Pensions timebomb: why Europe's social contract is becoming unsustainable

"It has played a starring role in one of the worst periods of political turmoil in France since the 1960s. In Germany, it threatens the future of the coalition government. In Spain, thousands have taken to the streets to demand change. The right to a decent state pension has been a central plank of the European social contract for decades, but people are living longer, birthrates are falling, and the continent's pension systems are, increasingly, unsustainable."

"Occupational and private pensions now make up a sizeable part of retirees' incomes in many countries. But state pensions remain a welfare cornerstone. Cutting payouts or raising the retirement age is unpopular and politicians fight shy of reform. That is because the median European voter is now in their mid-40s and governments have a great deal to lose by penalising older generations."

European pay-as-you-go pension systems face growing financial strain as populations age and birthrates fall. Fewer workers are contributing while retirees draw benefits for longer periods, producing widening shortfalls. Occupational and private pensions supplement incomes in many countries, but state pensions remain a welfare cornerstone for most retirees, with about 80% relying solely on them and roughly 15% at risk of poverty. Retirement ages vary by up to eight years across countries and monthly state pensions range from €226 in Bulgaria to €2,575 in Luxembourg. Political resistance to cutting payouts or raising retirement ages has impeded major reforms, producing protests and political instability in multiple countries.

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