Demographic change in the workforce: ageing and the major implications for pension systems and the role of the European trade unions

From 16 to 17 September 2021 took place in Larnaca / Cyprus a seminar about “Demographic change in the workforce: ageing and the major implications for pension systems and the role of the European trade unions”, organized by KIKEA-DEOK (Cypriot Institute of Training/Education and Employment (KIKEA) - DEOK), with the support of EZA and of the European Union.

Representatives of workers’ organisations from Cyprus, Bulgaria, Lithuania, Latvia, Romania, Portugal, France and Belgium participated in the seminar.

The seminar offered an excellent opportunity to trade union representatives and other workers’ organizations and stakeholders, to listen and discuss keynote speeches delivered by experts on the Demographic changes in the workforce and the major implications for pension systems and the role of the European Trade Unions. National situations, trends in different EU member states, and or candidate member states, were subject for analysis and for an exchange of views. The participants in the project shared presentations and observations of good practices for training on national, regional and EU level. The seminar introduced the need and critical role of social dialogue aiming to improve employee representation. Finally, the seminar focused on effective social dialogue means and objectives by discussing best practices, and failures, in terms of trade union initiative and action plans applied in the different countries so far.

There is a critical challenge demanding action and intensive social dialogue initiatives both on national and European level. The seminar’s overall purpose was to enhance the understanding of the role of social partners and reinforce their capabilities and responsibility to offer an improved employee representation facing the demographic changes. It was also designed to give a chance to trade union representatives, and other state and private stakeholders, to discuss, analyse and react on common challenges faced by trade unions regarding the major implications for pension systems and the role of the European trade unions.


Pensions are the main income for 25% of Europe’s population. This rate is increasing on a yearly basis due to the ongoing demographic changes. Between 2023 and 2060, Europe’s workforce is expected to decrease by 8.2%.

In Cyprus, according to the latest available study of 2021, the sustainability of the Social Insurance Fund is fully secured until 2080.

Poverty or social exclusion rates among the elderly in Cyprus have decreased significantly in the period 2008-2020. This decrease is attributed to the payment of supplementary social welfare benefits to low-income pensioners.

In recent years, particular emphasis has been placed on the protection of the rights of employees, through the implementation of policies including the following: Extension of the unemployment benefit, provision of unemployment benefit to self-employed individuals (due to the pandemic), subsidised vacation scheme, increase in the statutory pension of veterans, prisoners and invalids of the war of 1974, special statutory pension to thalassaemic patients from the age of 50, scheme to settle contributions due to the Social Insurance Fund by instalments, legislation with strict deterrent penalties to combat undeclared work, establishment of a service for the inspection of employee rights, social dialogue, establishment by law of the five-day workweek in general stores, establishment of the rights of employees in the hotel and construction industries, implementation of the ERGANI information system.

In view of restoring and further consolidating citizens’ rights, the following are also under way: Social dialogue to establish a national minimum wage, review of the social insurance system to simplify the legislation, pension reform, assessment of the current situation in the Social Insurance Services and digital transformation.

The provident funds are the second pillar of the pension system. According to the provisions of the Law on the Protection of Salaries, contributions to the Provident Fund, where applicable, are part of the salary and failure of the employer to pay is a criminal offence.

The unwillingness to subscribe to pension schemes continues to be an issue. Pension equals 70% of the income before retirement. According to various sources, the global pension gap amounts to approximately 41 trillion dollars and is expected to increase to 400 trillion by 2050. The pension gap is defined as the difference between the current value of the annual income required to maintain a reasonable standard of living and the actual amount saved.

Employees will only subscribe to a pension scheme that is well understood. The information provided must be easy to access and very clear.

Citizens must be educated on available pension schemes and the various options they have.

The current demographic policy has an effect on retirement. There is a need to supplement the second pillar of Provident Funds into which contributions are paid. Beneficiaries are employees in the productive process. The main feature of the second pillar is fragmentation. They used to be self-administered funds but there was a lack of adequate knowledge. The financial crisis of 2013 revealed many of their weaknesses. Their total value dropped from 4 billion to 2.8 billion.

Contributions to these funds are subject to tax relief. With the appropriate procedures, correct supervision, internal audit, provision of information to members, risk management and transparency, the second pillar is of benefit to individuals.

In France, the population over 60 is currently increasing by approximately 2 million per year, i.e. almost ten times more than in the end of the 90s and the beginning of 2000. At the same time, the number of individuals in the most productive age group (20-59) will be decreasing every year over the next decades, as the baby boom generation will be replaced by much smaller groups. In France, pension is linked to the salary and not to inflation.

Bulgaria holds the 4th place globally in population ageing. Its population is not renewed. A large percentage migrates abroad in search of higher income. The rate of undeclared work is significant. The retirement age, currently at 63 for women and 65 for men, is expected to increase to 65 for both men and women. During the pandemic, many pensioners received a benefit of 125 euros.

In Belgium, approximately 138 inactive individuals depend on 100 employees, but in 2050 it is estimated that 250 inactive individuals will depend on only 100 jobs. In order to ensure balance in the financing of social insurance, the number of employees must rise sharply. It will be difficult for future generations to secure the pensions of the post-war groups. Since 2013, the Government has been helping senior citizens to find a job and the employment rate in the 55-64 age group has considerably increased; work for more years, termination of early retirement systems. Appropriate contributions must be paid for all types of contracts and every form of remuneration, while better work life balance, lifelong learning and early retirement for heavy jobs are also needed.

In Romania, the administration of the pension system is based on a tripartite arrangement consisting of the government, the employers and the trade unions. The national pensioners association is also represented. Only 81.3% of the total of 90 billion lei is paid as contributions for the pensions, the remainder is paid out of the state budget. The ratio of old-age pension to net average wages in Romania in 2021 is 54%. The idea of introducing a new retirement limit is being tested (from 65 up to and including 70). The following needs are identified: Greater number of individuals contributing to pensions, better cooperation on pensions at EU level, accumulation of paid contributions by temporary migrants, increase in the value of private administrators.

In Latvia there are three types of pension available for each employee and a large part of the population is not aware of this option. Women give birth to an average of 1.9 children, whereas for the system to be sustainable this number must increase to 3.5 children. Currently, 15,000 individuals are entering the labour market, instead of the desired number for 30,000. Migrants enter the country and the two states grant a benefit of 120 euros for each migrant child per month while permanent residents receive 20 euros per child per month.

In Portugal, the system is based on mandatory contributions paid by employees and employers. The system includes the general status of social insurance which is mandatory for employees and the self-employed and the optional social insurance system to cover persons competent to work who are not subject to the mandatory insurance system. Over the next years, Portugal will experience a significant demographic crisis, with the population of productive age decreasing by one third by 2050, if no suitable measures are taken to reverse the current trends. This is obviously causing losses to the pension system. Already today, 21% of Portugal’s population of 10.4 million is over 65. Population ageing, in conjunction with the loss of 700,000 jobs due to the profound financial crisis of 2008-2013, is expected to result in a dire situation for pensions and the health system. To prevent the risk or collapse, the OECD report proposes incentives for employees to remain in the labour market for longer periods and structural measures in the social insurance system.

When talking about the future, we must ensure the sustainability of the national pension scheme. Pensions must be adequate for all. The General Social Insurance System is a mandatory, contributory system based on remuneration and covers all persons exercising a salaried activity in Cyprus, both in the public and the private sector, including the self-employed. The pension system is of major importance: It directly affects the economy, the labour market and the standard of living of citizens. Increased life expectancy, low birth rates, economic conditions (unemployment and employment rates, growth rate of the economy), the institutional framework and other factors affect its future course and performance.

We must carry out a comprehensive assessment of the system, to cover non only its sustainability and the adequacy of its benefits, but also the management of the provident funds, financial planning and, in particular, the role of the private sector in ensuring pension benefits.

Ensuring an adequate and sustainable pension system for citizens must be a priority for every country. Given that the first pillar of the Social Insurance Fund does not suffice for a dignified pension, the second and third pillars must be further developed.

Decreasing birth rates and increasing life expectancy have a financial impact on social protection, expenditure increases, health and, of course, the pension systems. There is a need to reform the pension systems to ensure their long-term sustainability and adequacy.

It is necessary to reform the systems of the first pillar and ensure their long-term sustainability and adequacy (increase of replacement rates), by extending the retirement age and developing and promoting systems of supplementary occupational pension under the second pillar. Training, education and lifelong learning and the acquisition of modern skills are essential, while the adoption of flexible work systems leads to increased employment and productivity. Moreover, in order to ensure the sustainability of the Fund, undeclared work must be combatted.

The pandemic has further highlighted the need to address current problems, modernise the social insurance system and the relevant procedures – immediate and accurate service provided to citizens, moving away from traditional operating methods requiring physical presence – online applications, online examinations, online payments.

On 17 June 2020, the European Commission approved the report on the impact of demographic change. The report aims to present a comparative analysis of the degree to which pension systems in the EU member states allow senior citizens to retire with an adequate income, both today and in the future, reflecting the pension reforms, as well as the underlying changes and current or future challenges in our societies.

The report consists of two volumes. Volume I is dedicated to a comparative analysis of the adequacy of pensions in the UE, while volume II (country profiles) provides a detailed discussion on developments in each of the 27 member states.

The report notes that no progress has been made to decrease the risk of poverty or social exclusion among the elderly in the EU, maintaining an adequate standard of living throughout retirement remains a challenge, especially for women, income inequalities among the elderly persist, future careers must last longer to maintain adequate pensions, pension systems are evolving and therefore require a review of their financing sources.

The combination of increased life expectancy and low birth rates will result in burdening public finances and the gradual impairment in the value of the accumulated “reserve” of the Social Insurance Fund.

The social protection system must be the main pillar, with a significant contribution to the achievement of the optimum balance between social and financial sustainability, responding effectively towards addressing poverty and based on the principles of solidarity.

Occupational pensions must have a supplementary but substantial role, contributing to the adequacy of the pension income. Their operating framework must be modernised and the legislative context must be enhanced.

The financing of the social protection system and the role of the state must be clear and efficient.

The system must be able to adapt to the changing demographic and economic conditions.

New forms of non-standardised work and employment must be promoted.

The pay gap between men and women is an important dimension of gender inequality, with multiple effects at both social and economic level, inevitably affecting pensions for women in the long term.

According to the 2021 Pension Adequacy Report of the Social Protection Committee, the pension gap has decreased in the European Union from 32.3% in 2016 to 29.5% in 2019. Nonetheless, convergence between countries has been limited and discrepancies remain substantial.

According to the Pension Adequacy Report, Cyprus, which had the largest pension gap in 2016, has registered the greatest decrease, reaching just under 40%. The risk of poverty among women over 65 was 26% compared to 23% for men in the same age group. 

The bridging of the gender pension gap requires a global approach to the problem, with a decrease in the gender pay gap and the increased participation of women in the labour market, coupled with the adoption of measures and policies to offset the insurance gaps for women due to lower participation in the labour market. The Social Insurance Scheme does not differentiate age based on gender and grants pensions to men and women based on the same requirements.

In addition, the Social Insurance Scheme grants women credits for acquiring the right to pension or an increase in the amount of the pension for a period of up to 156 weeks within 12 years from the birth or adoption of each child, to cover any gaps in their insurance. Credits are also granted for periods during which the insured person is absent from work on parental leave.

It is estimated that in the period 2025-2030, students in vocational education and training will decrease by two million, while graduates will decrease by 600,000. This decrease in the number of students and graduates may cause shortages on the labour market for vocational education graduates.

The ageing of the European population dictates an assessment of the workforce throughout their life. This can be done through improved work quality, better investments in human capital, equal opportunities and the modernisation of social protection systems. Member states are increasingly offering targeted training and support to unskilled workers, migrants, ethnic groups, school-leavers, older workers and persons with disabilities.