European Retirement Controversy 2015: With Minimal Employment Opportunities, How Will Pensioners Affect EU Economy?

One of the major obstacles to funding retirement in Europe is not lack of desire among middle-aged people to work but lack of opportunity, according to a report released by the European Commission Monday. The study found layoffs and reduced hiring for older people have posed obstacles to funding European pensions, including long-term unemployment and decreased personal savings. With an aging European population and continentwide economic slowdown, Commission leaders urged member nations to create job opportunities to avoid limiting economic growth.

"Recent pension reforms have focused on ensuring pensions for a much larger older population without destabilizing public finances," said Marianne Thyssen, the commissioner of the report. "This can only be achieved if the great majority of people are offered enough opportunities to keep on working until they reach the regular retirement age that is set to rise across the EU."

Over the past 10 years, nearly all European nations bumped the age of retirement up several years in order to compensate for low birth rates and costly benefits for retirees. The retirement ages were raised in most countries from 60 years old to age 65, but no corresponding measures were put into place to support a workforce with a longer career arc.

Older people want to continue working, but there is a lack of jobs or incentives for companies to hire anyone -- let alone people nearing retirement age -- the European Commission study found. The costs associated with taking on a new employee are high, particularly as healthcare in the EU is costly, and job training is also a long-term investment. The Commission's report called on European member-state governments to institute measures that would ensure citizens work until the statutory retirement age -- such as making early retirement harder for employers and preparing employees for a longer work life.

The number of unemployed people over 50 nearly doubled in the decade leading up to 2010, the Guardian reported in 2012. While the job market has seen some recovery in the three years since, people over 50 still tend to have the most tenuous job security, especially if they do not have an advanced degree.

Those in the “preretirement” category, often taken to mean ages 50-65, are more likely to work in the public sector in areas such as transportation, hospitals or schools. As such, they have been more susceptible to layoffs and, once laid off, they are far less attractive to prospective employers than young people who are often willing to accept lower salaries and work for longer hours.

People ages 55-64 represented 10 percent of all unemployed people in Europe, according to 2014 numbers from Eurostat, and of those people, the majority remained unemployed for over a year. With nearly one in five Europeans 65 years old or over -- and that number set to increase to 20 percent of the population by 2025 -- the number of recently retired people would jump exponentially. Given average life expectancies, a large portion of the elderly in 2025 would be in their 80s and living off their pensions for more than 15 years.

If preretirement age people continue to encounter obstacles in finding employment, they will no longer be able to afford to finance their own pensions, according to the European Commission. When people cannot work and pay for their own retirements, the effects on European economy would negatively affect people of all ages.

Continued unemployment for preretirement people would mean higher national budgets across Europe in order to make up for the loss in pension contributions. The money for that larger budget would either come from higher taxes or a reorganization of how money for social services, including education and healthcare, is spent.

“Public spending on pensions represents around one-tenth of GDP. If this goes up rapidly while contributions to pension systems stagnate or even fall, public deficits will increase, forcing governments to raise extra revenue or cut spending elsewhere, possibly in areas which are important for future growth, such as education, research or infrastructure,” said Thyssen of the European Commission.

For private consumers, continued unemployment for older members of the workforce would also lead to lower spending, as people fear they won’t have enough for their retirement. “The idea is going forward, we could see excess saving as people realize they will be living longer,” said Alessio Terzi, an analyst specializing in macroeconomics for the Brussels-based economic think tank, Bruegel.

Retirement-age people would not be the only demographic whose spending power would be negatively affected by a lack of pre-retirement job security. A secondary effect would be on the younger workforce, who would either have to help pay for elderly people’s pensions or see a spike in the personal contributions for their own pensions.

“Either we have to explain to the young that they have to face contribution rates three times as high as those who are elderly,” or “you have to tell the people that they have to work longer and that they will get less,” said Bernd Raffelhüschen, an economist specializing in demographic changes and social security systems at the University of Freiburg in Germany.