WASTING TIME:

Why Europe Shouldn't Save For Retirement Yet: As European state pensions feel the squeeze, private schemes have few takers (Carol Matlack with Adeline Bonnet in Paris and David Fairlamb in Frankfurt, Business Week)

France isn't the only country shunning IRAs. Britain and Germany both introduced such schemes in 2001, but only 3% of eligible Britons and fewer than 2% of Germans have signed up. That's a far cry from the U.S., where at least one-third of households have IRAs, and 50 million workers save for retirement through employer-sponsored 401(k) plans. It's not as if Europeans didn't think about retirement. But until recently, few Europeans knew much about private retirement savings -- and fewer still cared. After all, Europe's publicly financed pension schemes generally allow them to retire, often at age 55 to 60, with benefits totaling 60% to 70% of their former salaries. But the pay-as-you-go funding of those plans is an increasingly urgent problem, since the ratio of retirees to workers in Europe is rising fast, from 1 to 5 in 2000 to a projected 1 to 2 by 2050. To keep the plans viable, governments are now raising the retirement age and trimming state benefits. Unless governments divert massive amounts from their general budgets, or impose huge payroll-tax increases, state pension benefits will have to be cut an average 30% during the coming 40 to 50 years, according to estimates by the Association of British Insurers. "Old-age poverty, which has almost been eradicated in Europe, could come back," says Steven Ney, a pension expert at Vienna's Interdisciplinary Center for Comparative Research in the Social Sciences.

Employer-sponsored pension plans could take up some of the slack. But outside Britain, where they are common, such plans cover less than 1 in 5 Europeans.

Like a whole continent of welfare queens...

Posted by Orrin Judd at July 13, 2004 8:47 AM