As Europe’s population ages, the elderly become increasingly important electorally, and are more interested in the value of their pensions than they are in the performance of the economy as a whole.
Tim Vlandas is a Professor of Comparative Political Economy and Social Policy at the University of Oxford.
Cross-posted from LSE EUROPP
Across Europe, governments are struggling to balance budgets while promoting growth. In the UK, the state pension “triple lock” keeps ratcheting costs upward, but neither party dares to touch it. Even comparatively minor reforms to the Winter Fuel Allowance proved untenable.
In France, raising the retirement age by two years provoked strikes that paralysed the country, while the most recent attempts at pension reform were similarly controversial. Elsewhere, Germany, Italy, Spain, Denmark and the Netherlands all face their own dilemmas in navigating the politics of pension reform to balance budgets while freeing up public investments into growth-enhancing policies.
Underneath these national debates lies a common political economy challenge for Europe: how governments arbitrate the competing demands of an ageing electorate and the need to implement pro-growth policies. In a forthcoming paper, I argue that the growing electoral weight of older voters is reshaping government policies in ways that make it harder to invest in the future growth of a country which then increasingly drift into economic stagnation.
When combined with already high taxes and public debt in many European countries, especially in the aftermath of COVID-19 and energy price hikes following the Russian invasion of Ukraine, governments are increasingly forced to choose between the protection of existing old age policies and pursuing more growth enhancing strategies.
When faced with ageing electorates, the political incentives of governments shift in favour of grey voters, thereby undermining the electoral politics of pro-growth policies. Paradoxically, the ensuing lower growth further complicates the future fiscal sustainability of pensions in Europe, thereby exacerbating the trade-offs that create this problem in the first place.
How and why ageing changes voter priorities
As people age, their economic interests and policy preferences shift. The elderly rely primarily on public and private pensions, rather than wages from labour market participation. Thus, pensions are crucial to their well-being, whereas social investments in childcare, family, education and labour market policies affect them at best more indirectly and to a lesser extent, compared to how crucial they are to younger and most middle-aged individuals.
Moreover, the wages and unemployment risks of workers are heavily influenced by economic growth. By contrast, pensions are notoriously hard to reform, so relatively more insulated from low growth.
As a result, the elderly care less about economic growth and long-term public investments, and relatively more about inflation. They punish governments more harshly for rising prices (Figure 1), which can erode pensions when they are not indexed to inflation, but are less likely to vote against incumbents for weak growth or high unemployment.
Figure 1: Pensioner voting response to the macroeconomic context during parliamentary elections
Inflation
Unemployment
Note: The charts plot the marginal effects of a particular outcome (inflation, unemployment) on the probability of voting for incumbent parties for different groups (low-skilled workers, pensioners, public sector workers, high-income voters). Source: Bojar, A., & Vlandas, T. (2021).
These different policy and economic priorities matter because nearly 22% of the EU population is aged 65 and over, although with some important cross-national variation (Figure 2), while the median age is around 45 years old. In addition, older citizens are also more likely to turn out to vote. Given that people under 18 are generally ineligible to vote, and that many younger voters are less likely to vote than the elderly, grey power becomes hard to ignore for many Europe governments.
Figure 2: Share of population 65 years and older in Europe
Source: Eurostat.
As the share of older voters in the electorate rises, politicians face fewer direct electoral incentives to pursue long-term growth strategies. Protecting pensions becomes the safer bet.
Over time, implementing further increases in public spending on crucial investments in education, childcare, R&D or infrastructure will become fiscally and politically more difficult as age-related transfers take a growing portion of public budgets. In the long run, the consequence will be slower growth, weaker fiscal sustainability and tighter constraints on all governments, further exacerbating the pension-growth dilemma that European governments face.
The UK illustrates this conundrum. Since 2010, the triple lock has guaranteed state pensions rise by the highest of inflation, earnings or 2.5%. This rule has delivered repeated increases in pensions. By all accounts, local councils, universities, schools and childcareare crumbling, while research and development, and necessary public investments in infrastructure have been lacking.
Neither Labour nor the Conservatives have so far risked scrapping the triple lock, given the dominance of older voters in the electorate. Although Labour ran on a comparatively younger, pro-growth policy platform in the 2024 general election, their commitment to fiscal probity, long overdue increases in public sector workers’ salaries, and a reluctance to enact any pension reforms that could antagonise their pro-welfare state constituencies have – so far – severely limited their ability to pursue this pro-growth agenda.
The predicament is not unique to historically lower tax, liberal market economies. Across the English Channel, the much more statist French economy has experienced remarkably similar problems, although in a much higher tax-debt equilibrium.
Southern European countries face an even tighter bind. For example, Italy spends even more on pensions as a percentage of GDP, after decades of inconsistent reform strategiesthat have undermined its competitiveness. This burden has helped push public debt above 135% of GDP, beaten only by Greece. Yet political parties are reluctant to risk antagonising elderly voters to free up the necessary public investments to spur growth.
Breaking the vicious circle of ageing political economies
These national stories reflect a shared dilemma. Grey power is constraining fiscal policy across Europe while many countries have delegated their monetary policy to the European Central Bank. In the absence of significant leeway to issue more public debt and/or raise taxes, rising pension and health care costs increasingly crowd out necessary public investment in education, infrastructure, technology and innovation.
Seen in this light, Europe’s pension crises and blocked reforms are not isolated episodes but symptoms of a deeper shift in the structure of European political economies. As electorates age, pro-growth policies become electorally unattractive. This is the new electoral politics of economic stagnation. Unless European governments manage to rebalance the policy allocation between young and old, they risk decades of weak growth, rising debt, escalating policy misallocation and ultimately political frustration leading to authoritarian backlash and democratic decline.
An ageing Europe need not be a stagnant one if policymakers confront the sources of the grey power trap. Three mutually non-exclusive strategies can be delineated.
First, there is adjusting demographic dynamics. One option is to increase fertility, which would not only improve the old age dependency ratio but may also lead to greater intergenerational solidarity. However, recent evidence suggests that few policies can achieve the magnitude of the adjustment that would be required. Even massive increases in fertility would take time to alter fiscal and political dynamics, and in the short run, the total dependency ratio would actually deteriorate.
An alternative option is to encourage more (and younger) immigration. This could certainly help rebalance budgets. With clear routes to acquire citizenship, this may also end up improving the political representation of non-elderly voters. However, whether legitimate or not, immigration is already politically controversial, and it is hard to imagine that the kind of mass immigration that would be required to recalibrate the political and fiscal problems of ageing societies would be electorally feasible in the current context.
Second, if there are limited effective policies to fundamentally change current demographic patterns, we can instead try to change the political consequences of demography. One option is to implement an electoral reform that reduces the voting age to shift the electorate in the right direction. However, aside from other objections one might raise, the magnitude of the change will not suffice. There are simply not enough 16- and 17-year-olds, and if turnout of people aged 18-24 serves as a guide, not enough turn out to vote.
An alternative, more effective avenue, proposed by David Klemper at the Constitution society, is to implement compulsory turnout. Given that the age-based differences in turnout currently favour grey voters, compulsory participation with strict enforcement would rebalance the electorate in favour of younger and middle-aged voters.
Third, there is the option to further reform pension policies. Elderly voters have different priorities because they are more reliant on public pensions and at the same time more insulated from problems in the labour market and poor aggregate economic performance. In addition, they have fewer expected years left to live to reap the future growth returns from any present sacrifices to their pensions.
Delaying the retirement age and/or linking it to life expectancy, as some countries have done, would lead to more elderly people in the labour market, where their interests would become more similar to those of working age individuals. But for some occupations, it is not realistic for people to work beyond a certain age and the labour market must also be in a position to continue to employ older workers, which is often not the case. Therefore, greater linking of pensions to economic performance is necessary to more fully align the incentives of pensioners with the rest of the population.
The point is not vilifying pensioners for their standard of living, especially in the many European countries where they face significant hardship. Instead, the key is to align the growth of pensions to the growth of the economy so that the majority of voters punish economically incompetent governments. Price indexation remains dominant, wage indexation is less common, and full indexation to economic growth is very rare (although some countries have mixed indexation), so there is much scope for improvement.
In sum, ageing will put additional fiscal pressures on public pensions and healthcare as well as social care, just as other policy domains require substantial investments. To confront the structural force of ageing, and the new politics of economic stagnation that it creates, governments will need to act simultaneously to tackle the demographic, political and institutional sources of this grey power trap.
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