NCPA - National Center for Policy Analysis

European Pensions Are Out Of Control

April 28, 2000

European countries -- particularly Italy, Germany and France -- are pursuing lavish pension policies that officials fear will eventually lead to bankruptcy. Experts warn that today's retirees are consuming their children's future -- futures which will demand either massive new taxes or huge spending cuts.

  • By 2025, an estimated 113 million Europeans -- nearly one third of the population -- will be pensioners.
  • Three inescapable factors are propelling the looming crisis: women are having fewer children, workers are retiring earlier and there are few private alternatives to supplement taxpayer-financed systems in most countries.
  • The European Union -- which now has 105 million more people than the U.S. -- will have 18 million fewer by 2050 as Europe shrinks and the U.S. grows.
  • Fifty year ago, Europeans worked seven years longer than they do now -- and lived 11 years less.

Private pension plans such as 401(k)s are illegal in France due to union objections. Italy is only now starting tax-favored savings funds. And while corporate pensions cover half of German workers, their financial solvency is questionable.

According to Merrill Lynch, only 7 percent of EU workers are covered by corporate pensions and only 0.9 percent by private savings plan equivalent to 401(k)s. So nearly all workers will be entirely dependent on government-paid retirement benefits.

Source: Anne Swardson, "Pensions Threaten European Economies," Washington Post, April 25, 2000.

 

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