Minimum Income Schemes indexation in EU-27

This paper analyses the role of Minimum Income Schemes (MIS) indexation in safeguarding social protection adequacy across the EU-27 during the 2021–2024 inflation surge. Set within the framework of the European Pillar of Social Rights and the EU’s commitment to reducing poverty and social exclusion, the paper addresses a central policy challenge: how social assistance systems can preserve purchasing power and poverty-mitigation capacity during periods of acute macroeconomic stress. As inflation reached multi-decade highs across the Union, ensuring that MIS kept pace with rising living costs became critical for protecting vulnerable households from real income losses and deepening poverty.

The analysis is based on the EUROMOD tax-benefit microsimulation model, allowing for harmonised cross-country comparisons and counterfactual assessments of alternative indexation scenarios. It examines both actual policy responses and hypothetical full inflation (HICP) indexation, focusing on changes in benefit adequacy, eligibility thresholds, and overall poverty outcomes between 2019 and 2024. The findings provide empirical evidence relevant to ongoing debates on automatic stabilisers, benefit uprating mechanisms, and the design of resilient social protection systems.

Results show that Member States with automatic indexation mechanisms consistently achieved better poverty outcomes than those relying on discretionary adjustments or lacking formal indexation frameworks. However, the presence of indexation alone proved insufficient. In several countries, benefit erosion occurred because indexation mechanisms were poorly calibrated or failed to fully reflect realised inflation. Countries without any indexation framework experienced the most pronounced deterioration in MIS adequacy and poverty outcomes.

A key finding is the wide variation in MIS capacity to offset inflation-induced poverty increases, ranging from near-complete mitigation to minimal impact across Member States. This variation reflects not only differences in indexation practices but also fundamental disparities in MIS coverage and generosity. Narrowly targeted schemes inherently limit poverty reduction potential, regardless of how well benefits are indexed. Counterfactual simulations illustrate this heterogeneity: full HICP indexation would have prevented 39% of the poverty increase in Lithuania but 89% in Slovenia, while Spain’s actual policy mix achieved a 190% offset, reducing poverty below pre-inflation levels.

Successful countries combined improvements in benefit adequacy with expanded eligibility. Spain exemplifies this balanced approach, with poverty reduction driven equally by enhanced generosity and broader coverage. By contrast, underperforming countries -including Cyprus, Greece, Finland, and the Netherlands- saw higher poverty rates in 2024 than would have occurred under simple inflation indexation.

The findings underscore that effective poverty protection during inflationary periods depends on the interaction between indexation mechanisms and overall MIS design. Comprehensive, automatic indexation of both eligibility thresholds and benefit amounts is essential, but it cannot substitute for adequate benefit levels and inclusive coverage. Proactive policy adjustments that go beyond mechanical inflation indexation can deliver superior outcomes, highlighting the need for holistic MIS reform to strengthen social protection resilience.