Social Pensions in Europe: The Aim, The Impact and The Cost

The aim of this paper is to evaluate the impact in terms of poverty and cost of the introduction of social (or noncontributory) pensions in Europe. We use data from the household survey EU-SILC and focus on 17 countries. After reviewing the existence of social pensions in Europe and evidence of old-age poverty, we simulate – in a static framework – the introduction of two social pension schemes: universal and means tested social pensions. We see that the old-age poverty would substantially decrease (average poverty rate goes from 19.7 to 2.5 percent with the universal scheme) but not totally, even though the level of the universal pension is set up to the poverty line. The impact on poverty with the means tested social pension is quite similar (though always smaller) than the one with the universal pension, since most elderly have few other income sources than pensions. On the opposite, it costs less. In fact, the means test reduces substantially the number of entitled elderly while the universal pension leads to a ‘leakage’ to non-poor elderly.