A new article by Richard Jackson uses CSIS’s Global Ageing Index (GAI) to explore how ready are European countries to face the upcoming retirement challenge.  Overall, it finds that significant policy challenges lie ahead of several European countries in the coming years, but argues that the policies of countries both in and outside Europe can point towards solutions.

According to the  article “six of the index’s seven lowest-ranking countries on fiscal sustainability are European: Switzerland, Germany, the United Kingdom, Italy, France, the Netherlands and Spain.”  It also notes that “[a]lthough several European countries earn high scores on income adequacy”, these results often come at the expense of “unsustainably high growth in PAYG state benefit commitments.”  The article brings particular attention to France and Italy, which “score at the bottom” of the two indices which make up the GAI.  These ranking, Jackson explains result from the fact that that both countries have enacted multiple reforms that have significantly cut the benefits received by retirees, their retirement systems continue to be unaffordable.   Jackson also highlights the policies enacted by Germany and Sweden,  which have also “scheduled deep reductions in the future generosity of their state pension systems,” but “are on track to fill the resulting gap in elderly income by increasing funded pension savings and by extending work lives.”

Jackson writes that “this contrast points to a crucial lesson. Most of the world’s developed economies – as well as a few emerging markets – will have to make large reductions in the generosity of state retirement provision to stave off fiscal Armageddon. But unless reforms also ensure income adequacy for the old, the reductions are unlikely to be socially and politically sustainable. This is especially true in Europe, where state benefits make up a huge share of total elderly income. In France, Germany, Italy, and Spain, over 70% of the income of the typical elderly person comes in the form of a government cheque.”

Noting that “[t]hose countries which score well in the GAP index on both dimensions of ageing preparedness generally have modest PAYG state benfits, large funded pension systems and high rates of elderly labour-force participation”, Jackson concludes that Europeans should “do a more effective job in targeting limited fiscal resources to those elderly most in need.”  He adds that “[s]aving more for retirement and working longer must also be a crucial part of reform, since they provide the best means to maintain or improve the living standards of the old without imposing a new tax or family burden on the young.”

Richard Jackson will be the IAHSA Global Ageing Plenary Speaker during the IAHSA Global Ageing Conference & LeadingAge Annual Meeting.  The Conference is scheduled for 16-19 October 2011 in Washington, DC.  Mark your calendars; we are looking forward to seeing you there!