Simone Tedeschi

The flip side of the coin: the consequences of the European budgetary projections on the adequacy of social security pensions

The Ageing Working Group (AWG) assesses the long-term sustainability of public finances by presenting a set of public expenditure projections for all Member States, including projections on pensions. These projections are based on demographic forecasts and agreed assumptions on key economic variables. The adequacy and sustainability of pensions are, however, two sides of the same coin and a full assessment of pensions therefore requires integration. This paper applies the dynamic micro-simulation model MIDAS to assess the consequences of the AWG projections and assumptions on the future adequacy of public pensions in Belgium, Germany and Italy. A comparison of the simulation results suggests that the impact of the parametric pension reform in Belgium and Germany and the systemic reform in Italy on (re) distribution and the risk of low-income go in the same direction, but that the magnitudes differ. Indeed, the impact is stronger in Italy than in Belgium and Germany. In the latter especially, important changes safeguarding the sustainability of the pension system seem to have had a relatively small impact on the risk of low-income among pension benefit recipients in particular.

Digital Inequality in Italy and Europe

Information and Communication Technologies (ICT) are recognized as a key factor in socioeconomic development and societal evolution. According to the European Commission, “the ICT sector is directly responsible for 5 percent of European GDP, with a market value of € 660 billion annually, but it contributes far more to overall productivity growth (20 percent directly from the ICT sector and 30 percent from ICT investments). … The development of high-speed networks today is having the same revolutionary impact as the development of electricity and transportation networks had a century ago.”1 “The digital economy is growing at seven times the rate of the rest of the economy.”2 The pervasiveness of the ICT is changing the system of production and consumption, leading to the so-called information society. In this framework, the European Commission launched the Digital Agenda for Europe as one of the seven flagship initiatives of the Europe 2020 Strategy to exit the crisis.3 Moreover, the Internet is recognized as an important tool for increasing transparency, accessing information, and facilitating the active participation of citizens in the building of democratic societies “by acting as a catalyst for individuals to exercise their right to freedom of opinion and expression, the Internet facilitates the realization of a range of other human rights”.4 For this reason, “everyone should have the right to participate in the Information Society and States have a responsibility to ensure that citizen’s access to the Internet is guaranteed.”5

'So Pensions in Europe Will Remain Sustainable - But Will They Remain Adequate?' - An Assessment of the Consequences of the AWG Projections on the Adequacy of Social Security Pensions in Belgium, Italy and Germany

We stress that the demographic changes that Europe will face in the coming decades will have profound consequences not only for the sustainability but also for the adequacy of social security schemes, including pensions. Our paper aims at assessing the consequences of the Ageing Working Group projections on the adequacy of social security pensions. We use a microsimulation model and examine three countries: Belgium, Germany and Italy. Adequacy is assessed on the basis of the replacement rate, the redistributive impact of pensions and the different risks of poverty. Pension beneficiaries are compared to wage-earners. The replacement rate will follow different patterns: in Belgium and Germany it will decline until the beginning of the 2030s and recover later, in Italy it will show a continuous decrease. In all three countries income inequality declines from the working age to the retirement age and the risk of poverty among pensioners first increases and then decreases. The pension reforms implemented in the three countries have similar effects on income redistribution and poverty levels; these effects are particularly strong in Italy.