Pension systems in Europe in comparison: Big differences, similar risk

Status: 01/22/2023 04:08 a.m

At first glance, the pension systems in the EU are very different. However, they have one thing in common: the high aging rate is becoming a challenge for all countries.

By Michael Grytz, ARD Studio Brussels

Farid Borsali is on his way to the union cafe “Cafe des Syndicats”. He is 56 years old and works in a Peugeot factory near Paris. Colleagues meet here to start the demonstrations against the French pension reform. “We do shift work, we work at night. It’s impossible for us to work until the age of 64,” says Farid. He is a committed trade unionist. More than a million French people will take to the streets with him that day.

Working until 64 instead of 62, that’s what the pension reform envisages, which the unions definitely don’t want to accept. In Germany, however, the retirement age is currently being raised to 67. And for the French already 64 is unimaginable? What is a nightmare for the French could be a dream for the Germans, at first glance. But: Where does Germany actually stand in a European comparison?

Very different systems

The systems are very different, says pension expert Monika Queisser from the Organization for Economic Cooperation (OECD). But one thing is the same almost everywhere: “Firstly, birth rates have fallen and secondly, life expectancy is increasing. And now you have to see how you can spread this additional burden over your shoulders in such a way that you don’t just burden the boys. But it has to just to be financed.”

A European pension comparison has some pitfalls. Many comparisons lag, but here is a rough overview. Three criteria are particularly important: public spending, i.e. how expensive is a system? It is also important how much pension you actually get. And finally: when can you retire?

The Dutch work the longest

The Dutch work the longest, the statutory pension only begins at around 66 years of age. Nevertheless, most of them retire earlier, at around 63. Germans are also currently retiring at around 63. The legal deadline is currently almost 64, but is increasing every year. On average, Italians retire at almost 62, the Greeks at just under 60 and the French at just under 61.

But be careful: Special industry or collective agreements can deviate significantly from this. The actual and usual retirement is not that far apart. And: Some countries will increase the entry age in the coming years. In France it is still relatively low, but even there you have to have paid contributions for almost 42 years in order to be able to retire at the age of 62 without deductions, according to Queisser.

What percentage do you get from the last net?

But how much do pensioners actually get in a European comparison? The OECD researchers compare the so-called “net replacement rate”, i.e. what percentage do you get from the last net? Dutch people can count on 89 percent of their last net salary. Greeks with 84, Italians with 82. French with 74 percent. German pensioners can only count on a little more than half. Lithuanians get even less.

Monika Queisser says: “If you take the ‘best pension’ criterion as a basis, then there are certainly some southern European countries that still promise relatively high replacement rates.” Exactly those countries, however, also spend a significantly larger part of their economic output on pensions in comparison. Money that is missing elsewhere.

Italy and Greece spend almost 16 percent of economic output on pensions, France 13.4 and Germany 10.4. In contrast, the Netherlands spend just five percent and the Irish just over three percent. Nevertheless, everyone who has lived or worked in the Netherlands since the age of 15 receives a minimum pension of 1218 euros. Many sectors are also obliged to offer company pensions. However, the age limit is also being raised more and more in the Netherlands.

High aging rate in Germany

Mixed systems with several corporate and private financing pillars, as in the Netherlands, also exist in Denmark or Sweden and work well, Queisser believes. And the German system isn’t bad either, “but Germany is already confronted with severe aging.”

In France it was a little different for a long time, the need for reform was not quite as great. But the situation has changed. However, Farid and more than a million demonstrators do not want to stop working later. “Working two more years means living two years less,” Farid shouted during the demonstration. France will have to prepare for larger protests.

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