Sustainability and adequacy in EU public and private pension schemes

In Short

As reported by EUROSTAT* in 2019, pensions are the main income source for close to one quarter of the EU‑28 population. Therefore, it is very important that pensions should provide retirees with a decent standard of living and protect them from poverty.
Market Outlook

Highlights:

  • Sustainability and Adequacy are the two main (conflicting) key objectives of multi-pillar pension systems: while population ageing, and macroeconomic shocks affect Sustainability in the Defined Benefit (DB) space, they reduce pension adequacy in the Defined Contribution (DC) schemes.
  • The fast switching from DB to DC plans by public and private sectors is making the adequacy issue ever more relevant.
  • To preserve adequacy, without affecting sustainability, EU-Governments should introduce incentives to defer individuals’ retirement choices, enhance funded pension pillars, and increase flexibility e.g. through partial retirement.
  • The insurance sector should blur out the distinction between saving and retirement/protection goals by mixing pension products with health and long-term medical care coverage, introducing guarantees of minimum return conditional to policyholders forgoing their capital early-redemption rights and accepting flexibility in the pay-out phase.
  • Citizens need to contribute more and for longer but the increase of non-standard work among the youngest does not help.

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Core Matters ǀ Sustainability and adequacy in EU public and private pension schemes

* EUROSTAT, Ageing Europe – Looking at the lives of older people in the EU, 2019

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