EU In New Warning Over Pensions

Last Updated: Thursday, 12 October 2006, 15:54 GMT 16:54 UK

EU in new warning over pensions
BBC News

The problem for our children and grandchildren is steadily growing
The European Union has warned six members that they are at “high risk” of being hit by the demographic timebomb.

Economy commissioner Joaquin Almunia warned Cyprus, the Czech Republic, Greece, Hungary, Portugal and Slovenia to act now to improve public finances.

He put the big economies – Germany, the UK and France – in a medium risk group.

“Unless most member states do something serious about defusing the pension timebomb, it will go off in the hands of our children,” Mr Almunia said.

High risk: Cyprus, the Czech Republic, Greece, Hungary, Portugal and Slovenia

Medium risk: Belgium, France, Germany, Ireland, Italy, Luxembourg, Malta, Slovakia, Spain and UK

Low risk: Austria, Denmark, Estonia, Finland, Latvia, Lithuania, Netherlands, Poland and Sweden

The root of the problem is that Europeans are living longer, and having fewer children.

“This is a problem that needs to be tackled through both a reduction of public deficits and debt, and further reforms of the pension, healthcare and long-term care systems,” he said.

The EU's budget deficit of 2% in 2005 needed to become a surplus of 1.5%, he added, and urgent action was necessary to take reduce public debt.

Migration benefit

This would swell to 200% of GDP by 2050 from its current average rate of 63% if nothing was done, Mr Almunia said.

He added that migration to the EU was helping some countries postpone the time when the ageing of the population put serious pressures on the public purse.

The EU's population will start to fall in 2025
Women in the EU average 1.5 children, well below the replacement rate of 2.1

Less than half of people between 55 and 64 are in work, in 17 out of 25 EU states

The EU spends only 1.86% of GDP on R&D – the target is 3% by 2010
Government debt averages 63% of GDP – it will be 200% by 2050 if nothing is done

However, he said immigration was “not the definitive solution”.

Europe also had to raise employment rates, increase productivity, and persuade families to have more children.

Pension reforms would only be successful, Mr Almunia said, if retirement ages were also raised.

EU Commissioner for Social Affairs Vladimir Spidla said the EU had a window of opportunity in the next 10 years to resolve the demographic problem.

Five priorities

A new Commission strategy set out five areas for concrete action by member states, he said:

Helping families balance work and family life, so that they can have as many children as they want
Improving work opportunities for older people
Higher productivity
Harnessing the positive impact of migration
Ensuring sustainable public finances

Mr Spidla said that currently four workers pay for one retired person, but in 2050 the burden would fall on just two workers.

Overall employment in the EU is predicted to continue rising until 2017, because more women and older people are entering the labour market.

However, the total working age population – between 15 and 64 years old – is set to fall by 20m between 2005 and 2030.

In the same period the number of older people of working age – between 55 and 64 – is expected to rise by 14m and the number of people aged over 80 will rise by 15m.