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More inclusive labour markets – a key tool for achieving EPSR pension targets

This report aims at relating the full achievement of the EPSR principles on old age rights with the employment target of the Action Plan, by arguing that “better jobs” throughout the EU would translate into more adequate pension benefits and more financially sustainable pension systems.

In addition, the study discusses the capacities of existing pension systems to counterbalance shortcomings in employment volume and job quality in the EU that are widely responsible for insufficient old-age benefits provision.

Pension levels across the EU vary a lot: Current aggregate replacement rates (ARR) that compare actual pensions with actual incomes of people of working age range from about 35% mainly in central and eastern Europe to around 80% in others in mainly Mediterranean countries.

This results in alarming figures concerning poverty and social inclusion of elderly and retirees in a range of countries:

  • At-risk-of poverty rates (AROPs) of older people are significantly higher than those for the entire population predominantly in central and eastern European countries and significantly lower mostly in southern Europe
  • Severe material deprivation in old age is a particular issue in certain states in southeastern Europe

Not being able to achieve a full career has significant negative consequences on pensions in all countries. However, improving labour market integration may not suffice, as many countries have rather weak pension systems that are not suited to transform even good careers into adequate pensions.

Pension schemes will have to be (re)reformed and improved in order to

  • provide full coverage of every hour worked regardless of status or profession, including “marginal”, short-term employment and self-employment
  • set coherent contribution mechanisms in terms of rates and incomes
  • ensure that general replacement rates allow status maintenance and poverty prevention
  • provide for adequate entitlements also in situations like unemployment, caring for family members or incapacity
  • make pensions realistically accessible by fairly adjusting pensionable ages to living and health conditions, not to supposed systemic needs

To know more about present and future capabilities of pension systems, already helpful calculations on theoretical replacement rates (TRRs) should be further improved.