As the 1990s came to an end, European countries were asking themselves questions about the long-term future of their pension systems. Since then, all have tried to reform their regimes; some on several occasions.

The diversity of their histories, economic situations and demographics has resulted in different choices being made, even though there are clear convergences.

EUROPEAN NATIONAL DEMOGRAPHICS

The European Union estimates that the working population of the 27-state EU will fall by 50 million between 2008 and 2060, during which period the number of people aged over 65 will increase by 67 million. The dependency ratio - the number of elderly people per person of working age - will therefore rise considerably from 25% to 53%.

The overall financial commitment required to ensure that pensions are paid must therefore be increased. Nevertheless, not all countries are in exactly the same situation, largely as a result of differences in fertility rates.

France and Ireland, and to a lesser degree the United Kingdom and Sweden, still have relatively high fertility rates (2 for the former and 1.8 for the latter), when compared with the European average (1.5). As a result, projections indicate dependency ratios of between 42% and 45% by 2060.

Germany, Italy and Spain, on the other hand, are seeing birth rates below the European average, and therefore have the prospect of dependency ratios of around 60%. This effect is even more pronounced in Eastern European countries, where the ratio rises in some cases to 70%.

DIFFERENT HISTORIES

Right across Europe, the post-war period saw the introduction of an extensive Welfare State offering support systems that pool the resources allocated to healthcare, family support, unemployment and old age. However, these systems - and especially pension systems - have not always taken the same form.

During that period, there were two types of pension system:

- the so-called Bismarckian systems, named after Chancellor Bismarck, who created the German old age pension system in 1889: employees contributed at company level throughout their working lives, and received a pension on retirement proportional to the contributions they had paid in. Benefit: everyone received in proportion to what they had contributed. Drawback: those who had not worked, or who had experienced problems in their working lives, received little or no retirement pension at all.

- the so-called Beveridgean systems, named after William Beveridge, the English politician, founder of the Welfare State and author of the famous report on the subject published in 1942: a tax-funded universal pension available unconditionally to all those of eligible age. Benefit: everyone benefits from a minimum level of pension cover, and everyone is at liberty to save in order to provide for additional income in retirement. Drawback: individuals are not required to save, and those who do not, see their standard of living decline in retirement.

In France, Italy and Germany, the model initially adopted was Bismarckian: company-level contributory pension schemes. The United Kingdom and Scandinavia took their inspiration from the alternative Beveridgean model: a minimum guaranteed pension funded from general taxation. 

But these original distinctions very quickly became blurred, as each country tended to correct the shortcomings of its own system by introducing mechanisms inspired by the other model. This was the background to the introduction of the French minimum pension in 1956, and its Italian counterpart in 1969, although this stage was never really reached in Germany. In 1975, the United Kingdom added to its minimum pension with the introduction of the State Earnings Related Pension Scheme funded by National Insurance contributions, although scheme members retained the right to take out private pensions.

The history of the Eastern European countries is a little different: in the 1990s, World Bank guidance encouraged them to introduce systems that combined, from the outset, a basic distribution scheme providing a basic pension and capitalization-based schemes - not unlike the British model. Since then, they have developed in different directions.

In practice, there are as many models as there are countries, but all attempt in one way or another to respond to the various issues posed by retirement: providing a minimum level of cover for the entire population, whilst enabling individuals to improve their pension according to their means, introducing a greater or lesser measure of redistribution and ensuring system funding and balance.

All systems therefore combine distribution and capitalization, minimum pensions and contributory proportional pensions, public and private schemes and obligatory and optional schemes in varying proportions. There are many different parameters and combinations of parameters.