Labour Force Participation and Old-Age Pensions

In recent years, the European Commission has increasingly pointed out the importance of raising the labour force participation rate in Europe as a measure to decelerate the growth in the ratio of old-age pensioners to gainfully employed. Any change in the demographic framework or in the labour market will have a direct impact on the statutory old-age pension insurance system, a fact that also applies to Austria. The success of labour market policies in cutting the ratio of pensioners to workers will depend on three trends: • decline in the number of gainfully employed from 2004; • growing demand for labour over the next three decades; • a rise of the standard retirement age under current laws (the retirement age will be the same for men and women as of 2033). Such trends may be used to improve women's and in particular older persons' integration in the labour market, provided that suitable accompanying measures are taken (reconciliation of job and family, in-house retraining of older employees, etc.). This interaction between the labour market and the pensioners-to-workers ratio is shown in three different scenarios. If the status quo of labour force participation, i.e., employment levels of 1999, continues for the next 30 years, the ratio will rise to 878 to 889 old-age pensioners per 1,000 gainfully employed contributors to old-age pension insurance. If the employment growth of the past three decades can be more or less emulated for the next decades ("main scenario"), the ratio will show a moderate rise to 697 to 766. If Austria achieves current Norwegian employment rates by 2030, the ratio of old-age pensioners to gainfully employed will be contained at 758 to 782. The discussion on reforming the old-age pension system focuses on changing the system parameters. Long-term financial stability of the system will depend not only on pension laws, but also on the economic environment and particularly the labour market. The higher the employment level, the higher will be the number of contributors and the lower the ratio of pensioners to workers. The activity rate therefore is a key factor for the sustainability of the old-age pension system. Interaction between them thus has come into stronger focus for employment policy also at a European level.