This study was published by Javier Díaz Jiménez, professor of savings and pensions at Cobas Asset Management at IESE Business School, and Julián Díaz Saavedra, associate professor at the University of Granada, for The Conversation. Humanitarian Media Hub summarises the main points.In early October 2025, with his political future hanging in the balance, French Prime Minister Sébastien Lecornu, who had resigned and been reappointed, promised to suspend the unpopular pension reform until 2027, when the presidential elections will take place.
The Socialists declared victory. The French business community was not pleased. S&P downgraded France’s credit rating, citing budgetary risks.
Now that France is postponing inevitable reforms for at least two years, and many other European countries are facing their own pension crises, it is worth considering how to create a reform that is sustainable, fair and politically feasible.
One of the most striking features of the pension debate in Europe is that all the key issues have long been known and well documented. The population is ageing. Birth rates are falling. Life expectancy is rising. Fewer people are contributing to a system from which more and more people will receive payments for longer than ever before. Technological change is reducing the share of labour income in GDP.
Most European solidarity-based pension systems were created under completely different demographic conditions and now need to be adapted. This is as natural as, for example, reducing the number of new schools in areas where the number of children is declining. But any attempt to raise the retirement age provokes mass protests in the streets of Paris, Madrid or Brussels.
It is also important to understand the scale of the reform in France: it involved raising the retirement age by only two years, to 64. Denmark reviews the retirement age every five years in line with average life expectancy and in 2025 approved an increase to 70 by 2040.
The problem is that pension reforms often fail because politics trumps economic arguments. Demographic changes are predictable, their consequences can be calculated, and the necessary tools have long existed. However, reforms fail as soon as they encounter electoral logic and public mistrust.
How can these barriers be overcome? Instead of focusing solely on the retirement age, we propose a multidimensional approach that covers both expenditure and contributions and provides compensation for those most affected by the changes. We used Spain as an example, but the conclusions are relevant to other European countries, including France.
Read also:
Drones and robots from the State Emergency Service save lives in wartime: how the service’s work has changed
Automatic adjustments and one-off compensations
Part of the solution is the introduction of automatic adjustment mechanisms – rules that adapt pensions to changes in the economic and demographic situation. They make the system more predictable and reduce dependence on sporadic reforms, which always carry political risks.
We also propose compensating employees and pensioners who will experience a reduction in payments. This could be a one-off transfer of liquid assets from the state to households.
The downside is that such payments would have to be financed, most likely through new government debt. But experience shows that reforms that do not attempt to compensate for losses to affected groups are often reversed. This is especially true when it comes to older voters, whose numbers are growing.
Read also:
Diabetes in Ukraine: a challenge of our time and a test of the maturity of the healthcare system
What makes pension reform viable?
Effective reform must be based on the following elements:
- Introduce a sustainability factor that adjusts the initial pension amount based on the average life expectancy of the generation. Those who retire earlier will receive smaller payments because they will receive them for a longer period of time. This encourages people to work longer.
- Introduce an automatic rule for adjusting pension entitlements that guarantees the financial sustainability of the system. Today, many countries index pensions to the consumer price index, but this reduces the pension replacement rate in conditions of low productivity growth.
- Calculate pensions based on contributions throughout the entire working career, rather than just the last 25 years. Ignoring early periods of employment is overly beneficial to high-earning employees and reduces revenue to the system.
- Remove restrictions on the contribution base, but maintain the maximum pension amount. This will increase contributions from wealthier individuals without increasing their payments.
- Introduce one-off compensation for those who lose out as a result of the reform. This could be financed through public debt and would help to ease the transition.
Taken together, these measures not only make the system more sustainable by reducing future costs, but also encourage private savings and longer employment. If announced in advance, households will have more time to plan.
This does not mean that the reforms will cease to be controversial. They will have to be carefully explained, and resistance will have to be anticipated. But the alternative is much worse.
According to our calculations, Spain would have to raise its value-added tax by nine points — from 16% to 25% — to raise the funds needed to keep the system unchanged. Delaying unpopular reforms today means even more painful tax decisions tomorrow.
Read also:
Hundreds of genes act differently in the brains of men and women — new discoveries by scientists
