Replacement Rates: A Tool for the Evaluation of Pension Systems and Its Consequences

Changing demographic structures have brought the issues of sustainability of pension systems and their ability to guarantee the maintenance of living standards during retirement squarely on the agenda. Many European countries have introduced reforms in response to the expected demographic changes, and many of these reforms have led to increasingly greater individual responsibility in ensuring income sustainability during old age. The goal of maintaining living standards of retirees more and more depends on the combination of the three pillar system composed of statutory, occupational, and private pension schemes. At the same time retirement ages increase and average public pension levels decrease. Given these developments, new questions raise, for example on the sustainability of income levels over time or the social organization of the life course.

To give answers to these questions it is necessary to have adequate and generally accepted indicators to describe social reality and to evaluate social policy. Making mistakes here – or not being well informed about restrictions and limitations of such indicators – might result in misleading policy recommendations. The paper will briefly discuss these challenges and alternative scenarios for pensions and retirement age policies in Europe.