Financial Support in Retirement: Sources of Income for Senior Citizens in Europe
In Europe, the distribution of income sources for older people varies significantly from country to country. This diversity is most evident in the reliance on public payouts, work income, capital income, and private occupational pensions.
Northern European countries, such as Denmark, Switzerland, Netherlands, and Austria, tend to have a more diversified pension income. These economies incorporate public payouts, mandatory occupational pensions, and private savings, resulting in a relatively high retirement spending per capita. Yet, they manage to keep public pension spending under 9% of GDP due to strong fiscal bases and additional private occupational pensions [1].
On the other hand, many Southern and continental European countries, like Austria, Belgium, France, Czechia, Greece, Italy, Luxembourg, Slovakia, Slovenia, Spain, and even Greece, still rely heavily on public benefits. However, these countries have identified the extension of working lives as a key lever for enhancing older people's income, suggesting that income from work is becoming increasingly important, although current work-related income for older people in many of these countries remains relatively low compared to the Nordic models [2][3].
France exemplifies a system where public pensions form the backbone of retirement income, with less emphasis on private pension savings. While some companies offer defined contribution private pensions, the public pension system is strong and widely relied upon [4]. In contrast, countries like Denmark, Netherlands, and Switzerland have more developed private occupational pensions.
Capital income, or investment income and assets, plays a smaller but variable role across Europe. Eastern and Southern Europe, including Poland, Slovakia, Greece, and Turkey, tend to have higher shares of work-related income, while countries like Sweden, Finland, Norway, Iceland, and the UK have a more substantial portion from capital income [1][2][3].
However, the share of public payouts in incomes ranges widely. For instance, public transfers account for around two-thirds of the income of people aged 65 and over, while in countries like Switzerland, it drops to 41%. On the other hand, public transfers account for at least three-quarters of income for older people in Luxembourg (83%), Austria (82%), Finland (80%), Czechia (76%), Italy (76%), and Portugal and Greece (both 75%) [1].
Despite these differences, old age poverty remains a significant issue in several European countries. Among Europe's five largest economies, France has the highest share of public transfers in older people's incomes at 78%, while the UK has the lowest at 42% [5].
In summary, the pension landscape in Europe is diverse, with Northern European countries leaning towards a more diversified pension income and many Southern and continental European countries still relying heavily on public benefits. As life expectancies increase, policymakers face growing challenges to ensure adequate support for ageing populations while keeping deficits at economically sustainable levels.
References: [1] European Commission (2022). Pension Adequacy Report 2022. Available at: https://ec.europa.eu/info/publications/pension-adequacy-report-2022_en [2] European Commission (2021). Ageing Report 2021. Available at: https://ec.europa.eu/info/publications/ageing-report-2021_en [3] OECD (2021). Pensions at a Glance 2021: OECD and G20 Indicators. Available at: https://www.oecd.org/pensions/pensions-at-a-glance-2021-oecd-and-g20-indicators.htm [4] European Union (2021). Pension Systems in the European Union. Available at: https://ec.europa.eu/info/publications/pension-systems-european-union_en [5] Eurostat (2022). Older people's income. Available at: https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN20220914-1
- In contrast to Northern European nations like Denmark, Netherlands, and Switzerland that have developed private occupational pensions, France's retirement income is predominantly supported by public pensions with less emphasis on private pension savings.
- The health-and-wellness sector, in light of the increasing importance of work-related income for older people across many Southern and continental European nations, might find ample opportunities for growth as these countries implement strategies to extend working lives.
- As life expectancies rise and the challenge of providing adequate support for aging populations while maintaining economically sustainable deficit levels becomes more significant, the science of wealth management will likely play a crucial role in striking a balance between pension preservation and income security in European nations.
