Pensions vs pre-retirement income across Europe

In many European countries, pension income is significantly lower than pre-retirement earnings from work. This makes it difficult for many older people to maintain their standard of living after retirement. Nearly one in six pensioners are at the risk-of-poverty in the EU, with the rate increasing from 12% in 2013 to 15.5% in 2023.

So, how do pensions compare to pre-retirement work income across Europe? In which countries do pensioners receive the highest and the lowest share of their late-career work earnings? 

Eurostat’s Aggregate Replacement Ratio evaluates the effectiveness of pension systems in enabling older people to maintain their standard of living after retirement. 

It compares the median pension income of individuals aged 65–74 to the median earnings from work of those aged 50–59, excluding other social benefits. This helps to understand the adequacy of pensions.

In 2023, the aggregate replacement ratio in the EU was 58%. This means that a person who earned €100 between the ages of 50–59 would receive €58 in pension income between the ages of 65–74.

In the EU, this ratio ranged from 35% in Croatia to 78% in Greece.

Spain (77%) and Italy (75%) followed Greece at the top, while Portugal also exceeded the EU average with a ratio of 61%.

At the bottom, Lithuania (36%) and Ireland (39%) followed Croatia, making up the three countries with ratios below 40% in the EU.

Among the EU’s “Big Four” economies, Germany had the lowest pension income relative to late-career work earnings at 49%, while France (59%) stood just above the EU average. 

Meanwhile, Spain and Italy ranked among the top three at over 75%. 

In 11 EU member states, pensions accounted for less than half of the median earnings among people towards the end of their working lives. Among them were Germany (49%), Belgium (48%), and Denmark (47%).

The EU candidate countries – Serbia (46%), Montenegro (38%), and Albania (37%) – also had lower aggregate replacement rates, aligning more closely with Eastern European countries.

Gender gap in pensions: Persistent inequalities

The Aggregate Replacement Ratio also varies by gender. In the EU, men (60%) received three percentage points (pp) more than women (57%). 

“Although the difference between the average pensions of men and women continues to narrow, the remaining gender gaps in old-age poverty, pension amount and pension coverage testify to persistent inequalities”, the Pension Adequacy Report by the European Commission and the Social Protection Committee noted.

In one-third of EU member states, this ratio was higher for women than for men. For instance, in Germany, pensions amounted to 54% of late-career earnings for women, compared to 46% for men. 

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This trend could also be seen in Denmark and Ireland, where the ratio favoured women by 6 pp.

Spain and Portugal are the most disadvantageous countries for women pensioners. In Spain, the aggregate replacement ratio was 63% for women, significantly lower than 83% for men. 

Similarly, in Portugal, women had a ratio of 50% compared to 71% for men, meaning women pensioners received 30% less than men.

Providing the actual income figures in both EUR and PPS for these two age groups would have offered a clearer perspective. However, Eurostat was unable to supply them when Euronews Business inquired, as they are not publicly available.

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Still, old-age pensions per person can offer insight into the financial situation of pensioners across Europe.

Which countries offer the highest pensions?

Significant disparities in pensions exist across Europe. In 2021, the average monthly gross old-age pension expenditure per beneficiary ranged from €226 in Bulgaria to €2,575 in Luxembourg. The EU average was €1,294.

In nominal terms, Western and Northern European countries have the highest pensions, leading the rankings whereas Eastern and Southeastern European countries tend to have much lower pension expenditures per person.

The gap narrows when adjusted for purchasing power standards (PPS), ranging from €437 in Bulgaria to €1,681 in Luxembourg within the EU. 

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However, the overall trend remains unchanged. Western and Northern European countries continue to have the highest pensions, while Eastern and Balkan nations report lower figures. 

Notably, Switzerland’s ranking drops significantly in PPS terms, whereas Romania and Turkey see notable improvements compared to their nominal pension rankings.

Importance of long-term care costs

Pension levels suggest that the Aggregate Replacement Ratio alone is not sufficient to compare the best retirement conditions across countries. For instance, although the ratio falls below the EU average in the Netherlands and Denmark, their rankings in average pensions adjusted for PPS are significantly higher.

The Pension Adequacy Report also emphasises that the total long-term care (LTC) costs without public social protection can be very high compared to the pension income of older people. 

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“The interaction of pension incomes and LTC coverage is crucial in ensuring adequate old-age income and dignified standards of living”, the report stated.   

For example, some countries have relatively generous public coverage for LTC in terms of costs but medium replacement ratios for pensions according to the report. They include the Nordic states, characterised by a large role of services in welfare provision, but also Belgium, Germany, the Netherlands, Malta, Ireland and Hungary.