, the economic dependency ratio (unemployed and pensioners as a percentage of the employed) would be reduced by almost 3% up to 2030.

When it comes to the direct impact on pensions, the study highlights different positive effects:

  • pension adequacy: improving labour market integration of working age people would significantly improve the pension entitlements of those who are currently poorly integrated or not integrated at all
  • retirement age: ‘more and better’ jobs for people of working age would significantly counteract the supposed deterioration of the numerical relationship between benefit recipients and contributors, thus offering a better alternative to further raising statutory retirement age
  • financial sustainability: the more the employed people (in good quality jobs) the more substantial the increase in public revenue
  • intergenerational solidarity: better use of existing employment potential of those in working age would improve the financial and social position of the younger ones as well as the capacity of the workforce to support the retirees