Europe sits on $39 trillion pension bomb: Study
The countries compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.
By Bloomberg | Updated:
BRUSSELS|EDINBURGH: Even before the euro crisis, people were worried about Europe’s pension bomb. State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt, according to a study commissioned by the European Central Bank.
The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.
Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report. Last year, there were 4.2 people of working age for every pensioner in France.
The ratio will fall to 1.9 by 2050, according to a report by Economist in March. In Germany, the proportion will decline to 1.6 from 4.1 in the same period. “This is a totally unsustainable situation that quite clearly has to be reversed,” said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington.
A recession threatening the world’s second-biggest economic bloc, along with efforts to reduce debt across Europe, is exacerbating the financial risks. Stable or falling birthrates, plus rising life expectancies, are adding to pressures, with the proportion of economic output devoted to spending on retirement benefits projected to rise by a quarter to 14 percent by 2060, according to the ECB report.
Increased retirement ages and lower benefits must be part of any package to hold the 17-nation euro area together, according to analysts, including Fergal McGuinness, the Zurichbased head of Marsh & McLennan Cos.’s Mercer’s pensions consulting unit for central and eastern Europe.
“Irrespective of whether you’re inside or outside the euro or anything else, raising retirement ages is one of the structural reforms that all of Europe has to do,” Kirkegaard said. “The crisis has forced them to address this. This is actually a positive thing in many ways.”
The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.
Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report. Last year, there were 4.2 people of working age for every pensioner in France.
The ratio will fall to 1.9 by 2050, according to a report by Economist in March. In Germany, the proportion will decline to 1.6 from 4.1 in the same period. “This is a totally unsustainable situation that quite clearly has to be reversed,” said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington.
A recession threatening the world’s second-biggest economic bloc, along with efforts to reduce debt across Europe, is exacerbating the financial risks. Stable or falling birthrates, plus rising life expectancies, are adding to pressures, with the proportion of economic output devoted to spending on retirement benefits projected to rise by a quarter to 14 percent by 2060, according to the ECB report.
Increased retirement ages and lower benefits must be part of any package to hold the 17-nation euro area together, according to analysts, including Fergal McGuinness, the Zurichbased head of Marsh & McLennan Cos.’s Mercer’s pensions consulting unit for central and eastern Europe.
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The number of people aged over 65 in the 34 countries in the Organization for Economic Cooperation and Development is forecast to more than quadruple to 350 million in 2050 from 85 million in 1970. Life expectancy in Europe is increasing at the rate of five hours a day, according to Charles Cowling, managing director of JLT Pension Capital Strategies Ltd. in London. In so-called developed countries, the average lifespan will reach almost 83 by 2050, up from about 75 in 2009, the UN said. “Irrespective of whether you’re inside or outside the euro or anything else, raising retirement ages is one of the structural reforms that all of Europe has to do,” Kirkegaard said. “The crisis has forced them to address this. This is actually a positive thing in many ways.”
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