Europe's demographic time bomb has been ticking for decades, with societies of European Union countries growing older and people living longer. More than a fifth of the European Union's population is now aged 65 or older. That figure is expected to reach a third by 2050. The World Health Organization warned last year that 2024 would mark the first time that over-65s would outnumber Europe's under-15 population.

Despite large increases in immigration over the past two decades, the continent still needs to attract enough workers whose taxes can help cover the growing cost of public pensions. Economists predict that by 2050, there will be less than two workers in Europe for every retiree, compared to three now.

Meanwhile, the annual public pension bill has reached more than 10% of gross domestic product (GDP) in 17 of the EU's 27 states — all but one of them in Western Europe. In Italy and Greece, pensions cost public finances more than 16% of GDP.

Raising retirement age irks workers

To help address the exorbitant and rising costs, several EU states have tinkered with their public pension systems, including by raising their retirement age. France, for example, faced months of angry protests last year over plans to force older workers to retire at 64, up from the current age of 62.

Other European countries have gone further, including the United Kingdom, which plans to keep people working until 68 from the mid-2040s onward. Women in Britain used to retire 5 to 7 years earlier than men, but a move to equalize the pension age sparked compensation demands for the affected women. 

"The Dutch have recently reformed their pension system, but it's not achieving the set goals," Hans van Meerten, a European pension law professor at Utrecht University, told DW. "Also, in Germany, Belgium and many other European countries, I don't see the necessary reforms. They are digging their own graves."

Added to the strain on Europe's public finances, millions of people are still not saving enough in private or occupational pensions meant to complement their state pensions. Data from the Eurobarometer last year showed that only 23% of EU residents have an occupational pension scheme and just 19% own a personal pension product. The figures vary hugely between EU states.

A separate survey by the Insurance Europe trade body found that 39% of respondents are not saving for retirement — the figure was even higher among women and workers over 50. Many of those that do are frustrated with their investment outcomes.

Low returns, inflation hurt savers

"Over the past decade, Europe's pension crisis has significantly worsened due to persistently low real returns that have not been sufficient to outpace inflation," Arnaud Houdmont, director of communication at the Brussels-based investors' body Better Finance, told DW. "That has resulted in a substantial loss of purchasing power for savers."

Analysis by the Finnish Centre for Pensions found that nominal returns on pensions worldwide averaged 8% last year. But after the decades-high inflation that followed the COVID-19 pandemic was taken into account, the returns were just 2%. Eurozone inflation peaked at 10.6% year on year in October 2022.

Houdmont said high fees, poor asset allocation and a lack of transparency in pension products were also to blame for lower returns.

Slow rollout of portable EU pension 

To help address the savings shortfall, in March 2022, the EU introduced the Pan-European Personal Pension Product (PEPP). The scheme allows workers to build up an additional pension, which is fully portable when moving to other EU states. However, only one country — Slovakia — has rolled out the scheme.

"PEPP has been in force for two and a half years," van Meerten said. "But the big investment funds say they don't have the expertise to roll out PEPP products alone and are seeking other partners."

The problem, say some pension experts, is that PEPP is also overcomplicated and restrictive. PEPP is also seen as unwanted competition for investment funds like BlackRock or Fidelity, whose largest clients are large Dutch, Norwegian and German pension funds representing tens of millions of European savers.

Van Meerten is advocating for PEPP to be simplified and more flexible as some EU countries don't give the new pension scheme the same tax advantages as other retirement savings products.

Several industries in EU states — from Germany's chemical and metal sectors to France's national railway operator — have their own occupational pension schemes. Almost 60% of German workers who pay social insurance contributions belong to such plans. These schemes often give savers, especially those with physically demanding jobs, the option of retiring early, among other perks.

Workers demand more pension flexibility

Consumers are demanding more flexibility in their investments and retirement age. The rise of neobrokers like Robinhood, eToro and Germany's Trade Republic, which give users the ability to manage their investments on smartphone apps, has somewhat usurped Europe's many cumbersome and overcomplicated pensions systems.

Traditional finance providers argue that mobile investment apps encourage users to take uninformed and unnecessary risks that could hurt their long-term returns, while advocates say they have made investing simple, cheaper and more transparent.

In the future, more EU governments could allow workers to put some of their state pension savings directly into the stock market, like Sweden, whose private pension funds have collectively negotiated lower fees that have helped retirement funds to grow.

Van Meerten thinks workers would be more motivated to save if they were given more say in how their investments are managed and when they retire.

"Do you want your savings to be green? Do you want to invest in Israel or not? Let the individual decide. Why should social partners or trade unions decide this for you?" he questioned, referring to union-run pension schemes.

Houdmont from Better Finance warned of a day of reckoning in the mid-term due to the "shifting burden" from public to private pension savings, which he said savers weren't ready for.

"There is a good chance that the next generation of Europeans will retire considerably poorer and later than their older peers," he said.

Edited by: Ashutosh Pandey