39

Demographic and economic trends are forcing European governments to reform their pension systems. Contributions to pension schemes have been raised and eligibility criteria for a full pension tightened. People who retire in the years to come will have experienced less uniform careers. Consequently, labour market conditions (combined with the reforms under way) are likely to lead to greater inequality at retirement. If the factors of inequality and the levers for action on the level of inequality are known, it becomes possible to anticipate the potential social consequences of the reforms. This article aims to identify the impact of public spending on social protection on the income mobility of retirees. The impact of that spending on the level of inequality within the retired population is analysed through a panel of European countries. A panel probit model is used here to identify the factors influencing the probability that individuals will enjoy higher-than-average income growth. Next a regression on the Gini coefficients is performed verify the conclusions based on the panel probit model. We find that in Germany in the 1990s, the average income of the poorest retirees increased faster than that of retirees on an average income, while the average income of the richest decreased. Conversely, in Ireland, the richest seem to have benefited the most from the strong economic growth recorded over the same period. By enabling the incomes of the poorest to increase faster than average, countries’ pension spending can be considered as an effective way to reduce the income variance – and therefore inequality – between retirees.