Pensions in Europe: Which countries are best and worst for retirement?

Earnings-related pensions overwhelmingly constitute the primary source of income for Europeans aged 65 and older. However, less than half of EU consumers are confident that they will have enough money to live comfortably throughout their retirement. In several countries, this confidence level falls to 30% or even less. This raises concerns about pension adequacy.

Protecting older people against poverty is a key function of pension systems. Old-age pension is periodic payments intended to: 

1. Maintain the income of the beneficiary after retirement from paid employment at the legal or standard age; or

2. Support the income of elderly persons (excluding where payments are made for a limited period only).

Huge disparities in pensions across Europe

According to Eurostat, old-age pensions across Europe vary significantly in both nominal terms and purchasing power standards (PPS). To simplify the data, Euronews Business has converted annual pension incomes into monthly amounts by dividing them by 12 months.

In 2021, the average gross monthly old-age pension expenditure per beneficiary within the EU varied widely, from as high as €2,575 in Luxembourg to as low as €226 in Bulgaria, with the EU average standing at €1,224.

Including the broader European Free Trade Association (EFTA) and EU candidate countries, Iceland reported the highest average at €2,762, while Albania had the lowest at €131.

‘Big Four of EU’ and Nordic countries above EU pension average

The old-age pension per recipient exceeded the EU average in all of the EU’s “Big Four” countries. Italy reported the highest pension at €1,561, while France, Spain, and Germany showed nearly identical figures, each around €1,450.

The Nordic countries also performed strongly, with average old-age pensions exceeding those of the “Big Four”.

Balkan countries record the lowest pensions

The lowest seven rankings are all held by Balkan countries. The average expenditure on old-age pensions in Luxembourg was nearly 11 times higher than that in Bulgaria, highlighting significant disparities. Even discounting Luxembourg as an outlier, the EU average still remained almost six times higher than that recorded in Bulgaria.

Some of these pension disparities can be attributed to varying price levels across EU member states, as Eurostat notes that the overall cost of living significantly differs throughout the region.

Pension disparities narrow significantly in PPS terms

In purchasing power standards (PPS), an artificial currency unit which adjusts for price level differences between countries, the disparities significantly decrease.

In PPS terms, the average old-age pension ranges from 437 in Bulgaria to 1,681 in Luxembourg. This means a pension recipient in Luxembourg received a gross pension nearly four times as high as one in Bulgaria. 

According to the 2023 Eurobarometer survey by the European Insurance and Occupational Pensions Authority (EIOPA), only 42% of EU consumers feel confident that they will have enough money to live comfortably throughout their retirement.

Confidence levels show significant variation among countries, with Luxembourg (61%), the Netherlands (59%), and Denmark (58%) reporting the highest confidence. Conversely, the lowest confidence levels are seen in Latvia (23%), Slovenia (27%), and Poland (28%).

Strong correlation: Pensions vs retirement confidence

Euronews Business has found a strong positive correlation between the level of financial confidence in living comfortably during retirement and the amount of the monthly old-age pension. 

This correlation indicates that higher confidence levels are prevalent in countries with higher pensions, while confidence tends to decrease in places with lower pension amounts.

European Parliament highlights the risk of old-age poverty

Expert groups and stakeholders have put forward a number of recommendations to strengthen both the sustainability and the adequacy of EU pension systems according to the European Parliament’s briefing.

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“The way pension systems are currently designed leaves growing numbers of people at risk of old-age poverty. This trend runs contrary to EU efforts to reduce poverty”, the briefing warned.

Challenges in international pension comparison

Comparing international pension levels is challenging due to significant differences in pension systems. These comparisons often overlook the impact of taxation and social contributions on the final pension amounts. The figures are calculated from Eurostat’s database by dividing the total expenditure on old-age pensions by the number of recipients.

“It is important to reiterate that these figures on pension expenditure per beneficiary do not necessarily reflect the level or adequacy of individual old-age pensions in different countries”, Eurostat reminds.