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State Pensions Alone Fall Short in Fighting Poverty - Study

Analysis

According to a recent study done by a researcher at the Corvinus University of Budapest, people in old age cannot rely solely on their pensions to shield them from poverty, anywhere in Europe.

State pensions are proving to be less effective at supporting the lives of retired workers throughout Europe, many of whom have to work after retirement to be able to stay above the poverty line. In addition to low pensions, many retired people remain financially inactive due to the lack of awareness about their opportunities.

Besides the combination of low pensions and a lack of financial activity, Ágnes Vaskövi, a researcher from Corvinus University of Budapest, provides insight into other various factors contributing to rising poverty rates in old age.

The research derives data from both macro and micro perspectives, to be able to provide a more thorough analysis of the situation. From the macro perspective, the analysis includes research into poverty indicators on a national scale, the general state of the specific country’s economy, retirement age, as well as pension income.

On a micro-scale, the research delves into the financial activity of retirees, distributed in categories such as savings in shares, mutual funds, individual retirement accounts, life insurance or business ownership. By summarizing the findings, the research highlights three distinctive groups found throughout Europe; knowledgeable, affluent, and poor.

Categorization of Affluency Based on Pensions, Financial Activity

Countries categorized in the “knowledgeable” group, primarily Northern and Western European countries, are found to have citizens who prioritize financial activity and planning ahead. Although these countries’ pensions are not overly generous and many retirees still work, their economy is stable, and they have the most opportunities to invest in the future.

Behind the aforementioned countries, the study also notes that there is a group of “liveable” countries, with a generally stable economy, and a pension generosity that does not motivate people to take care of themselves. This category comprises countries such as Hungary, France, Slovakia, and the Mediterranean countries.

The category labeled as “poor” is prominently the Baltic States; Romania, Croatia, and Poland. These countries have the highest rates of poverty in old age, as both low pension generosity and lack of financial activity are prominent.

Diverse Financial Action Taken Throughout Europe

In addition to the categorization of these countries, the study also provides a breakdown of the use of financial tools in each country. Notable statistics include that Czechs open the largest share of individual retirement accounts, Germans lead in life insurance investment, Danes buy proportionately the largest amount in companies, and Finns favor investment funds. Latvians and Bulgarians are amongst the lowest-performing countries in all financial aspects.

In Hungary, life insurance is the most popular form of savings among respondents (34.8%), 9.2% have opened an individual pension account in their lifetime, 5.2% have bought securities, while investment funds and company acquisitions were chosen by only around 3% of the surveyed.

By using the European Arope indicator, which shows when an individual’s income is less than 60% of the median, the study concludes that people in old age in the Baltic States are in the most critical circumstances, up to 37% of people above the age of 75 experiencing severe financial difficulties. In Eastern and Western Europe, the percentage varies between 10-12%, while Nordic countries prosper with a low percentage of financial difficulties for their populace.

Vaskövi’s research supports the argument that European countries are lacking in financial support for their citizens, highlighting the difficulties surrounding retirees and individuals in old age. As estimated by the European Union's 2017 Action Plan, 15 million people will be at risk of poverty by 2030.

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