Many countries have implemented a variety of pension reforms in response to the challenges posed by an aging population. These reforms typically involve a trade-off between ‘refinancing’ (i.e., increasing contributions) and ‘retrenchment’ (i.e., reducing benefits). The primary question addressed in this study is whether policymakers in the European Union (EU) possess the necessary capacity to sustain legislated pension reforms, particularly given the growing political influence of the elderly. To examine this issue, we develop a bargaining model designed to optimally allocate the economic burden of aging between successive cohorts of workers and retirees, incorporating retirement incentives. In a scenario where bargaining power remains constant, the optimal allocation rule dictates a fixed-contribution system, effectively shifting the full burden of aging onto the elderly. However, when bargaining power is allowed to fluctuate in response to changes in the relative size of the retiree population (i.e., the dependency rate), the optimal allocation rule involves a compromise between increasing contributions and reducing benefits. In the empirical analysis, we compare these theoretical optimal allocation rules with projections of pension benefit rates and dependency ratios from the 2021 Economic Policy Committee. By calculating the implicit bargaining power required to align projected pension benefits with the optimal sharing rule for each year, we demonstrate a growing divergence between projected pension benefits and the optimal levels in many EU countries, as demographic shifts progress. Furthermore, our findings indicate that for most countries, projected pension benefits are increasingly falling below optimal levels when bargaining power adjusts in accordance with population aging.

Following European pension reforms, the responsibility for old-age provision has increasingly shifted from the state to the individual. This study examines how behavioral norms and perceptions of parents’ or grandparents’ financial situation influence participation in the voluntary second pillar. Using survey data from two Italian provinces with high coverage of supplementary pension funds, the analysis shows that norms transmitted through family and friends strongly predict participation, whereas workplace norms matter only for women. Perceived financial hardship of older relatives increases both awareness of retirement planning and the likelihood of enrollment, underscoring the role of the social environment.

Using Danish register data, we study whether individuals save enough to maintain almost all (90%) of their pre-retirement consumption. We find that 85 percent do, largely due to mandatory labour market pension contributions. The remaining 15 percent are less likely to have mandatory pension schemes and do not compensate for the lack thereof via voluntary private savings. However, mandatory contributions come at the cost of lower consumption and non-retirement savings during working years. Individuals experiencing the largest increases in mandatory pension contributions accumulate less non-retirement wealth and consume less before retirement compared to those with small increases.

Using data from 74 countries, we uncover important differences in the association between financial literacy and preferences by the level of economic development. Patience is salient and positively associated to financial literacy in wealthier countries, i.e., countries with GDP per capita above the sample median. This association is not driven by a multitude of institutional or cultural factors known to be related to financial literacy. In impoverished countries, we document a higher level of financial literacy in countries with higher levels of risk-taking but lower levels of trust, positive reciprocity, and altruism. Countries’ legal origin drives most of the association with risk-taking, trust, and positive reciprocity while their religious composition drives the association between altruism and financial knowledge. Our findings underscore that financial education programs need to be tailored to the cultural aspect of group preferences and suggest what type of traits policies and programs ought to be reinforced in poorer countries.

Demographic change is one of Germany’s most pressing social and economic challenges. Using data from a representative telephone survey, we analyze how well informed respondents are about the magnitude of demographic change and what factors influence the accuracy of their beliefs. We find that respondents tend to overestimate the old-age dependency ratio when considering the current and long-term demographic situation separately. However, their beliefs regarding the change of the old-age dependency ratios over the considered period are not far from the projected change. A better understanding of the German statutory pension insurance plays an important role for more accurate beliefs.

Long-term projections are the bedrock of any analysis looking at the sustainability of public finances. This paper computes the changes in economic growth in individual European Union countries needed for government debt-to-GDP ratios to stay on their baseline trajectories (taken from the European Commission’s Debt Sustainability Monitor 2023) under high life expectancy, low-fertility, low-migration, and high-migration scenarios. These scenarios are provided in the Commission’s Ageing Report (2024). We find that deviations of migration from the baseline entail the largest effect on the required rate of economic growth. The effects of the low-fertility scenario are most pronounced in the very long run and sometimes exceed those of low migration. Our findings inform policymakers about the potential role of higher productivity growth in alleviating the public finance consequences of demographic shocks. The importance of higher productivity growth is increased by the fact that in some countries demographic projections tend to be optimistic.

The primary policy response to population aging in advanced economies has been to raise the mandatory retirement age. However, these policies have reignited calls for differentiated retirement ages that take into account variations in work intensity. This paper utilises microdata to examine the relevance and feasibility of this concept in Europe. It first quantifies career arduousness using SHARE wave 7 retrospective ISCO4-digit data on careers in combination with US O*NET working conditions data. Then, using SHARE follow-up data collecting (bad)health and death information about wave 7 respondents, it estimates (healthy) life expectancy by career arduousness decile, combining econometrics and life table methods. Findings reveal a life expectancy gap between the least and most arduous careers of 4to 4.2 years. Healthy life expectancy differences are slightly larger, ranging from 6.9 to 9.1 years. Also, women’s healthy life expectancy seems to be somewhat more impacted by arduousness.

We explore debt and debt management among older Americans (ages 51–61 years) using the 2018 National Financial Capability Study. Though these individuals should have been at the peak of their retirement savings, we show that many were heavily indebted, often due to unpaid medical bills and student loans. Additionally, fewer than half (43%) could correctly answer three basic financial literacy questions; importantly, less financially literate people were more likely to hold excessive debt, be contacted by debt collectors, and carry medical debt or student loans. Our findings show that, even before the pandemic, a sizable proportion of older Americans was financially distressed, underscoring the need for researchers and policymakers to devote attention to specific types of debt that burden the older population. Particularly vulnerable groups include African-Americans, women, and the least-educated.

We examine individuals’ retirement behaviour in response to changes in the State Pension eligibility age (SPe-age) introduced in UK Pension Acts. Our findings show that the annual probability of retirement reduced significantly in response to a one-year increase in SPe-age, by 8.2pp and 6.4pp for men and women, respectively. They also show that younger individuals can adjust their Expected Age of Retirement (EAR) downwards in response to an increase in their SPe-age. Thus, while an increase in the SPe-age induces individuals to postpone actual retirement, it does not necessarily lead to certain groups of individuals to revise their EAR upwards, which could result in suboptimal retirement planning. The latter can be problematic for those with low occupational pension wealth and/or individuals who rely disproportionately on State Pension. Our findings suggest the need for targeted communication campaigns aimed at specific groups of prime aged workers to improve their retirement planning.

Using household survey data linked to supervisory data of Dutch pension funds, we provide evidence of the increase in household savings caused by shocks to the financial position of pension funds. Our identification strategy exploits cross-sectional and time variations in pension funds’ funding ratios, which result from asset allocations and price corrections outside the control of fund members. The findings reveal that fluctuations in funding ratios significantly impact household savings, with a displacement effect above 40 percent. Lower funding ratios are associated with higher voluntary savings, driven primarily by members of pension funds with lower historical returns. Unlike earlier studies, this paper covers a long time span including three major economic crises, providing novel insights into the interaction between pension fund stability and individual saving behaviour.