An Ageing Europe at Work: Are the Incentives to Work Sufficient to Provide Adequate and Sustainable Pensions in the Future? Lessons from the Open Method of Coordination

Abstract

The authors discuss recent pension reforms aimed at prolonging working lives in the 27 member states of the European Union. Indeed, in the framework of the so-called Open Method of coordination, member countries have agreed on a set of common policy objectives concerning social protection systems. In particular, promoting longer working lives is a policy priority. To this end, a number of countries have legislated increases in the minimum retirement age (albeit often with a long phase-in period). Some countries have also introduced actuarial reductions for those retiring before a “normal” retirement age and/or actuarial premia for those postponing retirement after that age. Legal obstacles to receiving pensions while continuing to work have also been reduced while the link between the amount of benefits and that of contributions have been strengthened. Finally, access to early retirement schemes and unemployment benefit schemes specifically targeted at older workers has been restricted. The authors document that, partly as a result of these reforms, the employment rate for older workers (55-64) increased from 37 to 45 per cent during the 2001-2008 period. However, they argue that to benefit to the full from pension reforms, it is also necessary to sustain the demand for older workers through lifelong learning policies and incentives for employers.