Analyst: Retirement age should be linked to life expectancy

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Politicians across Europe should be frank with voters about the reforms required to address to the looming demographic crisis, according to Hans Martens from the European Policy Centre think-tank (EPC). The furore over France's attempt to raise the retirement age from 60 to 62 "barely touches on the real problem," he said, adding that retirement should be linked to life expectancy.

Hans Martens is chief executive of the European Policy Centre (EPC).

He was speaking to Gary Finnegan.

To read a shortened version of this interview, please click here.

Europe is facing serious economic challenges which some see as a threat to the social model that most citizens have come to expect and enjoy. What changes are needed to ensure Europe's economic model is sustainable?

We face two sets of problems. The first one is the current economic crisis, where public budgets need to be redressed after the stimulus packages, and the second one is the more long-term threat to the European welfare state and public finances presented by the demographic developments – the combination of a rapidly ageing population combined with low birth rates, which will give us a completely new relationship between those in work and those not in work.

The first thing that needs to be done is that these serious challenges to Europe are communicated to people – which takes some political bravery – and then that modernisation of Europe through structural reforms is put high on the political agenda. The Europe 2020 plan gives a good framework for this, but it must be taken more seriously by political leaders.  

Do you think it's time for polticians to face up to awkward questions on social welfare spending? The UK recently announced caps on welfare payments and changes to child benefit payments. Similar noises have been made in Ireland. Is this a line others will inevitably follow?

As I said, it is definitely time for politicians to discuss these issues in a comprehensive way – at national and European level – and also underline that it is not only a question of the present financial crisis, but a need for Europe to adjust to a quite different future.

It would obviously be better to improve the capacity of public sector delivery than cutting down on services, but the latter might be unavoidable.

However, it is important that we begin to have a very serious look at the delivery from the public sector, and first of all try to get some solid measurements of the public sector's output and not just its input, and also on the pace of innovation in public sector, including in particular process innovation.

How should pension systems be reformed in a way that reflects the demographic changes taking place in Europe while fairly rewarding those who have paid into national pension schemes for decades?

The longer it takes to seriously begin the debate about the demographic future, the more difficult reforms will be. The French example is quite disturbing, not least because the public reaction was to an increase in working age from 60 to 62, which barely touches on the real problem. So politicians must face the public on these issues.

And find ways that fit with their national systems, which are quite different across Europe. However, a way forward could be to link pension age to life expectancy, but then also remember that we might need to introduce the concept of second careers at a certain age to avoid having the average age of leadership in organisations creep up too high.

Through the course of the ongoing debate on innovation policy in the EU, you have emphasised the need for innovation in the public sector. Can you spell out what needs to be done in this area?

The debate on innovation usually focuses on the private sector and on R&D. Innovation in processes is equally important, and in particular in the public sector itself.

So we need to introduce a culture of innovation in our public sectors at all levels, we need to find ways of rewarding innovative behaviour and we need robust ways of measuring public sector innovation to be able to follow progress and benchmark with best practices across Europe.

Activities in that direction have, by the way, been initiated by the European Commission.

Given how the crisis has played out to date, is there a danger of divisions opening up between public sector workers and private sector workers given the swift and deep cuts experienced by the latter while civil servants have gotten away relatively lightly?

I think the private sector has taken its hit during the crises as well, but I also believe it is important for public sector workers to realise that unless politicians and citizens are satisfied about value for money the alternative to continue employment could be the deep cuts, so this should actually motivate to drive the innovation process.

Staff at the EU institutions are facing a 0.4% pay cut. Does this go far enough? Would you like to see deeper cuts in the EU's pay bill? Perhaps bigger cuts for top earners? Is there also a danger that citizens across Europe will take a dim view of the high salaries paid out in Brussels and the apparent reluctance of the EU to tighter its belt?

It will probably be seen as reasonable that EU employees are treated more or less on the line of national public employees, and we should not forget that there is a strong focus – and not necessarily a positive one – on EU, its institutions and employees in member states in these times.

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