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Europe | Pay-as-you-go pension schemes in the current demographic scenario

Published on Friday, October 29, 2021

Europe | Pay-as-you-go pension schemes in the current demographic scenario

Pay-as-you-go pension schemes—a basic pillar of wellbeing in Europe—are viable and sustainable, as long as the necessary measures are taken to adapt them to economic, social and demographic changes experienced by European countries.

Key points

  • Key points:
  • The challenge is to find a double equilibrium in the face of the changes in the system. First, the measures need to be gradual, yet effective, and they must guarantee sustainability and be credible in society. There is no dilemma between sufficiency and sustainability.
  • Second, they must also cover generations and segments of the population who are affected by changes in the system.
  • Countries like Sweden, have already made changes that may serve as a guide to the improvements that could be made in other countries (e.g. though the introduction of notional defined contributions).
  • However, there are no clear solutions to achieving the challenge of pension sufficiency, except for gradual changes—preferably through automatic adjustment mechanisms—because society is constantly facing new challenges. Neither are there any free solutions, meaning that shifting the pension deficit onto the State does not solve the problem.
  • Measures like the reduction in pension replacement rates, linking pensions to life expectancy, increasing the retirement age or taking into account people's entire working lives, must be accompanied by more savings in complementary work-related pension schemes and individual plans — as has been the case in a number of other European countries for several decades now.

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