An analysis of future European social security balances
The 2026 Italian reform of severance pay (TFR), which was the subject of a previous study by the author, represents the latest chapter in a much broader transformation concerning the future of European social security systems; it is within this context that the present study is situated, building upon and expanding the analysis already undertaken.
This change cannot be analyzed solely as a social security or financial issue.
The future sustainability of pensions will, in fact, depend on the profound transformations that are altering the economic foundation upon which the European welfare system was built: demographic aging, globalization, changes in the structure of production, labor market evolution, wage stagnation, and the artificial intelligence revolution.
The Italian debate of the 2010s on the pension prospects of precarious workers serves as a significant example. The most alarmist predictions about the absence of pensions did not come to pass, but the underlying concern proved to be well-founded: millions of workers with discontinuous careers and low incomes could end up with significantly lower pension benefits than previous generations.
The central issue, therefore, is not merely how much the financial markets will yield, but what kind of economy will be capable of generating the income, savings, and tax revenue necessary to ensure the security of future generations.
Through an analysis of demographic, productive, employment, and technological transformations in Europe, this study argues that the real social security challenge of the coming decades will not be exclusively financial, but will concern the distribution of economic risk within society.
A European Debate on Social Security Risks
The Italian case serves as a starting point for addressing a broader issue: the redistribution of social security risk in a Europe shaped by globalization, the transformation of work, and artificial intelligence.
While the author’s previous study focused on the content of Italy’s 2026 severance pay (TFR) reform and its effects on the supplemental pension system, this work expands on that perspective by situating that reform within the economic, demographic, productive, and technological transformations that are reshaping the relationship between the state, workers, businesses, and the social security system.
For decades, the European social model was based on a fundamental principle: economic security in the post-working-life phase was not considered an exclusively individual responsibility, but rather the result of a balance among the state, workers, businesses, and the productive system.
Public social security was not merely a financial mechanism for transferring resources between generations; it constituted one of the pillars of the European social compromise, based on the idea that certain fundamental risks of life – old age, loss of working capacity, and economic vulnerability -should be shared collectively.
That model is now under increasing pressure.
Population aging, declining birth rates, and rising life expectancy have profoundly altered the ratio of working people to retirees, putting pressure on social security systems built during a historical period characterized by very different demographic and economic conditions
This trend affects not only Western economies but also, albeit in different ways, some of the major emerging economies.
A prime example is China, which is entering a phase in which the combination of a rapid decline in the birth rate, rising life expectancy, and a gradual increase in labor costs is putting pressure on a growth model built over decades on the basis of an abundant labor force.
This is accompanied by a gradual relocation of certain labor-intensive manufacturing activities to countries in Southeast Asia, driven by rising costs and strategies to diversify global value chains.
This phenomenon, however, remains largely confined to traditional sectors and does not alter China’s central role in global manufacturing, which is increasingly oriented toward higher-value-added production.
However, returning to our topic, it must be strongly emphasized that interpreting the European pension crisis exclusively as a consequence of demographics risks offering an incomplete picture.
The problem concerns not only the future ratio of workers to retirees but also the transformation of the economic foundation upon which the European welfare system was built.
In recent decades, Europe’s productive structure has changed profoundly. Globalization has reshaped value chains, shifting a significant portion of production activities to regions of the world with lower costs and altering the relative weight of different economic sectors.
In many European countries, traditional manufacturing has lost its central role, while the service sector has grown to become dominant in advanced economies.
At the same time, the labor market has undergone an equally significant transformation. Greater flexibility has created new opportunities, but it has also led to more discontinuous career paths, greater job instability, and difficulties for many younger generations in achieving levels of income and economic security comparable to those of previous generations.
Added to these transformations today is a new factor set to profoundly impact Europe’s economic and social future: the artificial intelligence revolution.
Previous technological innovations replaced certain tasks while simultaneously creating new professions and new sectors of production.
The current transformation, however, has different characteristics, as it is progressively encroaching on cognitive, administrative, and professional activities that were previously considered more protected from automation.
The issue of social security in the future, therefore, cannot be addressed solely through the relationship between the working-age population and the elderly population, as was done, for example, by Dario Velo and Giovanni Palladino in their work well-known to experts, “Pension Funds Toward the Year 2000: The Social Security Problem in Eight Industrialized Countries”, published by Il Sole 24Ore (Milan, 1987, 191 pages, “Studies and Conferences” series).
A text that was innovative for its time but is now outdated due to everything that has happened since 1989 – the year of that fateful fall of the Berlin Wall – which has meant that the entire system must also take into account the quality of the jobs that will be created, wage levels, the ability of new generations to accumulate savings, and the actual soundness of the economic system in which those savings will be invested.
The response adopted by many European countries in recent decades has been to strengthen the role of supplemental pension plans and funded pension systems.
The objective is understandable: if public systems face increasing difficulties in guaranteeing the same levels of coverage as in the past, additional instruments based on individual savings can represent an important component of future economic security.
Supplementary pension plans can therefore play a positive role. The point is not to deny its usefulness or to question the contribution it can make within a diversified pension system.
The broader issue, however, concerns the economic and social conditions necessary for this model to truly function and the way in which risk is distributed within society.
The shift from a predominantly collective system to a model in which the burden of individual responsibility grows does not, in fact, eliminate pension risk. It modifies it and, in part, transfers it.
In the traditional model, economic and demographic shocks are absorbed through collective instruments: taxation, policy decisions, redistribution, and mechanisms of intergenerational solidarity.
In a system where an increasing portion of future security depends on individual financial savings, a greater share of the uncertainty is instead placed directly on workers.
Citizens are increasingly called upon to simultaneously be workers, savers, investors, and responsible for their own future economic security, without being able to exempt themselves – given the impossibility of applying the new regulations retroactively – from having to bear an excessive burden in supporting the vast population of increasingly long-lived retirees.
This transformation, however, raises a fundamental question: greater individual accountability presupposes that individuals actually possess the economic, cultural, and financial tools necessary to assume this responsibility.
Can a system ask workers to independently build an increasing portion of their own social security without questioning the economic conditions that make it possible to accumulate that capital?
This question serves as the starting point for this study.
