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Mr. László ANDOR

EU Commissioner responsible for Employment, Social Affairs and Inclusion

"Debating demography"

Prudential event on demography

Brussels, 14 March 2011

Ladies and gentlemen,

As individuals, ageing is a reality we all would like to do something radical about. Yet we are ultimately forced to surrender to its effects — however much we dream about stopping the biological clock, and whatever the energy and money we spend on trying to delay its onset and conceal its impact.

Unfortunately the legislator cannot do that — though one of the former US Presidents is credited with saying he often thought that the process of ageing could be slowed down if it had to go through Congress.

All we can really do about ageing is preparing for it. And that holds both for society and for the individual. That is why the Global Aging Preparedness Index is a timely and worthwhile contribution to the policy debate we have been having with the Member States over the last decade.

The Global Aging Preparedness Index is a composite index. It is based on a set of interesting component indicators, that gives an overall flavour of the challenges connected with ageing. Those concerning adequacy have attracted my special attention.

Professor Jackson of the Centre for Strategic and International Studies has gone into the Index in detail. So my part this evening is to say something of the work we are doing in this area in the Commission. Let me first put the problem in context.

Population ageing is a global phenomenon, despite key differences between continents and countries. Its effects started showing first in Europe, and this is still the region where population ageing is most advanced. Among individual countries, Japan is in the lead, though some of our Member States are likely to catch up soon.

Other regions will soon come up against the problem of ageing too. In the next few decades, the populations of many developing countries may grow old before they even get to enjoy the benefits of prosperity.

In the European Union, life expectancy at 65 has risen by five years over the last 40 — and that is, of course, something to rejoice in. Over much of the same period, though, the effective retirement age for men has fallen.

So we haven’t been very good at adjusting our lives collectively to the longer lives we are living. And though the trend has now been reversed, men still retire at a younger age than they did in 1970.

By 2060 we can expect a further rise in life expectancy at birth of about eight years. Combined with the low fertility rates in most Member States over the last few decades, the result will be a dramatic ageing of society.

Another important factor is immigration, which already accounts for the bulk of population growth in Europe, and, hopefully, it will continue to do so in the future. It moderates the negative effect of a shrinking working-age population.

The active working-age population will start to decline already from next year onwards. That is a dramatic turnaround from the sustained increase in manpower that allowed the EU to grow at such a fast pace until now even if the rise in the labour-market participation of women, immigrants and older working-age people can maintain employment stable until 2020.

The number of people in retirement is now rising steeply. Until a couple of years ago, around a million people reached retirement age across the EU each year. Fuelled by ageing baby-boomers, the pace is now two million, and will remain constant over the two next decades.

So what does all this mean for our pensions and care systems?

In short, given these trends, current pension rules in many countries are simply untenable. Unless people stay longer in employment as life expectancy rises, our pensions will either be less than adequate, or their cost will rise unsustainably — along with pension contributions and tax rates.

What pension policy can do to bolster the adequacy and sustainability of retirement income? It can, for example reduce access to early retirement and link benefits and contributions more closely. Pension policy can also raise the retirement age and adjust future pension rights in line with the growth in life expectancy at retirement.

Many Member States have already made good progress in adapting their pension systems. They are now better equipped to withstand the population changes under way. But further progress is needed.

Extending working life is not only a question of incentives in pension schemes. Raising the statutory retirement age or doing away with early-retirement schemes will not automatically mean that people will work longer and the effective retirement age will go up.

Therefore, comprehensive active-ageing strategies are needed. These have to involve investing in the employability and life-long learning of older workers, enabling them to actually find jobs, while taking their health and safety needs into account. And, above and beyond all other things, there is a need for more jobs.

Older workers, immigrants and women in particular are a huge resource that needs to be tapped — for instance by making the right changes to gender and age management at the workplace and on the labour markets. And that calls for active support from the social partners.

While the Member States are responsible for their own pension systems, the EU contributes by fostering discussion on how to cope with ageing.

A decade ago the Member States agreed to work to ensure pensions were adequate and sustainable, and to make sure that high-quality health and long-term care was accessible, affordable and sustainable.

While Member States face similar challenges as a result of ageing, the way those challenges are played out varies substantially.

We in the EU are proud of the standard of social protection we provide our elderly, although there is, of course, room for improvement.

The key question now is how to preserve those achievements — given foreseeable trends in the economic and demographic situation.

The solution lies to a large extent in tapping the unused potential of older workers. That is why we will be focusing on promoting active ageing in the next few years. The goal is to help older workers stay on the labour market longer, contribute to society, and remain autonomous for as long as possible.

Meeting that goal will call for policy action in many areas. For example, employment and working conditions, life-long learning, social protection and health, access to information. These are largely the responsibility of the Member States, regional and local authorities and the social partners.

But we in the Commission can do a lot to raise awareness, develop knowledge, foster cooperation and prompt the Member States to share information and benefit from each other’s experience. Our ultimate goal is to assist Member States in creating opportunity for older workers to actually find employment.

That is behind the Commission proposal that 2012 be designated European Year for Active Ageing.

Starting this year, we will be inviting policymakers and stakeholders at all levels to make specific commitments on what they want to achieve in 2012 and thereafter.

Last summer the Commission published a Green Paper on Pensions to foster an EU-wide debate on the sustainability, adequacy and safety of pension provision. Our analysis of the 1700 responses to the Green Paper was published last week. The stakeholders’ replies will help to shape the various policy options for consideration.

Respondents broadly supported the Commission’s holistic approach in the Green Paper and called for well-coordinated policies to tackle the interlinked issues of pension adequacy, sustainability and safety.

The Commission plans to present a follow-up white paper in the third quarter of this year to set out proposals for EU initiatives on pensions to support the Member States.

In conjunction with the Member States within the Economic Policy Committee, we produce three-yearly ageing reports that provide projections of public expenditure on pensions, health care, long-term care, education and unemployment over the next 50 years. We expect to publish the next Ageing Report in 2012.

This work has similarities with the scenario-building that went into the Global Aging Preparedness Index.

Separately from the ageing report exercise, the Commission — in conjunction with the Member States — calculates the impact of pension reforms on the future value of replacement rates.

The projections presented in ageing reports and in reports on replacement rates help the Member States see how they rank in terms of future adequacy and sustainability. The projections can also give impetus to further reform or adjustments.

Some countries need to improve the adequacy of provision, while others need to make their systems more sustainable.

Results from the two exercises were recently brought together in a Report on Pensions prepared jointly by the Economic Policy and the Social Protection Committees.

Ladies and gentlemen,

Being prepared for the challenges of population ageing is both a moral imperative and a practical necessity.

We cannot expect the younger generation to shoulder the burden of unreformed pension and care systems. That would be simply unsustainable in practical terms and ethically untenable.

That is the message we in the Commission have been pushing, and it is echoed by the Global Aging Preparedness Index.

I would like to thank you for your attention and will now be happy to answer any questions you may have.

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