When Will National Pensions in Europe Become Unaffordable?

Across Europe, the future of state pensions is becoming one of the most sensitive economic issues of our time.

These systems rely on a simple idea: people who are working today fund the pensions of those who have already retired.

For many decades this model functioned well because Europe had a large and growing workforce. That demographic advantage has faded, and the financial pressure on public pension systems is now impossible to ignore. In fact, a recent FT article has addressed challenges regarding the generous welfare state in Europe (The Big Read 15.01.2026 Can Europe still afford its generous state pensions?).

At Monnet Capital, we believe it is important for individuals and employers to understand the forces shaping Europe’s pension landscape. This debate is not only technical. It affects the long-term financial security of millions of people. We have therefore highlighted a few key themes to summarize the challenges.

Europe’s Spending Priorities Are Becoming Harder to Sustain

Across the European Union, a substantial share of social protection expenditure is directed toward old‑age and survivors’ benefits, far surpassing the resources allocated to sickness and disability support, or to families and children.

This creates several long-term challenges that governments can no longer overlook:

Crowding Out Other Priorities

When such a dominant portion of the budget is committed to pensions, there is less room for childcare, education, unemployment support, disability services, housing and anti-poverty programmes. These areas are essential for social mobility and economic resilience.

Intergenerational Tension

Younger workers often contribute more than previous generations while expecting fewer benefits in return. This can create a sense of unfairness and weaken trust in the system.

Fiscal Pressure

Europeans are living longer, and birth rates continue to fall. Pension spending rises automatically as life expectancy increases, which places structural pressure on public finances.

Labour Market Distortions

High payroll taxes, which are often needed to fund generous pension systems, can discourage hiring and reduce take-home pay. Younger workers tend to feel this most acutely.

The Political Challenge No Government Wants to Own

Economists across Europe have been warning for years that pension deficits will widen without reform. The difficulty is political rather than technical. Any government that proposes higher taxes, lower benefits or longer working lives risks immediate backlash.

The reality is simple. Without reform, deficits will grow and the burden on future generations will increase. Yet no political party wants to be the one to deliver this message during an election cycle.

Demographics Are the Core Issue

Since the late twentieth century, European governments have known that declining fertility rates and rising life expectancy would eventually collide with pay-as-you-go pension structures. That moment has now arrived.

The demographic picture is clear:

• Fewer workers are entering the labour market
• More retirees are drawing benefits
• People are living longer than ever before
• Economic growth is slower than in previous decades

This combination affects not only pensions but also healthcare, long-term care and education. These are the pillars of the European welfare state, and all of them face rising costs.

Private Pensions Are Part of the Solution, but Progress Is Slow

The European Commission has encouraged member states to introduce auto-enrolment systems to strengthen private pension savings. In theory this should help reduce reliance on state pensions.

In practice, the results vary widely.

In Belgium, for example, the incentives for private retirement savings are modest. The tax treatment can be complex or subject to change. For expatriates, the rules can be unclear or inconsistent. As a result, private pensions exist, but not at the scale needed to offset future reductions in state benefits.

What This Means for Individuals

Regardless of political promises, the long-term direction is clear. State pensions will face increasing pressure, and individuals will need to take greater responsibility for their retirement planning.

At Monnet, we focus on three core principles when advising clients:

Achieving Financial Independence

Retirement usually marks the end of regular employment income. A well-structured plan ensures you can maintain your lifestyle without relying solely on state benefits.

Preparing for Longer Lives

Retirement can now last several decades. Without proper planning, the risk of outliving your savings becomes very real.

Protecting Against Inflation

The cost of living rises over time. Investments must grow at a pace that preserves purchasing power throughout retirement.

If you would like to understand how these changes may affect your own retirement outlook, or if you simply want a clearer roadmap for the future, speak with our team today.