The waves of protests and strikes that have hit France since the beginning of the year, against the backdrop of the government’s tendency to reform the pension system, have raised several questions on the nature of pension systems in Europe. These questions revolve around how pension systems are linked to the rise in aging rates and decline in population rates, as well as the driving factors behind clashes between people and governments on official reform efforts to ensure the sustainability of their pension systems while addressing budget deficits. The report at hand attempts to shed light on some retirement systems in Europe in an effort to fully understand the crisis and its possible repercussions.
This crisis is not recent. Rather, it is deeply rooted in Europe and linked to the welfare systems that the European peoples seek to protect against the profound demographic changes besetting the continent. Therefore, maintaining these systems is becoming increasingly challenging over time. This comes in a context of successive challenges facing European societies, coinciding with the continued consequences of Covid-19, and exacerbated by the Russo-Ukrainian war, which revealed more internal crises befalling European peoples and imposed a number of measures domestically and internationally, with expected long-term impacts.
First: The Development of Retirement Systems
Pension systems have become increasingly complex with advances in technology and greater awareness of their structure and management. Early government systems focused on support programs for the elderly, followed by government-sponsored social insurance, which first evolved about a century ago in several countries such as the Netherlands, Norway, and Sweden. Initially, only fixed benefits were offered, but later, profit-related benefits were added. Over time, more countries adopted these systems in parallel with a significant increase in employer-sponsored occupational pensions during the second half of the past century, especially in the Organization for Economic Co-operation and Development (OECD) countries. However, this type of retirement system is the most limited. The existence of one type of pension system does not negate the other; on the contrary, the more complex the pension system, the higher its level.
Hence, the development of retirement systems led to the existence of multiple levels of systems. The primary and main level is related to the government and what it offers to retired employees as support and a social security network. This level is linked to the number of residence years, especially for poor-income holders. Such a pension type is funded by general state revenues to combat poverty among retirees. It is followed by a level depending on mandatory payment by employees acting as social insurance. Attached to this level is a financing plan that is obligatory in some countries and optional in others, in which retirement systems with more benefits are funded by the government or the private sector. Finally, there are voluntarily chosen retirement systems managed by private funds, savings, etc.
Second: Catalysts of the Crisis in Europe
European retirement systems are among the best in the world, and some countries are indeed the best. Funding retirement programs is a cornerstone of the social welfare state systems established in post-World War II Europe. However, these systems are currently facing (and will face in the future) a profound crisis as follows:
Funding Sources: The pension systems crisis has been linked to generous funding and the increasing base of contributors. The more tax base collected from state workers and economic system contributors, the more the government has a surplus to fund retirement systems since the ratio of retirees to contributors is lower. However, as retirement systems mature and the population ages while the workforce shrinks, the load of this problem emerges. It is likely to worsen as the number of retirees increases and population growth declines, meaning a decrease in the labor force able to finance retirement systems. The following figure illustrates how Europe is the only continent to date where the proportion of the population over the age of 65 is higher than that of children under the age of 15.


Structural Changes: European governments have expanded their funding of retirement systems with the aim of attracting more elder supporters by utilizing surplus taxes to increase the generosity of pension systems, envisioning the sustainability of their growth model. Initially, Europe’s pension systems were intended to supplement the income of those who had lost the ability to work due to their age. As revenue increased, pension systems began to offer pensions to all those over a certain age, regardless of their ability to work. Then they moved to providing sufficient income- not just supplement- so that elderly people would no longer be in need of work. Benefit levels doubled in countries such as the Netherlands between 1957 and 1981, with retirement income rising from 30 percent to 61 percent of the average wage. The increased support was not limited to the levels of benefits provided to retirees, but extended to reducing the retirement age. Between 1970 and 2009, the average retirement age decreased by 8 years in Spain, 4 years in Belgium, and 2 years in Sweden. The average time spent as a retiree, affected by both retirement age and life expectancy, increased by 9.1 years in Spain, 8.3 years in Belgium, and 5.5 years in Sweden.
Nevertheless, two main factors put this model at risk. The first is a profound demographic shift. The decline in fertility rates in Europe has led to a change in the population age structure from a pyramid to a column-like shape. In countries with large immigration, which tend to empty the working-age population, the age structure has begun to resemble an inverted pyramid, such as Eastern and Central European countries that have lower growth rates than Western European countries. Europeans now live longer; they live an average of 78 years, up from 66 years in the 1950s. The number of elderly people has also increased. In 1950, only 12 percent of Europe’s population was over 65 years old. However, it is estimated that in 2050, the proportion of the population over the age of 65 will be more than 36 percent. Simultaneously, the fertility level is declining, with the average population growth rate far below the global average of 2.1 children per woman.


The second important change was within the pension system itself. Initially, relatively few workers were contributors– in some countries industrial workers, and in others civilian servants. Over time, other groups were added to the pension system, including paid employees of all kinds, farmers, domestic workers, and the self-employed. However, once the majority of the working-age population contributes, the pension pyramid becomes constrained by the population pyramid, with no growth in contributors unless the working-age population expands (as illustrated in the above figure). The problem is worsened by Europe’s lowest labor force participation rates among people over 65 years. Europeans tend to be healthier and have higher incomes than people in other regions, indicating that early withdrawal from the workforce is an increasingly individual and societal choice.
Combining these two trends- an increase in life expectancy and a decrease in the number of contributors- has strained pension systems in the region. According to the World Bank, estimates of a hypothetical yet typical country in Central Europe indicate that the pension system deficit could approach 7 percent of gross domestic product (GDP) by 2050 if retirement age and retirement generosity remain at current figures.
Third: Diverse European Models of Managing Pension Systems
The aim of this study is to present the diverse European methods of managing pension systems, starting with those facing the most difficult situations in the best systems. The most prominent of these systems are as follows:
The Italian Model: Fragile Containment
Italy ranks second globally in terms of the elderly proportion to the total population, with nearly a quarter of the population aged (and over) 65 years, amounting to 23.2 percent, and is expected to rise to 35 percent by 2050, according to the Italian National Institute of Statistics (ISTAT) estimates. The average life expectancy for Italians in 2020 was 81.5 years, among the highest rates in Europe. The number of elderly people in Italy has tripled over the past 15 years. According to ISTAT, Italy’s aging population and the decline in birth rate are expected to reduce the population from 54.2 million people in 2050 to 47.7 million in 2070.
This means an increase in the cost of the pension bill from its already worsening situation, due to the decrease in the number of contributors to finance these systems. Currently, Italy has the highest European Union pension spending ratio accounting for 16 percent of GDP, compared to 11 percent in the rest of the EU countries. Between 2012 and 2017, spending peaked at 16.2 percent for 3 years. In general, social spending makes up a large part of government expenditure, and Italy’s social spending is among the highest rates in OECD countries.
Historically, the Italian pension system is well established as it has been in place since 1919. The pension system in Italy consists of three pillars: state pension, occupational pensions, and private pensions. The current retirement age in Italy is 67 years, which has been gradually raised from 60 for men and 55 for women. To qualify for the state pension (pensione di vecchiaia), a citizen must have contributed to social security for at least 20 years. Early retirement with receiving a government pension is possible as long as the employee has made contributions for at least 41 years and 10 months for women and 42 years and 10 months for men.
The Italian state pension is funded by social security contributions from both employees and employers. Social security contributions in Italy amount to about 40 percent of an employee’s earnings; the employee contributes around 10 percent, while the employer contributes 30 percent. In 2023, the minimum monthly retirement pension for people over the age of 75 was 600 Euros. Workers who are not eligible for a full pension may claim social assistance benefits for the elderly (assegno sociale). This is available to people who are at least 67 years old, have lived in Italy for at least 10 years, and do not have any earnings, occupational pension, or income capable of providing the minimum monthly retirement pension established by the state.
The Italian model has several characteristics that exacerbate the retirement crisis, other than the general reasons outlined above. First, Italy has the lowest female labor participation rate in Europe, according to Massimiliano Valerii, Director General of the Center for Social Investment Studies (CESIS). Currently, it is about 57 percent, while in Germany it is about 75 percent and in Sweden it is higher than 81 percent. “The inability to work makes women less financially secure and discourages them from starting a family,” Valerii added. The problem is compounded by the abuse of working mothers, which weakens their participation. According to data provided by Save the Children, there is a high rate of voluntary resignations and arbitrary layoffs among mothers in Italy. While the law stresses that female workers cannot be dismissed from the beginning of pregnancy until the end of maternity leave, many women still face dismissal, demotion, and discrimination during and after pregnancy. Other studies show that Italian women pay the highest penalty in Europe in terms of retirement income due to motherhood. Second, Italy suffers from brain drain, which will affect the country for years to come, with the proportion of immigrants received declining due to harsh identity and economic policies, and low growth rate discouraging Italy’s reverse brain drain.
The government has attempted to address the crisis. Though it has not fully resolved it to date, it has somehow contained it. Italy has linked the retirement age to life expectancy; thus, the retirement age will automatically change based on life expectancy. This mechanism will contribute to raising the retirement age for women to be closer to men. Furthermore, due to the crisis, the country’s demographic decline has become a priority in the Brothers of Italy (FDI) party political program. Thus, the party-led right-wing government established the Ministry of Family and Birth Rate as a means to address such problems. Among the first solutions implemented with the aim of encouraging citizens to have children was to provide families with an individual and comprehensive child allowance, as of 1 January 2022. The allowance size is linked to the age of the child, with the exception of disabled children who do not have an age limit. The contribution ranges from 50 to 175 Euros per month for each child under the age of 18, while the contribution from 18 to 21 years ranges on a scale from 25 to 85 Euros. Nevertheless, the effectiveness of such solutions is limited compared to the depth of the crisis, which requires solutions at various levels.
- The French Model: Renewed Clash
France is witnessing successive challenges, some of which are the result of the reform policies carried out by the French government, while others are due to the repercussions of the Russo-Ukrainian war, which has exacerbated the deteriorating economic and social conditions, and made them an urgent priority on the French decision-maker’s agenda. It is necessary to deal with these challenges, foremost the energy crisis and the high cost of living which led to citizens protests, especially since the beginning of the second term of President Emmanuel Macron. His party’s failure to achieve a majority in Parliament has deprived him of the ability to implement his reform project without obstacles from opposition forces, whether from the left and the extreme left which have formed alliances after the legislative elections held last June, or the right and the extreme right, which have different perceptions from the ruling party’s regarding managing the crises facing the country.
This is in addition to the citizens’ objections to the president’s reformist approach which was also represented in the French government’s plan to gradually raise the retirement age from 62 to 64 by 2030 through an annual increase of 3 months. The plan was announced on 10 January 2023; it was scheduled to be issued in mid-December 2022, so that the government can hold consultations and discussions with political and trade union forces. It was also presented to the government for discussion on 21 January, and to both parliament chambers in February. Political and trade union forces objected to this move and warned of its repercussions, reflected in the consensus of the main unions in the country for the first time in nearly a decade on rejecting the terms of this plan and calling for strikes to pressure the government to reverse this decision.
Protests continued on 11 February in a fourth round with nearly 960,000 people participating according to the Ministry of Interior, and around 2.5 million people according to trade union estimates, in an attempt to pressure the government to reverse its decision. These strikes saw the participation of some groups for the first time who were previously unable to participate, such as air traffic controllers, leading to the cancellation of nearly one-third of flights at Paris-Orly airport.
Coinciding with the mass demonstrations with the participation of 1.28 million people according to the Ministry of the Interior, and about 3.5 million according to the General Confederation of Labour (GCT), on 8 March 2023, the French Senate passed the text pertaining to raising the retirement age from 62 to 64 years. It will be increased at a rate of three months each year starting from September 2023. This will increase the working years to about 43 years, which is part of the draft retirement reform amendment project. It was passed with a majority of 201 votes, while 115 members voted against. Prior to voting, the resolution was sent to the Senate for discussion on 18 February after National Assembly debates stalled for nearly 9 days. Nevertheless, the government insisted on pushing for passing the law, relying on a constitutional article allowing it to pass the law without a parliamentary majority. Indeed, on 16 March amidst the protests, the government passed the retirement system amendments utilizing Article 49-3 of the Constitution without voting. In parallel, these were ratified in the Senate with a majority of 193 members, while 114 voted against and 38 members abstained.
Such strikes and protests were significant on several levels. This was not the first time that the French people objected to pension system reform. In 2010, President Nicolas Sarkozy raised the retirement age to 62 from 60. It had been 60 years old since 1982 when President François Mitterrand reduced it from 65 to 60, amidst strong opposition. In addition, the unions’ ability to mobilize and rally protesters from vital sectors such as teachers, underground workers, airports, as well as young people and students has increased. In the 17 January 2023 strike, the number of protesters exceeded one million and the number increased in the following strike that took place on 31 January. The unions justify their rejection of the increase in retirement age by arguing that the issue should be approached differently. They suggest imposing taxes on the wealthy and demanding employers increase their financial contributions.
Furthermore, citizens insist on their rejection of pension system amendments as it is part and parcel of their social welfare system. They also object to increasing the working years (planned to raise to 43 years of work) so that they are eligible to receive the full retirement pension which increased to 1,200 Euros after President Macron had indicated that it would be 1100 Euros during his presidential campaign.
On the contrary, it is evident that the government is determined to gradually change the existing system, especially when it comes to the number of working years, not the nature of the system based on financial contributions. This is because on the long run the current situation will cost the government more money, which may lead to the collapse of the system as a result of the government’s debt to meet the workers’ needs, besides the increase in life expectancy and a potential decrease in birth rates. The rise in retirement age will also save the government an additional $19 million by 2027 according to the Ministry of Labour estimates. On the other hand, if the government is unable to amend the current system, there will be a deficit estimated at more than 17 billion Euros, or about 0.7 percent of GDP, by 2025. Thus, President Macron refuses to back down due to pressure from opposition forces, despite the growing violence and protests. “We will firmly confront the violence that erupted during the protests”, he said. “There is no place for violence in a democracy.”
Such path is an integral part of Macron’s attempt to fulfill his electoral promises, as well as his reformist approach since he first took office in 2017. This was manifested in 2019 with his efforts to amend the system, which also led to further strikes for several months, as was the case in 1995. Yet, the government moved on with its approach. It was due to the outbreak of Covid-19 at the beginning of 2020 that governmental efforts shifted to confronting the pandemic.
Nevertheless, protests are still on, whether within the French parliament or in the street, in an attempt to pressure the government to reverse its decision. This could happen in case the Constitutional Council does not approve the law after a parliamentary vote, or through a vote of no confidence in the government. This took place twice before by centrist forces supported by some left-wing parties; however, they were unable to secure the necessary 287 votes, receiving only 278 votes. Moreover, the far-right National Rally party submitted a motion of no confidence, but they were unable to realize it. It is worth mentioning that in case opposition forces managed to withdraw confidence from the government, President Macron would have two options: either form a new government or call for new legislative elections after dissolving the National Assembly.
- The German Model: Structural Challenges
At the end of 2021, there was only one person in Germany between the ages of 15 and 24 for every 10 people, or a total of 8.3 million people, while there are more than 18 million people over the age of 65. Therefore, Germany is experiencing a demographic shift. According to figures from OECD, there are already 37 retirees for every 100 contributors to the retirement system in Germany. The number is expected to steadily increase to around 58 by 2050.


Germany’s pension system is a case of national pride due to the fact that it was the first of its kind in the world in 1889 during the reign of Otto von Bismarck. The majority of Germans participate in this system managed by the State Pension Fund, with the exception of civil servants and the self-employed who can voluntarily participate. Participants currently pay just over 9 percent of their monthly income, and this amount is matched by the employer.
Retirement pension cannot be claimed unless the person has contributed to the pension insurance for at least five years. Since January 2021, what is known as Basic Pension (Grundrente) has been introduced which retirees can receive when their pension is in very small amount provided that they have reached the minimum age for standard retirement, pension insurance has been paid for at least 33 years taking into account the periods of children or family members’ care, and on average the retiree earned very little during their working years. (Two years ago, Germany imposed the gradual rise of the retirement age from 65 to 67 for those born after 1967. As of 2024, the retirement age will be raised two months each year until it reaches 67.) With these conditions, the retiree receives the basic pension besides the regular pension. The amount of the basic pension depends on income and the amount and duration of previous contributions to pension insurance.
However, the system has been facing structural challenges in the recent decades with increasing risks over time, including a decline in birth rates meaning a decrease in workers who contribute to the system. Experts warn that even with immigration, the workforce in Germany could fall between 2 and 10 million by 2060, according to the German Federal Statistical Office. In addition, there is an increase in life expectancy, thus the state will have to pay more money to retirees. Since the system relies on the assumption that there are enough workers contributing in the State Pension Fund to be able to cover current pension payments, the retirement age is expected to be extended to cover the revenue deficit.
Raising the retirement age was not the only proposal on the government’s list. Among the most prominent proposals was the recommendation by the Retirement Pension Committee last year to reduce the average retirement pension to income from 48 percent to 44 percent after 2025, in addition to calling for the retirement age to be raised to 70 years old. Other government agencies sought to offer various solutions, but some of them were met with a great deal of anger from the majority of Germans. Domestically, such anger comes with a high price as the elderly in Germany have a great weight as a group which cannot be underestimated. People over the age of 65 make up more than a fifth of voters, and the figure is expected to be more than one in three by 2060. This is reflected in the priorities of German voters. A poll by the Bertelsmann Foundation ranked retirement pensions third in importance to voters, after the environment and immigration.
German political parties also offered proposals to reduce the expected deficit in the State Pension Fund, whether by increasing the minimum wage per hour to increase the actual contribution of individuals to pension funds, including civil servants in the Fund, or diversifying the fund’s work to include investment in stocks to provide greater revenues. Nevertheless, none of these solutions address the root of the problem; that is the decrease in the contributors’ percentage in financing the State Pension Fund with an increase in beneficiary retirees.
As Europe’s largest economy, the German government sought to resort to utilize immigration as an alternative solution to its declining population. That met a partial success. According to the latest survey by Eurostat; the statistical office of the European Union, around 11 societies will witness continuous growth until 2100 thanks to immigration, on top of which are Sweden, France, the Netherlands, Denmark and Germany. This is in spite of the overall decline in Europe’s population, which is expected to fall to 416 million from 447 million today. Yet, statistics indicate that the German economy will exceed 7 million job vacancies by 2035. Immigration cannot cover such deficit on its own, especially with the emergence of another problem—reverse migration. At the beginning of this year, the country celebrated record immigration rates of 1.1 million in the past year alone. Yet on the other hand, some 750,000 migrants who had arrived in previous years have left. This prompted officials to call for a change in the country’s “welcoming culture”. In most cases, the reason behind their departure was their failure to equate their degrees with German standards. They have hence no option but take jobs that do match their qualifications, and were forced to make the difficult decision of departure leaving the German market with more than two million vacancies. Therefore, the government is facing a complex crisis that needs to be addressed to avoid the future contraction of the German economy, both in terms of the decrease in birth rates and the increase in the population age, and the lack of sufficient qualified immigration to make up for such deficit.
- The Danish Model: Balanced Reform
Denmark has one of the best retirement pension systems in Europe, ranking third in the 2022 Mercer CFA Institute Global Pension Index. This is due to its integrated retirement system, comprehensive health care, social insurance, as well as a range of complementary benefits such as fuel subsidies and rent allowances, in addition to the basic pension financed by the state and the revenues from pension funds that the country depends on. Therefore, all high- and low-income retirees have an adequate retirement level even though they have the highest income tax rates.
In addition, Denmark follows a reform policy compatible with the changes in society, especially with regard to the average age, while motivating the people to accept such policy as it is based on objective grounds, and is implemented gradually according to flexible criteria, besides providing complementary allowances to motivate citizens. It is worth noting that anyone who lives or works in Denmark is entitled to a pension. The full value of the pension is obtained under the condition of residing in the country for four decades. In the event that this is not met, what is known as a “partial pension” is obtained, the value of which is determined according to the person’s residence duration starting from the age of 15 until the retirement age, which currently ranges between 66 and 68 years.
Hence, the pension system in Denmark is based on the state pension and includes all citizens and individuals who have legal residence in the country for a minimum of at least 3 years between the age of 15 and the legal retirement age, with the possibility of obtaining it fully in the case of a residence of 40 years. This is in addition to occupational pensions that include insurance against potential risks that individuals may be exposed to, for example, a pension for the insured’s beneficiaries in case of death, or in case of disability before retirement. It is funded by the employer and employee at rates regulated by law according to the number of working hours.
This trend comes as a desire to maintain a more sustainable pension system, especially with the increasing average age of people over 60 years, in addition to addressing the budget deficit. This has prompted Denmark to introduce a number of amendments to the system to reconcile these set goals and continue to ensure a social welfare system, as manifested in the reforms adopted since 2006. For example, the first practical stage was to raise the retirement age from 65 to 67 by 2027, and raise the voluntary early retirement age from 60 to 62 during the period from 2019 to 2022. The retirement age will be linked to the expected average age rate of those who are 60 years old. Starting from 2015, the retirement age was raised by one year maximum every five years for 15 years, with the first increase in 2023, when the retirement age will be 68 instead of 67; it will be 69 by 2035 and reach 70 by 2040.
- The Icelandic Model: A Sustainable Approach
Iceland ranked first in the 2022 Mercer CFA Institute Global Pension Index, as it was able to overcome challenges arising from the increasing gaps resulting from rising average age rates. Despite having a high retirement age compared to some European countries, with 67 years for the private sector and 65 years for the public sector, the Icelandic retirement system is sustainable due to its various pension patterns. The tax-funded public pension contributes 15 percent of the average income as a basic allowance. Individuals who do not have additional old-age income receive an additional pension. The percentage of basic and complementary pension allocations can increase by about 70 percent of the average income. This is in addition to occupational pensions financed by the employer and the employee at a minimum rate of 11 percent, with 4 percent paid by the employee, while the employer pays 7 percent. There is also what is known as voluntary private pensions.
There are also sustainable and reliable funding sources such as pension funds whose assets were estimated at more than double GDP in October 2021, and increased by 12 percent overall from the beginning of the year to November of the same year. These assets are also invested in foreign investment funds to increase their revenues. According to the Central Bank of Iceland, these assets increased by about 17 percent from the end of 2020 until November 2021. In addition, pension funds purchase foreign currencies which represented a value of 46 billion krona during the first two thirds of 2021.
In conclusion, the aforementioned models reveal a number of urgent problematiques that are likely to be a priority on the European decision-makers’ agenda in the coming period. These include the decline in fertility rates against the rise in average age of the population, in addition to the increase in the number of retirees compared to the decline in the percentage of contributors to pension systems. With increasing aging rates, European countries will have to adopt a number of reform policies to maintain the sustainability of retirement systems and protect it from collapsing as a result of debt if it is unable to secure renewable sources of funding for all citizens. This is in parallel to ensuring the stability of the social welfare state, which is experiencing a significant decline, similar to the northern European countries which linked the gradual increase of retirement age with the rise in average age.
In addition, there is the possibility of reviewing how to manage the asylum and migration file in line with the interests of European countries. European governments have the option to reopen the door to migration and asylum, but in an orderly manner according to labor market needs, to compensate for the shortage of manpower, and ensure the flow of workers’ contributions to support pension systems. Nevertheless, this option will have a set of potential risks, the most prominent of which is the possibility of repeating the scenario of 2015, which witnessed the growth of migration waves to Europe, and contributed the divergence of positions among EU member states on how to manage them. It has also reinforced the rise of far-right and populist forces. Moreover, who are the migrants or refugees to be welcomed by European governments, the ones coming from conflict and war zones from neighboring regions, or migrants and refugees coming from Ukraine?
Finally, it may be appropriate for countries suffering from challenges in pension systems to adopt an approach based on “dual inclusion”, in the sense that countries complete their reform path by raising the retirement age, which has become necessary for all European countries, in exchange for reducing the clash with the peoples and trade unions that have employed the current scene and reunited their ranks as opposition forces alongside other political forces, through a comprehensive dialogue aimed at providing an integrated approach to contain the current situation, as well as providing complementary incentives to enhance the social level of citizens, especially as it has declined during the past years as a result of the unprecedented economic challenges affecting their purchasing powers. There is also the possibility of diversifying the sources of financing pension systems either through the establishment of their own investment funds similar to Northern European countries, or increasing taxes on the wealthy. This is in order to limit the growing turmoil faced by European countries, especially France.