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Last Updated: Monday, 17 March 2003, 17:36 GMT
Work longer, says EU

By Sarah Toyne
BBC News Online personal finance reporter

old lady
Many pensions are already inadequate

The European Union is to issue a stark warning to Britons that they should be prepared to forget early retirement and work for longer.

The most comprehensive look at member states pensions will be presented at a key EU summit this week.

Its main conclusion: workers should not be encouraged to take up early retirement.

The keystone EU report also issues a veiled criticism of the level of state support for pensioners in the UK, the complexity of the private pension system - and whether such a plethora of schemes can be monitored effectively.

Co-ordinated policies

Back in December 2001 at the Laeken summit, it was agreed that EU members would openly co-ordinate their pensions policies.

Possible measures
Remove early retirement schemes
Actuarial reductions for early retirement
Contributions to individuals if they opt for retiring early
Tighten eligibility conditions for a disability pension
Extended unemployment benefit or unemployment pension
Better pensions for those who work longer
Flexible retirement arrangements
Remove the statutory retirement age
Allow part-time working arrangements
Joint report by the Commission and the Council on Adequate and sustainable pensions

It is estimated that by 2050, the number of people over 60 in Europe will have doubled to 40% of the total population or 60% of the working age population.

The need to match this change in public policy has become a major concern in Brussels.

One problem identified in the report is that while life expectancy has been increasing at a rate of more than one year per decade for someone aged 65, the average retirement age has been "dropping at an even larger speed".

The UK is not a major culprit in this respect - the average age of effective retirement is 62 for men and 59 for women - higher than many other EU countries.

But the EU still sees this as a problem: Britons are still retiring too early.

As many as 55% of men and one third of women retire before the state pension age; while 10% of early retirement is linked to generous occupational schemes.

Pension reforms with a particular focus on reducing incentives to take up early pensions and improving incentives for working longer will be crucial to reverse the trend of early retirement, the report warns.

Individual responsibility

The report criticises the UK state pension system's funding.

This is couched in rather diplomatic terms: "adequacy has developed into a major challenge", but the meaning is explicit.

Spending patterns
In 2000 the UK spent 5.5% of GDP on state pensions as against an EU-15 average of 10.4%.
Joint report by the Commission and the Council on Adequate and sustainable pensions
Public pension expenditure on pensions was 5.5% of GDP in 2000 - the lowest in the EU - and is expected to fall to 4.4% by 2050.

The report does acknowledge measures to address inadequate incomes by the government through measures such as the Pension Credit, to be introduced in October.

But it also points out that pensioner incomes in the UK have fallen well below average earnings.

Between 1979 and 1996 the average earnings of the population grew by 36%, while many pensioners saw their incomes rise at a faster rate, with the income of the poorest fifth of pensioners grew by only 30%, the report says.

Gordon Deuchars, policy officer for Age, European Older People's Platform, said: "The crisis for UK pensioners is worse than in many other countries.

"They have shifted the problem onto the individual. The UK government expenditure on national pensions is far lower than other European countries."

Strategic errors

Critics of the UK government's pension policy says the report raises concerns about the government's strategy.

"Basically the report is saying you can only get away with paying a state pension if you can increase the level of private pensions," says Neil Churchill, director of communications at Age Concern.

People across the EU strongly disagree with raising the state pension ages. People in the UK were slightly more opposed to raising the age than the EU
Joint report by the Commission and the Council on Adequate and sustainable pensions

"But the number of people who have got them is declining."

One relief to some will be the explicit statement that the EU does not recommend raising the statutory pension age.

Instead, it wants greater flexibility towards retirement and flexible working practices.

However, such jubilation may be short-lived.

The message is clear: people are increasingly on their own when it comes to financing their future.

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