Europe Reforms Pension Systems Amid Threats of Collapse

[ Citizens Protest Over Pension in Belgium and France - NTDTV ]

After an entire night of fierce debate, the French Parliament passed on Wednesday morning a bill to increase the official retirement age for government retirement benefits from 60 to 62. The move was deemed inevitable due to the pension system’s unsustainable outlays that will cause the system to collapse if reform is delayed.

France is not alone in facing the problem of financing its pension system. Most European countries are facing the same dilemma. In the United States, the Social Security retirement fund is expect to run out of reserve funds in 2037, at which time benefits would have to be reduced by 22 percent. The reserve is kept in treasury bills, so the funds have been loaned back to the federal government, which pays the notes as they come due.

The funding of European pension systems is, in principle, based on the working population supporting the retired. However, factors that include an ever-aging population, low birth rates, and longer life expectancies upset the balance of the system. As in the United States, the proportion of the working population compared to the retirees is decreasing. The effect of the phenomenon is accentuated by financial crisises and the fiscal deficits in several European countries.

Greece was forced by the International Monetary Fund to increase the legal requirement age to 63. Spain and Germany have made similar decisions to increase in steps. Even in Sweden, where the legal retirement age is 65, discussions to increase it are ongoing.

Another reform concerns gender equality in retirement age. In many countries, women retire earlier. In Italy, Portugal, and the United Kingdom the pension age for women is 60 and 65 for men. The trend is to reduce or abolish the difference.

Currently, the French retire at an average of only 58.7, the lowest in the Organization for Economic Co-operation and Development, which includes countries from Europe, the Americas, and Australia. According to the French media outlet Le Figaro, the French spend an average of 24.5 years in retirement, compared to 19.8 for the rest of the European Union and 14 for Japanese citizens.

Americans leave the workforce at an average age of 62, and spend an average of 18 years in retirement, according to the U.S. Census Bureau.

French protesters opposing the retirement age hike in their country will probably receive little sympathy from the U.S. citizens. For decades, the minimum retirement age for Social Security payments based on one’s own earnings has been 62, and that is given at a reduced rate that is currently 75 percent.

U.S. citizens born between 1943 and 1954 wishing to receive full retirement benefits have to wait to age 66 to file. For each month that one files earlier, there is a slight reduction in the monthly rate. The full retirement age will eventually rise to 67.