Are the present pension systems in Europe substainable? Can the pensions time bomb caused by demographic changes be defused? This study describes developments in Europe, but the theory, the problems and the solutions are similar for most developed nations in the rest of the world. The combination of declining labour market participation rates–which magnifies the demographic ageing problem on public finances–and expectations of future ageing of the population will make most public retirement schemes expensive to run and major reforms are necessary. European governments have a number of options to compensate for the negative effects of ageing on pensions. The most effective strategy is to increase the effective and/or official retirement age. But only a combination of measures will be able to take away completely the negative financial effect of ageing on state pension schemes. What is clear from the study is that most measures to be taken to combat the situation will include some form of pain: the pensioner or the present generation of workers or governments’ finances or all of them together will suffer some negative consequences.
