EUROPEAN COMMISSION Brussels, 28.9.2022 SWD(2022) 313 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document Proposal for a COUNCIL RECOMMENDATION

On adequate minimum income ensuring active inclusion















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Table of Contents 1. Policy context 2. Poverty trends and impact of social protection on income 3. Challenges related to the effectiveness of minimum income 3.1 Challenges related to the adequacy of income support 3.2 Challenges related to the coverage and take-up of minimum income 3.3 Challenges related to inclusive labour markets and social inclusion 3.4. Challenges related to effective access to enabling and essential services 3.5 Challenges related to governance mechanisms 4. Why should the EU act? 5. The effect of hypothetical policy reforms on adequacy and coverage 5.1 Reform scenario 1: Increased adequacy to the 2/3 of the poverty threshold for current beneficiaries 5.2 Reform scenario 2: Increased adequacy to the 2/3 of the poverty threshold for current beneficiaries plus increased coverage by 10 percentage points 5.3 Reform scenario 3: Increased adequacy to the 2/3 of the poverty threshold with full coverage (‘Extreme poverty elimination’) 5.4 Reform scenario 4: Increased adequacy to the poverty threshold for current beneficiaries 5.5 Reform scenario 5: Increased adequacy to the poverty threshold for current beneficiaries plus increased coverage by 10 percentage points 5.6 Reform scenario 6: Increased adequacy to poverty threshold with full coverage (‘Poverty elimination’) 6. Monitoring at Union level 7. Use of EU funds

Annexes



1. Policy context The fight against poverty and social exclusion and the right to adequate minimum income plays a key role in the European Pillar of Social Rights. The Commission proposal for a Council Recommendation on adequate minimum income implements principle 14 of the Pillar, which states that: “Everyone lacking sufficient resources has the right to adequate minimum income benefits ensuring a life in dignity at all stages of life, and effective access to enabling goods and services. For those who can work, minimum income benefits should be combined with incentives to (re)integrate into the labour market”. On 4 March 2021, the Commission adopted the European Pillar of Social Rights Action Plan, which was welcomed by the Union leaders at the Porto Summit on 8 May 2021. The Action Plan sets ambitious headline targets in the areas of employment, skills, as well as poverty. By 2030, the number of people at risk of poverty or social exclusion should be reduced by at least 15 million, including at least 5 million children, while at least 78% of people aged 20 to 64 should be in employment and 60% of adults should participate in training every year. In June 2022, Member States presented their national targets along this ambition. In its conclusions of 12 October 2020 , the Council invited the Commission to initiate an update of the Union framework to effectively support and complement the policies of Member States on national minimum income protection. The proposed initiative aims at combating social exclusion by promoting adequate income support, in particular through minimum income, effective access to enabling and essential services for people lacking sufficient resources and labour market integration of those who can work. In doing so, the initiative also aims at supporting high levels of employment. The proposal builds on the ambition of the Council Recommendation 92/441/EEC of 24 June 1992 on common criteria concerning sufficient resources and social assistance in social protection systems and extends its scope to provide a more holistic and concrete guidance to Member States on how to improve the effectiveness of minimum income (hence also proposing to replace Recommendation 92/441/EEC). It complements the Commission Recommendation 2008/867/EC of 3 October 2008 on the active inclusion of people excluded from the labour market . The latter sets out a comprehensive strategy to facilitate the integration into sustainable, quality employment of those who can work and to provide resources which are sufficient to live in dignity, together with support for social participation for those who cannot. The proposal takes into account the content and key messages of the first joint report of the Social Protection Committee (‘the SPC’) and the Commission , which delivers an analysis and overview of national minimum income. Minimum income brings together three mutually reinforcing strands – i) minimum income benefits, ii) measures fostering social inclusion and provision of quality services, iii) tailored assistance and incentives to access to inclusive labour markets. This comprehensive approach is particularly important for people furthest from the labour market facing complex barriers to employment and participation in society. In this way, minimum income are not a passive tool but should act, to the extent possible, as a springboard to improve inclusion and employment prospects. Income support consists of a spectrum of monetary benefits addressing different needs, complemented, where relevant, with access to essential services, enabling services and activation measures. Such monetary benefits may include, for instance, child and family allowances, housing benefits, unemployment benefits, disability benefits, old-age benefits or in-work benefits and also the minimum income benefits. Minimum income benefits play a special role within overall income support as they aim at filling the gap to reach a certain overall level of income in a given household. They are non-contributory benefits of last resort, when other sources of income or benefits have been exhausted or are not adequate to ensure a life in dignity. Well-designed minimum income help reduce social inequalities and disparities within Member States, thus enhancing upward social convergence. Ensuring that persons lacking sufficient resources have access to adequate minimum income is essential for a life in dignity and supporting sustainable and inclusive growth. While minimum income exist in all Member States, their design differs markedly with regard to the coverage and take-up of benefits, the adequacy of income support, and the links of these to labour market activation measures and enabling services. This, in turn, leads to a heterogeneity in social and employment outcomes. While some Member States have recently introduced new, or modernised their already existing minimum income, in other countries implementation of reforms has been slow, as reflected by long-standing country-specific recommendations issued in the European Semester process. In addition, thematic discussions under the Open Method of Coordination have highlighted mutual challenges, in particular related to the non-take-up of benefits and the need to further support beneficiaries in participating in the labour market and integrating in the society. The COVID-19 pandemic has highlighted the key role and the effectiveness of social protection systems to cope with economic shocks. Some gaps in the coverage of social safety nets have, however, become more visible. While the Union and the Member States took decisive actions to mitigate the socio-economic impact of the crisis, most of the adopted support measures was temporary and many responses focused on policies targeting people already in employment. Confinement measures had a disproportionate impact on women and people in vulnerable situations, notably in terms of the higher burden of informal care work and more limited access to healthcare, education and other social services, also aggravating pre-existing limitations in access to employment. The consequences of the pandemic highlighted the critical role of minimum income to protect individuals and their families, to prevent them from falling into poverty and to preserve a proper standard of living in times of crisis. Furthermore, following Russia’s illegal and unjustified aggression against Ukraine, the sharp increase in energy prices and hiking inflation is affecting low- and lower middle-income households and risks aggravating energy poverty. This is likely to put more people into precarious circumstances and further aggravate the situation of the most vulnerable. Social protection systems of Member States are thus under strain and require that any gaps in social safety nets are sealed. Globalisation, the digital and green transitions and demographic change have driven changes in European labour markets for the last two decades and will continue to do so in the future. While those trends bring new opportunities, they also accelerate the rhythm of labour market transitions. In this context, strengthening minimum income can contribute to ensure that everybody is protected from being at risk of poverty or social exclusion, including through providing sufficient support and incentives to (re)enter the labour market for people who can work. This Staff Working Document accompanies the Commission proposal for a Council Recommendation on adequate minimum income and replacing Recommendation 92/441/EEC. It: (i) presents the challenges addressed by the initiative; (ii) reviews the responses to these challenges; and (iii) discusses the likely impact of a series of reform scenarios as potential further responses to the challenges. A summary of the stakeholder consultations is included in Annex 11 to this document.

2. Poverty trends and impact of social protection on income In spite of some progress over the last decade, poverty and social exclusion remain a persistent challenge in the Union. The number of persons at-risk-of-poverty or social exclusion had steadily declined for seven consecutive years until 2019. However, the COVID-19 pandemic and its socio-economic impacts might have put this positive trend to a halt. In 2020, the number of persons at risk-of-poverty or social exclusion reached 94.7 million (or 21.5% of the total population), reflecting stability in most Member States while breaks in data series were recorded in a few Member States . The at-risk-of-poverty or social exclusion is more prevalent among women than men (22.3% vs 20.6%) , people with disabilities, as well as people from Roma communities. While preliminary information indicates that support measures and automatic stabilisers enabled to prevent increases in poverty and inequalities in the pandemic, we are yet to see the impact of the pandemic and the impact of the current spike in inflation and energy prices.

While until 2020 the Union economy continued to expand, employment reached the highest level ever recorded and unemployment returned to the pre-2008 levels, the COVID-19 pandemic put a halt to those positive trends. As the economy recovers, not all jobs are likely to be reinstated, and support to job transitions is becoming particularly important. Given the uneven impact of the crisis on different groups, tailor-made active labour market policies are important to ensure an inclusive recovery. The consequences of the war in Ukraine are likely to further exacerbate the challenges ahead. Overall, the relative income situation of people in vulnerable situations has not been improving over the past decade, indicating gaps in the effectiveness of Member States’ social safety nets. The at-risk-of-(monetary) poverty rate for those who live in quasi-jobless households had increased for five consecutive years until 2018 and remained persistently high (around 62% in the Union, with some Member States above 75%) in 2019 and 2020. The relative median income poverty gap (which measures the intensity of poverty, in other words how poor the poor are), stood at 24.8% in 2020, showing an overall deterioration between 2008 and 2020. It has been accompanied with a similar trend in persistent poverty (which measures how likely a poor person is to stay poor). Regarding trends in deprivation, the severe material and social deprivation rate improved substantially between 2015 and 2019 (by 3 percentage points, from 9.7% to 6.7%). However, it remained broadly stable between 2019 and 2020, with a 0.1 percentage point increase. The highest proportions of people who were severely materially and socially deprived in 2020 were recorded in Romania (25%) and Bulgaria (22%). On the other hand, the proportion was less than 5% in 15 of the 27 Member States, which points to large variation in terms of deprivation across the Union. Poverty is likely to remain broadly stable in the coming years unless Member States strengthen their social protection and social inclusion systems. Projections of the Joint Research Centre’s (‘the JRC’) indicate that structural trends are expected to increase market income inequality in the period from 2019 to 2025. If no policy change is implemented, the tax-benefit systems of most Member States are projected to be able to partly cushion the distributional consequences of structural changes, including those related to skills structures and ageing. However, poverty is projected to remain stable at the currently high levels (with only 700,000 less people projected to be at-risk-of-poverty in 2025 than in 2019). There are large differences between the Member States in the capacity (or effectiveness) of social protection systems to cope with economic shocks and provide for adequate social protection. While the impact of social transfers (excluding pensions) in reducing poverty was in 2020 above or close to 50% in Ireland, Finland and France, it remained below 25% in Romania, Bulgaria, Croatia, Malta, Italy and Latvia. Specifically, there are substantial differences in the adequacy, coverage and take-up, of income support to households. Box: Main concepts and definitions 1) Income support means the total of all types of monetary benefits provided to the household, including minimum income benefits. 2) Minimum income benefits play a special role within overall income support as they aim at filling the gap to reach a certain overall level of income in the a given household. They are non-contributory benefits of last resort, when other sources of income or benefits have been exhausted or are not adequate to ensure a life in dignity. Minimum income benefits are means tested and financed by taxes. Various forms of social assistance benefits are identified as minimum income benefits in the Member States (composed by one single or a cluster of benefits). Minimum income benefits are typically national, but can be complemented or substituted by regional or local schemes. The granted amounts of the benefits generally depend on household composition. Minimum income benefits are usually not time-limited, but available for as long as the eligibility is maintained. Finally, they might be linked to activation conditions, requiring beneficiaries who are able to work to participate in active labour market measures and to actively seek employment. The list of minimum income benefits in Member States used for this document is in Annex 1. 3) Minimum income refers to non-contributory and means-tested safety nets operating within social protection systems. 4) Coverage means the entitlement to participate in minimum income schemes, as defined by the national legislation. 5) Take-up means the proportion of persons entitled to participate in minimum income schemes who actually take part in them. Data used: Cross-country quantitative comparisons are primarily based on data from the income year 2019 (in particular EU-SILC 2020; OECD 2019; Eurostat 2019), which were the latest available at the time of drafting this Staff Working Document and also ensure consistency with the 2022 Joint Social Protection Committee – European Commission report on minimum income and the latest update of the benchmarking framework developed by the Social Protection Committee . This also relates to the EUROMOD simulations on hypothetical reform scenarios, prepared by the JRC , as described in Chapter 5. Although 2020-2021 policy years are already released in EUROMOD, it was decided that 2019 would be the main policy year for two main reasons. First, the simulations aim at capturing the main structural elements of minimum income benefits, leaving aside the exceptional circumstances induced by the COVID-19 pandemic in terms of labour market conditions and temporary policy responses. Second, as the availability of administrative data comes also with delay, information was not fully available for the very latest policy years at the time the simulations were run. When the analysis is less quantitative by nature (i.e. information on the provision of services) and/or focuses on the overall Union average for which more recent data is available (i.e. overall trends in poverty), then more recent information may also be used. While overall, the impact of social transfers (excluding pensions) on poverty reduction in the Union has declined since 2008 , a mild convergence across Member States over time is observed. It is evident that social transfers are a key tool for addressing poverty. Improvements took place for some countries where the impact was relatively low in 2008 (Estonia, Greece and Latvia), while in some of those Member States where the indicator stood previously at a relatively high level, there has been a significant deterioration (Hungary, the Netherlands, Sweden). At the same time, upwards convergence was hindered by Member States where the indicator has worsened from an already low level (e.g. Romania). Figure 1: Impact of social transfers on poverty (population aged 18-64) Note: EU-27 was estimated for 2008 and 2009. There is a break in DE data for 2020 and in BE data for 2019 – and thus also in EU-27 data. Source: DG EMPL computation based on Eurostat EU-SILC. It also appears that the specific impact of minimum income benefits on poverty varies a lot across the Union . The impact of minimum income benefits on the at-risk-of-poverty rate tends to be low (the impact is significant in Ireland, Cyprus, France and Slovenia only). This is not surprising given that the adequacy of minimum income benefits is at or below the poverty threshold in most Member States . Considering the impact on the share of people below two-thirds of the poverty threshold (40% of the country-specific equivalised median income), the impact of minimum income benefits shows a large variety. While in Ireland, France, Cyprus, Slovenia, Germany, Belgium the impact of minimum income benefits is larger, in many other countries, it remains relatively low. However, the impact of minimum income benefits on the relative at-risk-of-poverty gap is generally significant, though it is very small in some Member States. This highlights that minimum income benefits reduce the shortfall in income, as shown in Figure 2. At the same time, there is significant heterogeneity in the performance of Member States, with a few countries reducing significantly at-risk-of-poverty gap with their minimum income benefits (for instance Ireland, Cyprus, France, Slovenia, Finland), whereas others achieve only marginal or no significant reductions (for instance in Hungary, Bulgaria, Latvia, Estonia, Poland) . Figure 2: Depth of poverty measured against the poverty threshold before and after minimum income benefits (MIS)

Notes: Figure 2 shows relative at risk of poverty gaps before and after income support for all EU Member States, using the standard poverty criterion. This indicator measures the intensity of poverty, i.e., the mean shortfall in income from the poverty threshold, in percentage of the latter. In countries where two minimum income benefits are considered in this assessment, the joint impact of both benefits is reflected in the graph. The poverty threshold is anchored to the counterfactual scenario where no minimum income benefits are in place. Source: JRC elaboration using EUROMOD. Finally, it appears that existing designs of minimum income benefits do not contribute to the convergence of disposable incomes of the poorest citizens across the Union. Figure 3 illustrates that the best-performing countries in terms of increasing the disposable income of their population at-risk-of-poverty are those countries where the disposable income of this population is relatively higher before minimum income benefits. This pattern can be observed when focusing on individuals with an income below two-thirds of the poverty threshold (see Annex 4), and remains significant, although to a lesser extent, for all individuals in poverty (Figure 3). The minimum income benefit provided by Ireland, the Netherlands, France and Luxembourg seem to be significantly more effective in improving the income conditions of their poorest citizens, whereas in Bulgaria, Latvia, Poland and Romania the impact appears very low. Figure 3: Disposable income of people who are at-risk-of poverty, before and after minimum income benefits (MIS) Notes: Figure 3 depicts the mean annual equivalised disposable income of people at-risk-of-poverty before and after minimum income benefits are provided. Results are presented using Purchasing Power Parities (PPPs) to ease comparability across countries. The averages are calculated for all poor individuals, regardless of whether they receive minimum income benefits or not. This approach suggests that the results can be interpreted by differences across countries both in terms of the adequacy, coverage and take-up of the different minimum income benefits. In countries where two minimum income benefits are considered in this assessment, the joint impact of both is reflected in the graph. For this graph, people at-risk-of-poverty are those who are at-risk-of-poverty in absence of minimum income benefits. Source: JRC elaboration using EUROMOD and Eurostat data on PPPs (2019).

3. Challenges related to the effectiveness of minimum income The key role of minimum income is to ensure that everybody has a sufficient level of resources to ensure a life in dignity and be able to participate in the economic and social life, including the labour market. From this perspective, the effectiveness of minimum income can be assessed through the analysis of five main dimensions, which are presented in more detail in this Chapter: (i) adequacy of income support, including the regularity and timeliness of the revision of benefit levels; (ii) coverage and take-up of minimum income; (iii) the extent to which minimum income promote access to inclusive labour markets or facilitate social inclusion; (iv) effective provision of services indispensable for supporting labour market and social integration; and (v) sound governance mechanisms. 3.1 Challenges related to the adequacy of income support The analysis of the adequacy of income support is based on overall income support provided, and is typically related to at-risk-of-poverty thresholds . Available evidence highlights that income support is largely insufficient to protect non-working households of active age from poverty, including multiple-person households of active working age with dependents, as their net disposable income is generally below the poverty threshold . Income support is considered adequate when the level of cash benefits ensures a decent standard of living. Adequacy needs to be assessed on the basis of all available income support that contribute to income security of minimum income beneficiaries and their households (i.e. minimum income benefits and all other monetary benefits such as child and family benefits or housing benefits). Adequate income support can be achieved - while ensuring incentives to work - by lifting all persons above the national at-risk-of-poverty threshold or allowing the purchasing of a nationally defined basket of goods and services (that need to reflect the standards of living in a given Member State). While setting structural levels of benefits it is instrumental that reference values used (such as measures linked to national at-risk-of-poverty thresholds), are calculated over a longer time period (for example, 3-year running average) to smooth potential volatilities resulting from economic cycles. Conversely, the regular updating of benefit levels could be based on other indicators reflecting the current changes in price levels and standards of living. The adequacy of the overall income support provided to minimum income beneficiaries is low in about half of the Member States. The adequacy of income support has been eroding in almost all Member States over the recent years . For the latest available income years (2017-2019), the adequacy of income support was stable overall in the Union (measured against the at-risk-of-poverty threshold), but it slightly eroded if measured against the income of a low-wage earner . This reflects an erosion of adequacy in most Member States and an increase in only two Member States (with a very significant increase in Italy), highlighting that the income of minimum income beneficiaries was generally lagging behind overall income developments that took place in the recovery before the COVID-19 crisis. The income of a minimum income beneficiary (living in a single adult household) lies generally at a level between 20% and 100% of the poverty threshold. The minimum income benchmarking framework analyses the adequacy of benefits based on the total net disposable incomes received by minimum income recipient’s households. Net disposable income is then compared to the national poverty threshold (as an indication of the income poverty alleviation effect) and with the income of a low-wage earner (also providing an indication of the monetary incentives to work for beneficiaries). Results regarding both aspects of adequacy are shown in Figure 4 . The adequacy was the highest in the Netherlands, Ireland and Italy, where the level of benefits of single-adult households in 2019 exceeded or was very close to 90%-100% of the national poverty threshold level. At the lower end of the adequacy scale, the minimum income in Romania, Bulgaria, and Hungary was around or below 20% of the poverty threshold. In terms of linking adequacy to wage levels, it appears that the income support provided to single adult households is below 80% of the net income of a low wage earner in all Member States, which guarantees that monetary disincentives to work are not in place. Figure 4 – Net income of minimum income recipients (single adult) as % of the at-risk-of-poverty threshold and of the income of a low wage earner (2019) income of a low-wage earner poverty threshold Source: Joint SPC-Commission minimum income report. Note: EU27 computed as a simple average. Data for IT is for income year 2020 (instead of 2019). For DE, there is a break in the SILC2018-2020 AROP thresholds used to compute the AROP threshold smoothed over 3 years for the income year 2019. Housing costs are assumed to be of 11% of average wage. Source: DG EMPL elaboration using data from Eurostat and OECD tax-ben. With existing levels of income support, the income of a minimum wage earner is also higher in all Member States than that of a (single adult) minimum income beneficiary thus ensuring incentives to work. The net income of a minimum income beneficiary as a share of the net income of a minimum wage earner ranges between 10% in Romania to 80% in the Netherlands. These results, together with similar results related to low wages shown above, illustrate that the indicator of the net income of a low wage earner is a relatively good proxy for reflecting upon the incentives to work with relation to minimum wage levels. Furthermore, it appears that in most Member States incentives to work for minimum income beneficiaries would also be maintained with higher levels of income support, as the net income of a minimum wage earner (single adult) is at or higher than the poverty threshold in most Member States with a statutory minimum wage (in 2019) . The net income of a minimum wage earner seems to fall marginally below the poverty threshold in only three Member States (Czechia, Slovenia and Germany), which also highlights inadequate levels of the minimum wage in these Member States. From the countries where the net income of a minimum wage earner is below the poverty threshold, Germany has just passed legislation on increasing Germany’s minimum wage to 12 euros per hour from October 1, 2022, which will bring the net minimum wage above the poverty threshold. In the remaining two countries, these results suggest that their minimum wages are not adequate and the tax-benefit systems do not seem to support minimum wage earners sufficiently to ensure that work pays. As also emphasized in the Impact Assessment accompanying the proposal for a Directive on adequate minimum wages in the European Union , a low adequacy of minimum wages entails the risk that work does not pay. In particular, adequate minimum wages and tax incentives for low-wage earners are complementary policies to maintain high employment and support the income of low-wage workers. Figure 5: Net income of minimum income beneficiary and net income of minimum wage earner as % the poverty threshold, single earner (2019)

Note: For DE, there is a break in the SILC 2018-2020 AROP thresholds used to compute the AROP threshold smoothed over 3 years for the income year 2019. Housing costs are assumed to be of 11% of average wage. Only MS are shown where there is a statutory minimum wage in place. Source: own computation on Eurostat data and OECD data. DE result is temporary due to the announced policy change from October 2022. The level of income support is generally more adequate when other household types are considered than single adult households. The adequacy of the income of minimum income beneficiaries is generally slightly more favourable when considering different household types than single adult households (as outlined by the benchmarking framework on minimum income). For example, the level of minimum income support is around 15-20 percentage points higher on average in the Union for single parent households and around 5-10 percentage points higher for couples with two children. However, in all household types observed, the income of households benefiting of minimum income remains generally well below the poverty threshold (see charts in Annex 8 and 9). While with current levels of benefits monetary incentives to work are generally ensured in all Member States, the extent to which this might hold with income support at the level of the poverty threshold also depends on the work intensity of the household and the number of dependent children. Overall, the level of work intensity and wage levels that allow to reach the poverty threshold depends on household types and Member States. All things being equal, the adequacy of household income, in equivalised terms, tends to increase with the work intensity of the household and tends to decrease with the number of dependent children in the household. For instance, the net income of households with two low-wage (or minimum wage) earner adults and two dependent children is above the poverty threshold in all Member States. This means that two earner households with two children are in principle not at risk of poverty when both parents are working full time. Still, this may not always be the case for lower work intensity households. For instance, the income of a couple with two children where only one adult is at work on a low wage or a minimum wage is lower than the poverty threshold in around half of the Member States (Figure 6 below) . The link between poverty risk and work intensity is further reflected by the general pattern that, on average, in-work poverty increases as the work intensity of the household decreases. In-work poverty ranges from 5% for high work intensity households to around 20-25% for medium work intensity households and around 40% for low work intensity households. This highlights the need for further reforms in some Member States’ tax-benefit systems to ensure that work pays, either relating to the design of tapering of minimum income (or other benefits including in-work benefits) with higher income from work, or also in some instances in relation to the level of the minimum wages (see Chapter 3.3 for further details). Figure 6 – Net income of minimum income recipients (two adult household with 2 children) as % of the poverty threshold (2019) depending on work intensity and wage levels Source: Data for IT is for income year 2020 (instead of 2019). For DE, there is a break in the SILC2018-2020 AROP thresholds used to compute the AROP threshold smoothed over 3 years for the income year 2019. Housing costs are assumed to be of 19% of average wage. Source: DG EMPL elaboration using data from Eurostat and OECD tax-ben. The dotted line is the poverty threshold. While it is key to ensure that work pays, it should be underlined that transition rates to employment of minimum income beneficiaries appear to equally depend on other factors than the potential income gain from work. Research has shown that the likelihood of entering employment increases with the availability of active labour market programmes, including job counselling, social assistance services and enabling services, such as childcare, as well as by preferable macroeconomic circumstances. Other personal factors that play a role include age and educational attainment. On the other hand, the likelihood to take up employment is lower for people with health limitations and for adults in households with many dependent children. While once all these other factors are taken into consideration, the expected net income gain from work does not, on average, seem to have a significant impact on the probability to take up a job (for minimum income beneficiaries), there are specific recipient groups and situations where this impact can be significant. There is a high dispersion in the nominal values of minimum income benefits across Member States. Looking at the nominal values of minimum income benefits in each Member State, it appears that the nominal value of the minimum income benefit is more than 50-fold between the worst performing Member State (Romania for a single adult household and Poland for a couple with one child) and the best performing Member State (Denmark). It must be noted that comparison of Figures 7a and 7b below should be taken with a caveat due to slight time lag between the data used in 7a (which shows benefit levels based on most recent information from Country fiches) while 7b is based on SILC 2019 Eurostat data. When relating the values of minimum income benefits with the at-risk-of-poverty threshold, it appears that only in Denmark the level of the minimum income benefit reaches the poverty threshold. In other three cases (the Netherlands, Belgium and Slovenia), the benefit level seems to reach about 70-80% of the poverty threshold. Furthermore, while benefit levels are around half of the poverty threshold in many Member States, the Eastern and some Southern European countries as well as the Baltic states seem to provide minimum income benefits in the amount that is less than 50% of the poverty threshold (for single adult households with no children). Figure 7a: Nominal monthly level of minimum income benefit(s), single adult households, (EUR) Source: Country fiches on minimum income published by SPC 2022 and Eurostat, DG EMPL elaboration; Notes: HR benefit based on a single person capable of work; DK based on a single person over 30 years of age; LT based on the benefit provided in the first six months; NL benefit calculated for a single person between 21 years and retirement age; PL benefit corresponds to the minimum the social assistance office is obliged to grant; BE the value for the integration income (revenu d’intégration sociale – RIS) is used. Figure 7b: Nominal monthly level of at-risk-of-poverty threshold (EUR), single adult households Adequacy is discussed above for the total income support, taking into consideration all monetary benefits, but excluding in-kind benefits. This is done so because it is difficult to calculate the monetary value of such in-kind benefits available to minimum income beneficiaries as they depend on individual costs, take-up, and they might include the provision of services for which cost calculations are not available. Data on the value of in-kind benefits remains limited and is not available for cross-country comparisons. Therefore, the analysis included in this Staff Working Document on the adequacy of income support and minimum income benefits does not take into consideration the monetary value of in-kind benefits. While the provision of in-kind benefits remains important to contextualize the assessment of adequacy, the proposal aims at achieving adequate levels of income support only. Adequacy of income support could be based also on a reference budget.

Reference budgets are illustrative priced baskets of goods and services that represent an acceptable standard of living for a hypothetical household within a given Member State. It can be designed in various ways, taking into account household composition, disposable income, and other aspects such as housing or transport needs. Absolute needs-based measurement of poverty is rarely used in a cross-country comparable manner, as reference budgets are created independently from one another, using different methods (to allow reflecting the specificities of Member States) and results that are not comparable across countries. According to the findings of a pilot project on reference budgets , such methodologies have been developed in most of the Member States in the past but with various purposes and use. They can serve as a benchmark upon which the adequacy of social benefits (or eventually a given national poverty threshold) can be assessed. By doing so, Member States could contextualise the poverty threshold to the specificities of their country including living conditions of different household types. Most of them are based on country-level data, while some have a local geographical focus and use their capital city or another large city as a point of reference. Almost all are constructed for one or more model families, most frequently, couples with children of various ages and single people, with specific assumptions made about the health and living environment of those concerned. While it is clear that these methodologies require regular adjustment and updating, it seems that the frequency with which these are performed and the methods used differ greatly across Member States. Among those where such methodology exist for various purposes, approximately half of them are adjusted in line with price changes as measured by the Consumer Price Index (CPI). Building up reference budgets requires agreements on a set of assumptions and methodologies, including decisions on some normative considerations. The methodological approaches to constructing reference budgets vary across national practices: while some of them define living standards in terms of a ‘minimum living standard for full social participation’, others use more limited standards of living concepts, closer to ‘minimum subsistence’. A key challenge in modelling absolute poverty across countries consists in finding the right balance between the requirements of cross-country comparability and local validity, and to account for the country-specific definition of minimum needs expressed by reference budgets. A recent JRC project explores the technical, methodological, and data requirements of developing a cross-country comparable absolute poverty measure for Union-wide use. It highlights the complexity of such exercises and that they require a complex underlying analysis and a set of assumptions. Currently , eight Member States – one way or another - use the value of a basket of essential goods and services to assess or determine the level of the benefit to be provided as part of their minimum income schemes: Cyprus, Estonia, Germany, Lithuania, Luxembourg, Poland, Slovenia, and Sweden. Luxembourg recently reformed its minimum income system with a view to ensure basic means of subsistence for its recipients. It is determined in relation to the essential items and corresponding amounts of the reference budget calculated by the Statistical Institute of Luxembourg. This reference budget is defined as a priced basket of goods and services that ensures a decent standard of living in society . While the law establishing the benefit has no explicit mention of the reference budget, the indexation of the minimum income benefit is made according to the evolution of consumer prices in the reference budget. In Lithuania, the threshold for the income test is defined annually based on the state supported income (SSI), which is linked to minimum consumption needs (MCN). The calculation of the MCN is based on national statistical data on household expenditure and on minimum food requirements. The amount of social assistance is indexed to the MCN, which in turn is indexed to price changes and in principle updated annually. In Cyprus, the guaranteed minimum income scheme was introduced in 2014 . The level of the basic amount was calculated using reference budget methodology, depending on the size and age structure of the recipient household. The monthly amounts can be adjusted every two years, after taking into account the actual prices of items included in the reference budgets. Member States’ expenditure on minimum income benefits varies to a large degree. A contextual indicator on adequacy derives from the budgetary expenditure that is spent on minimum income benefits in each Member State and in the Union overall. The ranking of Member States in this respect is similar to their performance in terms of the adequacy of minimum income benefits. Eurostat reports that overall in 2019, the total expenditure on social protection benefits in the Union amounted to EUR 3 761 billion, which was equivalent to 26.9 % of the Union GDP. An analysis by function reveals that the highest levels of expenditure in the Union were recorded for the old age and survivors function (largely composed of pensions), which accounted for close to half (46.3 %) of the total expenditure on social protection benefits in 2019. The next highest share, accounting for almost three tenths (29.5 %) of the Union’s expenditure on social protection benefits, was for the sickness/health care function, while each of the remaining four functions accounted for single-digit shares. Among these, the highest proportion was recorded for the family/children function (8.4 % of total expenditure on social protection benefits), followed by disability (7.6 %), unemployment (4.5 %) and housing and social exclusion (3.7 %). Regarding expenditure on minimum income benefits, the JRC estimates that Member States together spend about 0.42 % of the yearly GDP of the Union. In absolute value, this was equal to approximately EUR 59.3 billion in 2019. Figure 8: Expenditure on minimum income benefits (% of GDP) Note: In countries where two minimum income benefits are considered in this assessment, the joint impact of both is reflected in the graph. Source: JRC elaboration using EUROMOD and Eurostat data on GDP (2019). As Figure 8 illustrates, national expenditure on minimum income benefits varies significantly across Member States, from 0.02% of GDP in Latvia to 0.78% of GDP in France. In the six countries with the highest expenditure on minimum income benefits (France, Cyprus, the Netherlands, Slovenia, Germany and Denmark), the expenditure on minimum income benefits amounts to at least 0.5% of their respective GDPs. At the other end of the scale stands Latvia, Poland, Bulgaria, Czechia, Romania, Estonia and Hungary, where the budgetary expenditure on minimum income benefits is equal or less than 0.06% of their respective GDPs. National mechanisms for setting and indexing the level of minimum income benefit(s) show shortcomings. While the majority of Member States have some mechanisms for establishing and adjusting the level of benefits in place, mechanisms in place differ across Member States in terms of parameters and the frequency of adjustments. In a few Member States no dedicated mechanism is applied and the level of benefits is set or adjusted on a subjective or arbitrary basis. Currently eight Member States use the calculation of the value of a basket of essential goods and services as a reference value for the level of benefits to be provided . Some Member States use wages or income levels as reference parameters, others use pensions or pension index as reference. Ten Member States have automatic indexation systems that adjust the amount of the minimum income benefits on a regular basis to account for changes in the costs of living. Most of these automatic indexation systems are based on the inflation rate/variation of the consumer price index (CPI), as is the case in Belgium, France, Slovenia and Romania as of 2022, while other less common parameters used for indexation are wages (used in Slovakia, Denmark, Netherlands). Germany implements an indexation system based on a weighted index including both prices and wages. Overall, the automatic indexation systems operate annually, with the exception of the Netherlands where minimum income benefits are updated twice a year. In Luxembourg a raise of the minimum income benefits is triggered when the CPI varies by 2.5% in relation to the figure triggering the previous adjustment. In Sweden, the adjustment is based on movements in consumer prices and living costs. As the academic literature highlights , Member States that implement indexation mechanisms to protect minimum income recipients against inflation perform better in terms of adequacy compared to Member States who do not implement statutory indexation mechanisms, especially prior to the economic downturn beginning in 2007. However, these mechanisms are still insufficient in bridging the gap between minimum income recipients’ disposable income, on the one hand, and prevailing poverty thresholds and living standards, on the other. Even in Member States that tie their indexation to the average wage (which could be considered as a form of indexation leading to higher adequacy), the benefits were not in line with living standards. Overall, academic studies have found that even though benefit levels have increased across Member States in real terms, there is a decline in the benefit levels relative to living standards for minimum income beneficiaries . Regular indexation of minimum income benefits based on predefined indicators is important to avoid further erosion of the adequacy of benefits. Sound and transparent methodology for adjusting income support at regular intervals, informed by relevant indicators, and reviews of incentives and disincentives resulting from tax and benefit systems are necessary to keep the benefits in line with inflation and the cost of living. Member States also vary widely in the regularity with which they revise benefit levels and the criteria used. In the majority of the Member States, the levels of minimum income benefits are revised periodically or ad hoc to ensure that the level of benefits reflect the changes in the cost of living. The frequency of reviews and the mechanisms in place, including the parameters used for the revision, differ substantially across Member States.

Periodical revisions are either applied on an annual basis as part of the state budget preparation or other less frequent political activities. The revisions are linked to different parameters across Member States and the mechanisms are not automatically applied, which results in varying levels of benefits. Estonia, Cyprus, Lithuania and Poland use the same basket of goods and services as used to establish the level of the benefits. Spain, Hungary and Austria use pensions or pension index (Finland) as reference. Some Member States use wages or income levels as reference parameters. The inflation rate/CPI is also a common parameter, as adopted in Cyprus (every 2 years) and Czechia (the benefits can be revised if the growth of the CPI for sustenance and personal needs exceeds 5 %). In Slovenia the minimum costs of living is estimated every six years. In Sweden, the government updates the national scale rates yearly, based on movements in consumer prices and calculations of reasonable living costs published by the Swedish Consumer Agency, but ad hoc adjustments may also occur for other reasons, for example to align benefits to movements in living standards in society as a whole, also made in close correspondence with the calculations of reasonable living costs. In a few cases, the adjustment of the level of minimum income benefits depends on political cycles and priorities, and availability of resources. In Bulgaria, updates follow political cycles, as the general minimum income is fixed by the government, based on available budgetary resources. In Greece, the regularity of reviews is not stipulated by the law, while in Hungary the amount of the benefit has remained virtually unchanged since 2008. In Italy, the amounts have not been reviewed since the introduction of the citizenship income in 2019. Similarly, the level of Portugal’s social insertion income was last updated in 2019. In some other countries, revisions to the minimum income level occur sporadically, such as the 2012 and 2020 revisions in Czechia or the 2014 revision in Croatia. Adequacy of income support may be decreasing in real terms with increasing energy, food and housing prices. After decades of price stability, the Union has been experiencing steeply increasing consumer prices from early 2021 onwards. Most recent Eurostat figures indicate that, as of March 2022, headline annual HICP inflation in the Union has reached 7.8% . This level is much higher than former inflation levels and is similar – from a quantitative point of view – to the inflationary episodes of the 1970s (in EU-15 countries) and 1990s (in many Central and Eastern Europe countries) that were the source of considerable social distress. Much of the current inflation is driven by increasing energy prices: these latter have risen by 40.2% at the Union level between March 2021 and March 2022, and are fueled additionally by the Russian unjustified war in Ukraine and its collateral effects. Food represents another product category that exhibits a strongly increasing price trend (6.7% annual increase), while the costs of non-energy industrial goods (3.9%) and services (3.3%) have remained comparatively stable so far. These trends are likely to disproportionately affect vulnerable consumers, lower income households and minimum income beneficiaries as the share of energy and food consumption in their overall incomes is generally higher than for the average population. The actual impact on the income of minimum income beneficiaries will very much depend on the indexation features and on additional support that will be made available to the beneficiaries. Income support might not be adequately distributed among household members, as the right to claim benefits is often limited to the head of the household. Solutions facilitating the receipt of income support by individual members of the household can contribute to economic independence and income security of women and young adults. In certain Member States, the right to benefit receipt is an individual right (Belgium, the Netherlands, Denmark and Austria), while in some others the receipt of the benefit by individuals in the household is possible (but the eligibility remains to be determined at the household level). In Belgium, the right to social integration is an individual right, each cohabiting person can claim this right. When there is at least one minor child in the household, the benefit is adjusted by the dependent family rate and each spouse is paid half in their own right. In Cyprus, the spouse or an adult child under the age of 28 could receive separately a proportion of the total benefit. In Denmark, social assistance is provided to an individual and not to a household, though the benefit level is affected by the income of the spouse. In the Netherlands, benefits are granted to individuals, and while the level of the benefit is adjusted to the living situation/family status, the income and assets of other adult members of the household do not affect it. In Finland, in certain situations, social assistance can also be paid separately to cover individual expenses. In Ireland, the minimum income provisions are paid to individual claimants, while in case of couples they are based on a joint income assessment. In Malta, couples who have custody of children can be paid separately and the parent having the care and custody of the children will benefit from a higher weekly payment. In Sweden, social assistance may in exceptional cases be paid to children – for example, where there is domestic violence or sexual assault in the household. In Austria, household members over 18 years of age are entitled to apply for benefits for themselves. 3.2 Challenges related to the coverage and take-up of minimum income Minimum income benefits are provided on the basis of administrative criteria and means testing. Member States typically use several main eligibility criteria for their minimum income benefits, with the most frequent combination being means-tested income, age, residency, receipt of/eligibility for other benefits, and employment activation. Gaps in the coverage by monetary benefits of people at-risk-of-poverty remain significant. In the Union, around 34% of the working age population (18 – 64 years) at-risk-of-poverty is not covered by any social benefits (including minimum income benefits and also other types of social benefits such as housing, child benefits and others). The coverage rate (benefit recipient rate) of social benefits among those who are at-risk-of-poverty ranges across Member States, from below 50% in Spain and Croatia to approximately 90% in Denmark, Finland, France and Ireland. This means that in the worst performing Member States, around 50% of people at risk-of-poverty do not receive any monetary social benefits. Around 20% of those who are at-risk-of-poverty and live in quasi–jobless households (in the age group of 18 – 64) do not receive any monetary benefits . Although this share is lower than among those who are at-risk-of-poverty, it suggests that minimum income support does not reach a significant proportion of those who are in the most vulnerable situations. Since 2015, the coverage rate of social benefits among those who are at-risk-of-poverty and live in quasi-jobless households has gradually increased, but heterogeneity across Member States in this respect remained high. Coverage remained below 60% in Romania and Croatia, while it has reached 95% in Ireland, Finland, France and Denmark. This highlights that in some Member States, close to 40% of people at-risk-of-poverty and living in quasi-jobless households are not covered by any monetary benefit. Due to the recent introduction of national level minimum income in Greece, Italy and Cyprus, it should be noted that this share has potentially improved further since 2019 in some of these countries . The coverage of those who are at risk of poverty by minimum income benefits appears even more heterogeneous across Member States, varying from 2% to 63%. Overall, most national schemes fail to cover most of their population at-risk-of-poverty through minimum income benefits, with only four countries reaching coverage rates above 50%. Countries showing the highest coverage by minimum income benefits of their population at-risk-of-poverty are France, Cyprus, Ireland, Slovenia and Finland, whereas the lowest coverage is observed in Poland, Estonia, Bulgaria and Latvia. In the worst performing countries, up to 90% of people at-risk-of-poverty do not receive minimum income benefits. Imperfect targeting of minimum income benefits might be indicated by two different outcomes in terms of coverage. On one hand, not all people at-risk-of-poverty and in quasi-jobless households are covered by monetary benefits. Sometimes this relates to conscious policy choices, sometimes it reflects undesirable side-effects of difficulties in accessing minimum income. On the other hand, in some cases (for example in Cyprus, Ireland and Finland) , minimum income benefits might reach a group of people who are not at-risk-of-poverty. This could reflect some imperfect targeting of benefits, but it could as well be legitimate in some cases, e.g. if the adequacy of benefits is close to the poverty threshold and/or that there are rules in place allowing for a gradual tapering of benefits when people take up a job. The extent to which minimum income benefits are complemented by other monetary benefits (including by housing benefits, child benefits and other complementary benefits) varies to a great degree across Member States. One cluster of countries might be characterised by very low coverage of minimum income benefits but relatively higher coverage of other benefits (for example, Malta and the Baltic states); while another cluster might be characterised by relatively high coverage of both (for example Finland, Ireland, France). For more details see Annex 5. Additional in-kind benefits and services might be provided to minimum income beneficiaries, depending on the design of national social protection systems. These, among others, might include social housing, energy supplements (such as temporary exemption from electricity price surcharge or heating checks), improving energy efficiency of housing, contributions to out of pocket payments and vouchers for healthcare, public transport (e.g. travel to school), food, free school meals or childcare (see Chapter 3.4. for more details). Among such in-kind benefits and services, the most common ones are the various housing benefits. Some are targeted at persons with low income regardless of whether they are minimum income beneficiaries, while in other Member States, specific housing allowances are available for minimum income scheme beneficiaries/households. In a few countries, housing schemes are set up at local level following criteria of eligibility that are more discretionary. A long duration of the application process might reduce coverage. The time needed to process the application provides an indication on how fast potential applicants can access minimum income. In seventeen Member States, a decision on applicants’ eligibility for the minimum income benefits is assessed within 30 days from its submission. Examples for very short waiting time highlight that the administrative procedure can facilitate rapid access to benefits, such as within five working days in Estonia, 5-7 days in Finland, 10 days in Ireland and in general less than two weeks in Sweden. However, longer waiting times might discourage people from applying for benefits and in five countries (Austria, Hungary, the Netherlands, Slovenia, Spain) the maximum legal waiting period for a decision is longer than one month. In five other countries, the information on the length of the procedure is either not readily available or appears to be non-regulated (Croatia, Portugal, Cyprus), or it may vary due to local provision of the benefits (Germany, France). Some of the eligibility criteria based on income are likely to exclude groups of people at-risk-of-poverty from minimum income benefits. Means testing conditions have a direct impact on the coverage by minimum income benefits. Means testing assess resources (be it income, assets, real estate or movable property) of all household members. Typically, the income threshold varies based on household size and whether household members are adults or children . The underlying assumption is that multi-person households share their resources and costs (e.g. housing space, heating bills) equally between members. When earned incomes (or other benefits) increase, the additional income of the person/household is (partly) in principle deducted from the maximum amount due. Another important aspect of means testing relates to the type of incomes which are taken into account– the more incomes are excluded from the means testing, the more likely it is that the adequacy improves and thus the coverage of the scheme increases.

Countries may disregard a certain amount/share of income from employment when minimum income beneficiaries work, to support their transition to the labour market. Countries where such disregards are in place are Austria, Cyprus, Czech Republic, Denmark, Finland, Germany, Greece, Ireland, Lithuania, Luxembourg, Portugal, Slovakia and Sweden. In these countries, the disregard for income from employment ranges between 20% and 35% of income from employment. In most Member States, it is possible for minimum income beneficiaries to combine very marginal income from work with minimum income benefits. However, in four Member States, the marginal incomes are not exempted when setting the benefit level of the household (Bulgaria, Czechia, Hungary and Romania). In these cases, income from work, even if marginal, results in withdrawal of the benefit . Member States differ in whether complementary or universal social benefits are included as income in the means testing. There are fourteen Member States, which include income from social benefits in the means testing (though there are exceptions for some specific cases). There are thirteen Member States in which social benefits are not disregarded, especially family allowances and child benefits. The time-span that is considered as the reference period for income or resources plays an important role in the extent to which ad-hoc and temporary income plays a role in the means testing. Most Member States consider one to three months of labour income preceding the application. Furthermore, academic research shows that in about a quarter of cases examined in Germany, the means testing do not accurately represent resources for households with fluctuating incomes, including from self-employment. Such challenges might be due to seasonal variations in work and the notion that taxes are based on the previous year rather than current income. Eligibility based on assets can be a point of friction in the application process. In ten Member States, owner-occupied housing is explicitly taken into account in the means testing (Austria, Bulgaria, Croatia, Denmark, France, Greece, Hungary, Lithuania, Luxembourg, Sweden). In Portugal, Slovakia and Germany, this is up to a maximum value of the property. In all other Member States, owner-occupied housing is not taken into account by default, but in many cases, the decision whether taking into account the value of owner-occupied property is at the discretion of the implementing authorities. When owner occupied housing is considered to exceed a specific value, applicants may be required to sell assets or take out a loan with these as security before receiving income support. To avoid such issues, in some countries, consideration is given as to whether it is a reasonable and proportionate request to liquidate assets. Applicants for Swedish income support may be required, for instance, to sell their house and move to a less expensive place. However, the general principle is that if the need for assistance is temporary, benefits are paid without considering this condition. In Denmark, to incentivise the sharing of living space, the means test for social assistance excludes rental income if the owner shares the property with a tenant. Moveable assets (jewellery, vehicles, art, etc.), as opposed to non-moveable ones, are taken into account in almost all Member States; though the types of these included in the means testing differ. A car or other vehicle, for example, can be given considerable weight in some means testing. The inclusion of a vehicle in the means testing can be a barrier to employment and social inclusion, especially in rural areas. Financial assets, pension plans or accumulated rights to a pension are included in the means testing in some countries but exempted in others (in seven Member States at least, these are taken into account). Accumulated savings are also considered in nearly all cases, with certain minimum level excluded. At the same time, debt is equally taken into account in many (for example in Belgium and Croatia), but not all Member States. In some countries, the interactions between thresholds for the total value of assets, thresholds for specific types of assets, and the asset disregard are complex, making it difficult for potential applicants to judge the outcome of the (often lengthy) application procedure. For example, in Portugal there are absolute thresholds for property and total assets including moveable assets such as saving bonds). Benefits are not paid if the value of the property owned by the household exceeds 60 times the reference social support index (indexante dos apoios sociais, IAS), nor if the total value of assets exceeds this by 240 times. In addition, owner-occupied housing is taken into account only if its total net market value exceeds 450 times the IAS. If it does so, a relative threshold of 5% of the difference between the value of the property and the IAS is applied in the means testing. In some Member States, eligibility criteria based on age exclude young and elderly people. Minimum income benefits can be granted to all adults in eleven Member States, while the other sixteen Member States apply additional age restrictions for their main minimum income benefits. It is worth emphasizing here that applying an age criterion may not mean that a specific age group is excluded from income support as such, but rather, that other support (often dedicated complementary schemes at youth) are applicable. Out of the sixteen Member States, in eleven, the minimum age is 18 or lower (Belgium, Germany, Greece, Hungary, Ireland, Malta, Netherlands, Poland, Portugal, Romania and Slovakia.) In five countries, the minimum age to apply for the minimum income benefit is higher than 18 (Cyprus, Denmark, France, Luxembourg and Spain). In Denmark the minimum age is relatively high (30) because a separate scheme for younger people exists. Cyprus applies a minimum age of 28 years, while France and Luxembourg of 25 years. Finally, the Spanish general minimum income benefit and other regional benefits apply a minimum age of 23 years. Regarding maximum age requirements, in ten Member States the eligibility criteria linked to the maximum age of the applicant refers to the legal retirement age. This means that, unless categorical schemes are at place, people reaching the retirement age are not covered by last resort type of minimum income benefits in these Member States. Young adults (18-30 years) may be in a relatively disadvantaged position vis-à-vis older cohorts of the working age population. Even if they comply with the age criterion, young adults are less likely to be heads of households and thus receive benefits directly. Only in some circumstances eligibility criteria are relaxed in this respect, such as in case of marriage (Belgium, Cyprus, Spain), single parenthood (Cyprus, France), caring responsibilities for (disabled) child/children (Belgium, Luxembourg, Spain), other caring responsibilities (Luxembourg, Spain), pregnancy (Belgium, Luxembourg), orphanage (Cyprus, Spain), disability or illness (Cyprus, Luxembourg), or victims of certain crimes such as gender-based violence (Spain). Eligibility requirements based on nationality and residency are stringent in some Member States. In all Member States, national citizens and citizens of other Member States (depending on general rules for acquiring permanent residence) are eligible for minimum income. The residency requirements for third country nationals coming from outside the Union/European Economic Area vary to a large degree. There are two groups of Member States in this respect, one applies only permanent legal residency requirements to eligibility for minimum income benefits and the other requires a qualifying residency period beyond acquiring permanent legal residency. There is such a minimum length of additional residency requirement in twelve Member States (Austria, Belgium, Bulgaria, Cyprus, Denmark, France, Germany, Italy, Latvia, Luxembourg, Portugal, Spain), with the maximum such residency requirement being of ten years. This means that these countries require, in addition to having acquired permanent and legal residence status, a qualifying period of residence. In particular, Denmark and Italy apply the most stringent residence requirements of nine and ten years, respectively. In Austria, Bulgaria, Cyprus, France, Luxembourg, an additional qualifying period of five years is applied. Spain and Portugal require one year of additional qualifying period of residence for third country nationals. For Belgium, Germany and Latvia, the additional qualifying period of residence is three months. Asylum seekers, who do not have refugee status yet, and undocumented migrants are generally not eligible for minimum income benefits, but are subject to categorical measures (providing typically lower levels of support). Importantly, the residency requirements can also affect homeless people as although they may be eligible, they may face problems to demonstrate their residence. Since 24 February 2022, Russia’s military invasion of Ukraine has created a situation of flows of displaced people fleeing from Ukraine. On 4 March 2022, the Council unanimously adopted the Decision giving those fleeing war in Ukraine the right to temporary protection, including a residence permit and access to social welfare or means of subsistence if necessary. In most Member States, a large share of potential beneficiaries do not take up social benefits. The non-take-up of benefits appears to be high in all Member States. Low actual coverage rates within the group of people at-risk-of-poverty can be explained partly by restrictive rules on eligibility, partly also due to low actual take-up rates within the population who would be eligible. Available estimates of non-take-up typically range around from 30% to 50% of the eligible population. Eurofound (2015) estimates that non-take-up of monetary social benefits ranges between approximately 25% to 80% in fifteen Member States. A recent comparative study provides estimates of the non-take-up of minimum income benefits in four Member States (Germany, Belgium, Finland, the Netherlands). It corroborates results from Eurofound in showing that non-take-up of minimum income benefits typically ranges around 30% to 50% of the eligible population. As part of their social safety nets and in addition to monetary benefits, Member States also provide services or benefits in-kind. While minimum income beneficiaries are likely to profit from those, they are not always integrated with minimum income and are not taken up by all minimum income beneficiaries. Evidence shows that the take up of some services (e.g. childcare) is lower for low-income households in spite of the additional support provided . It is key that access to benefits and services is ensured within the comprehensive design of minimum income to avoid different levels of take-up of such in-kind benefits across regions, schemes and groups of beneficiaries. Non-take-up of benefits might be explained by several factors, such as fragmented institutional systems of various benefits, lack of trust in institutions, lack of information, lack of awareness (or misperceptions about the entitlement or application procedures), long waiting period, complexity of access (ability to find one’s way through the system, or ability to travel to the welfare or employment office), issues in access to digital communications (inability to afford them or lack of skills to use them) to apply online to benefits and social barriers (stigma or perception of stigma – sometimes linked to the conditions tied to a benefit or to the application procedure). Additional barriers might be due to fragmented institutional systems, language barriers and potential financial resources demanded by the (sometimes long) application process. Finally, those that perceive the pay-off as uncertain, or their need for support to be temporary, may be more likely not to claim benefits.

During the application process vulnerable groups can face difficulties in obtaining the required documentation and recognition of their status. In addition, complexity may increase due to additional administrative requirements in the application process such as face-to-face meetings and on-site reviews by social workers (home visits, or formal interviews in administrative office) . Finally, some of the channels of communication used for administering the support (through telephone or only online, for example) are not necessarily best fit for use of people in vulnerable situations. When assessing the complexity of the application process, two factors need to be considered: the type of language used in the application form (how far it is legalistic in nature) and the number of supporting documents that need to be provided . In sixteen Member States, the number of supporting documents requested for the application process might be excessive and too difficult or costly to obtain for applicants: Austria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Hungary, Italy, Latvia, Lithuania, Netherlands, Poland, Portugal, Romania, Spain (specific regional benefits). A better integration of different social benefits and services could improve the effective take-up of minimum income. In some cases, the multiplicity of benefits and services, different administration agencies and application procedures increases the complexity of information that potential claimants need to be aware of in order to apply for benefits (see also Chapter 3.5). Automation in granting and improved data exchanges between relevant authorities could improve the uptake of social rights. There are various levels of automation possible, including the automatic identification and means assessment of potential beneficiaries; their automatic enrolment in social assistance schemes; as well as automatic assessment of their continued eligibility. Such automation could shorten and streamline the process of granting access to social rights and – by reducing the time spent in administrative tasks – enable social workers to target their efforts more efficiently. The TAKE project shows through Belgian case studies that the automatic identification of potential beneficiaries and the automation of take-up significantly increases the number of beneficiaries who actually receive social benefits to which they are entitled. 3.3 Challenges related to inclusive labour markets and social inclusion Policies and institutions promoting inclusive labour markets aim at facilitating access and a return to employment, especially for those who are the most disadvantaged. Inclusive labour markets result from positive interactions between activation policies, labour market institutions that prevent segmentation and limit entry barriers, and well-designed tax and benefits systems. The labour market situation of minimum income beneficiaries varies significantly across Member States. Comparative evidence on the labour market attachment of minimum income recipients is scarce since this requires the availability of harmonised data sources. Available estimates based on EU-SILC indicate that on average in the Union, around one third of minimum income beneficiaries have some kind of labour market attachment, even if it can be weak (at least some hours worked registered over the past year). Overall, the available data indicate that the job exit rate is rather low, at around 15%, varying between 3% in Romania and 29% in Estonia. At the same time, between 60%-70% of the beneficiaries are not employed throughout a year. Job counselling, individual action plans and the integration of activation measures into minimum income have a positive effect on the likelihood of beneficiaries’ successfully entering employment . While direct jobs experience might also have a positive effect, it is relatively more costly than job counselling and individual action plans. The role of the social economy is instrumental to facilitate employment opportunities for minimum income beneficiaries. Employment in the social economy could be a stepping stone towards attachment to the open labour market. According to the social economy action plan , 2.8 million social economy entities in the Union employ some 13.6 million people. The action plan confirms that there is untapped economic and job creation potential for the social economy in several Member States and regions, which could contribute to social and labour-market inclusion of people in vulnerable situations. It also complements efforts to integrate young people and disadvantaged groups (e.g. persons with disabilities, older people, long-term unemployed, persons with a migrant, minority racial or ethnic background - particularly Roma -, single parents) into the labour market and in society at large. A large number of minimum income beneficiaries does not participate in active labour market policy measures. Active Labour Market Policies (ALMP) encompass a range of measures: special support for job search training and education for the unemployed and inactive; job rotation and job sharing; employment incentives and subsidies for taking up jobs; and job creation activities such as community work programmes. Evidence suggests that a large proportion of minimum income beneficiaries are not subject to ALMP measures, even though they might be capable to work. From those who are registered in Public Employment Services (PES), in some Member States, less than 15% of beneficiaries are participating on an active labour market policy measure . Minimum income beneficiaries are less likely to benefit from ALMP measures compared to the recipients of unemployment benefits. According to data for 2020 from the EU Labour Market Policies database, the labour market activation rate was lower for long-term unemployed than for all registered unemployed in twelve of the seventeen countries for which data was available for both groups. This is despite the fact that the long-term unemployed have greater need for retraining and other ALMP measures, as emphasised by the Council Recommendation on the integration of the long-term unemployed in the labour market . Job search is often a precondition to receiving the minimum income benefit. Minimum income recipients are expected to engage in job search and improve their employability prospects in exchange for receiving employment services and benefits. Sanctions for non-compliance with activation requirements are common in nearly all Member States, although many countries take remedial actions prior to applying them. The sanctions can include exclusion from the unemployment register and a requirement to re-apply for the minimum income benefits (in nineteen Member States ), or a temporary suspension of the benefit (in nine Member States ). In just over half of the Member States the complete suspension or withdrawal of access to minimum income appears to be the only type of sanction available, which results in a severe impact on the beneficiary in terms of loss of income. Incentivizing to more active job-search, together with availability of a wider range of jobs, leads to increased employment. Overall, the results suggest that positive incentives and supportive elements, providing claimants with the resources they need to effectively look for work, are more effective than sanctions . The nature of the different sanctions for not participating in ALMP measures applied across Member States suggests that there is a balance to be struck for the sanctions not to be too moderate (in the sense that they impose some requirements) and - at the same time - not to be too strict (in the sense that they do not excessively sanction non-compliance). For example, in certain countries the sanctions have progressive character reflecting the severity of non-compliance; in some cases family composition is taken into account so as to protect children. Another challenge is the availability of targeted ALMP measures for the minimum income beneficiaries taking into account their particular needs and barriers. Special attention needs to be paid to young adults, outside of the labour market or being at-risk-of-poverty or social exclusion. To get them back into education, training or the labour market within the shortest time possible, the conditions to receipt of income support should be strongly linked to strong activation measures supporting them in gaining relevant work experience and developing the right skills for a changing world of work, in particular those relevant to the green and digital transitions. Labour market relevance of certain support is not always adequate. Conditioning the right to minimum income benefits to participation in ALMP measures associated with low job exit rates does not typically lead to sustainable employment outcomes. Some Member States organise public works or similar direct job creation measures for minimum income beneficiaries, participation in which is either obligatory or incentivised financially. It is the case in Slovakia, Croatia, Czechia, Hungary, Latvia, Luxembourg and Poland. Some of these countries appear to use sanctions should applicants refuse to participate in public works , including the termination or temporary suspension of the benefit(s). In Slovakia, for example, participation in public works for at least 64 hours per month is obligatory for minimum income beneficiaries (if deemed fit for work). The corresponding activation allowance might appear to be a top-up but is in practice an integral part of the benefit, without which the basic amount of benefit is highly inadequate. Academic research shows low effectiveness of public works schemes in terms of providing long–term sustainable transitions to regular employment for participants . Monitoring the situation of the clients once they exit PES registry, including post-placement support is a practice applied only to a limited extent in Member States , even though adequate monitoring is seen as a factor contributing to the combating of in-work poverty . Only in less than half of the Member States minimum income beneficiaries undergo comprehensive needs assessments. Comprehensive needs assessment aims at putting forward targeted measures and services to individuals, also covering non-financial barriers to social inclusion and labour market integration. Multidimensional needs assessment is considered to be a first step towards social inclusion and subsequent labour market integration for those who can work. There are no common standards on the timing or the elements of multidimensional needs assessments. While in principle such assessments are used, their scope and the level of depth vary considerably across Member States. Typical dimensions assessed include applicants’ housing situation, health and income status, communication skills, professional skills, trainings, and citizenship. Such assessment is carried out in twelve Member States . Eight Member States implement such assessment partially, for example for certain groups, or at a discretion of a municipality . In some Member States where a multidimensional assessment is carried out, there is some indication that a certain level of discretion exists in terms of whether an assessment is carried out and the extent of this. For example, in the case of the guaranteed minimum benefit in Croatia, the needs assessment is at the discretion of the case workers in the Centres for Social Welfare, while in the case of monthly social assistance allowances in Bulgaria, it is provided on an ad-hoc basis at the discretion of the local social directorate. In seven Member States, the needs assessment is not carried out . Furthermore, in seven Member States only an assessment to determine individuals’ fitness to work is conducted .

In many cases the multidimensional assessment is either partially or fully distinct from the relevant employability assessment carried out for minimum income recipients. Partial overlaps are those where the assessment includes some employability factors or is effectively an extension of an existing employability assessment. An example of such a case is that of cash social assistance in Slovenia where an assessment encompassing both employability and social issues is carried out as soon as the benefit are granted and a further separate assessment focusing more on social needs is subsequently carried out for long-term unemployed. In the majority of cases, the assessment is performed within a month from submitting an application for granting minimum income benefits. For example, in Greece, assessment takes place shortly after applying for minimum income benefits and as soon as available resources allow, while in Poland assessment usually takes place within 14 days, but it is conducted within two days in urgent cases. However, in some countries, the waiting time is longer, or varies across municipalities. Only in about half of the Member States minimum income beneficiaries receive an inclusion plan. While there are no common standards with regard to the provision of an individualised social inclusion plan to minimum income beneficiaries, ideally such plan should define: the objectives and timeliness of the plan, mutual rights and obligations of beneficiaries and the relevant authorities as well as a package of tailored support measures. It should also assign a case manager for each beneficiary. Only in about half of the Member States the relevant authorities prepare such plans. Although, in principle, the inclusion plans should also cover a broad range of enabling services, the most commonly supported services are healthcare and childcare. Certain plans offer specialised social services, including counselling and mediation, psychological support or rehabilitation. Participation in services outlined in the plan is in the majority of cases obligatory, but in some cases it is voluntary or it differs across municipalities. Targeted provision of services is based, to a large extent, on the content of social inclusion plans. In the absence of such plans, provision of these services is a discretionary decision from the side of relevant authorities or a case worker. In accordance with the Council Recommendation on the integration of long-term unemployed into the labour market, job integration agreements should be based on a comprehensive needs-assessment and aim at facilitating access of the long-term unemployed to sustainable employment and quality services. Yet, eleven Member States still do not offer such agreements for the long-term unemployed. Whilst in principle, labour market activation, or job integration agreements for those who can work should be integral to minimum income, the extent to which these are applied in practice varies considerably across Member States. Personalised support could be further strengthened through case management, whereby beneficiaries have a stable and single point of contact - a case manager - who assists them, oversees their situation, carries out and follows-up on corresponding referrals to services. Although the need for case management function has been increasingly recognised, only a limited number of Member States implemented this practice. In the Netherlands, for example, the case managers are well informed about the situation of their clients, and capable of providing effective support. However, given the lack of a common framework, the approach varies substantially across local municipalities. In other countries (for example, in Lithuania), a case-management approach is being tested in the context of needs assessment. It is essential that such an approach is based on protocols and common assessment frameworks, otherwise it risks being discretionary and dependant on the availability of human resources. Not all Member States have an effective system of tapering benefits when work is taken up. On top of ALMP measures facilitating taking-up employment, it is essential that work pays. Making work pay is both a matter of fairness (ensuring that transitions to work translate into higher incomes) as well as effectiveness (ensuring that incentives to work are positive). Available evidence on the impact of monetary incentives for minimum income beneficiaries is scarce as it requires the availability of data on their labour market situation over time. As discussed in Chapter 3.2, the absence of a significant positive impact of financial incentives on labour market transitions of minimum income beneficiaries highlights that their barriers to labour market participation are multiple and broader than the monetary dimension only. Available evidence shows that people who are furthest away from the labour market often face other obstacles that can actually have a much stronger impact on their access to the labour market, such as low or not matching skills, the overall availability of jobs or job counselling . Overall, across the Union, minimum income benefits continue to be paid during participation in ALMP measures, a practice which ensures continuity in minimum income benefits as a source of income for recipients. Furthermore, in many Member States , minimum income benefits continue to be paid when recipients take up employment, provided that their income remains below a threshold explicitly set out in eligibility criteria or implicit in the calculation of the benefit amount, and/or the amount of work they perform (in terms of working hours or equivalent measures of work intensity) does not exceed a particular threshold. Take up of employment is incentivised by ensuring that overall income is substantially higher upon starting work. This is achieved in two different ways. A first approach is to exempt part of income from work from means-testing or the calculation of minimum income benefits, often for a fixed period. For example, in the case of the subsistence benefit in Estonia, a beneficiary who has been receiving the benefit for at least two months and starts work has 100% of their income excluded from the means-test for the first two months and then 50% for the next four months. A second approach is to continue the minimum income benefits for a fixed period with tapering of the amount over time. This approach may be most pertinent in cases where minimum income benefits are fixed amounts and not based on income. For example, in Malta, after starting work, a minimum income beneficiary receives 65% of the benefit during the first year, 45% during the second and 25% during the third. In most cases, however, the type and duration of employment (whether it is temporary or long-term, and whether it leads to an open-ended form of employment) is not taken into account. In the majority of countries where there is the possibility of continuing to receive minimum income benefit once a recipient becomes employed, the character of the employment is not explicitly taken into consideration but the level of income it provides (e.g. whether it is probational, short-term, irregular, stable, etc.). Based on the information available, there are only four countries (Ireland, Italy, Romania and Slovenia) where other characteristics explicitly impact on the payment of minimum income benefits: In Ireland continued payment relies on working days not exceeding a particular threshold, in Italy different rules apply to those who become self-employed, in Romania continued payment applies only when the employment contract has a duration of at least 24 months, and in Slovenia, only income from casual or occasional work is (partially) excluded from means-testing. However, it should be acknowledged that income-related means testing thresholds which take account of income from work implicitly ensure that minimum income benefits are retained during participation in short-term irregular employment simply because such work does not tend to generate a high level of income. For example, in the case of social assistance in Finland, income up to 150 Euro per month has no impact on minimum income benefits while any income above results in an equivalent reduction in benefit amount. In-work poverty remains a persistent challenge. In-work poverty, that is the share of persons who are at work and have an equivalised disposable income below the at-risk-of-poverty threshold, stood in 2020 at 7,3% in the Union. This highlights that further efforts are needed to ensure that work pays, both through ensuring adequate wages as well as through introducing cautiously designed welfare systems in which income support is tapered gradually. Gradual phasing out of minimum income benefits with earned income prevents work disincentives. However, it is important to note that minimum income benefits do not operate in isolation and that in-work benefits and the tax system play an equally important role in determining the monetary impact of moving from minimum income benefits to work. The Impact Assessment accompanying the proposal for a Directive on adequate minimum wages also underlines that the income gain from a certain increase in the minimum wage is likely to be the highest when taxes paid by minimum wage earners are low or when benefits are not withdrawn. It also highlights that increased minimum wages are expected to contribute to reducing wage inequality and in-work poverty. 3.4. Challenges related to effective access to enabling and essential services Ensuring effective access of minimum income beneficiaries to enabling and essential services supporting employment and social integration remains a challenge in many Member States. While an exhaustive list of enabling services cannot be drawn, they typically include general enabling services provided to everyone, such as early childhood education and care, training and education, healthcare, and long-term care. A specific category of enabling services - social inclusion services - encompasses targeted services addressing specific problems and barriers of those furthest away from the labour market. Access to enabling services is not only a necessary precondition of successful employment and social participation, but it also contributes to adequate standards of living and combating in-work poverty . For example, childcare is a positive determinant of beneficiaries’ successful transitioning to employment . Provision of social inclusion services remains a challenge in many Member States.

People experiencing severe disadvantages require comprehensive assistance often during longer periods. Such assistance entails comprehensive, integrated and pro-active approaches supported by social inclusion services (including social work, counselling, coaching, mentoring, psychological support and rehabilitation). One of the common challenges is insufficient funding that does not allow for adequate numbers of personnel to provide services for all those in need. This was particularly problematic during the COVID-19 pandemic when social services had to cope with an increase in service users. The lack of qualified personnel is aggravated by working and pay conditions. A Voluntary European Quality Framework for Social Services was prepared in 2010 by the Social Protection Committee to identify quality principles that these services should fulfil. It has been designed as a reference for defining, assuring, evaluating and improving the quality of these services (incl. cooperation among various providers and authorities). It covers general principles, such as availability, affordability, accessibility, continuity, comprehensiveness and focus on outcome. While the principles of the Framework are still relevant, its implementation has been uneven across the Member States and the service providers at the local level are often less informed about its content . Many minimum income beneficiaries face problems with access to healthcare, childcare and adequate housing. In spite of the provision of services (and in-kind benefits) to minimum income beneficiaries, there are significant gaps in the coverage of needs for housing, childcare, healthcare and other enabling services. A combination of various barriers – high costs, deprived neighborhood, limited availability – might lead to a ‘social gradient’ in access to services. Research has shown that such services are more intensively used by people with higher educational attainment, reinforcing inequalities . There is significant variation in the way in which Member States support access to enabling services and the extent to which minimum income is associated with these. Regarding healthcare, in the majority of Member States, free-of-charge minimum healthcare services are available to minimum income beneficiaries. However, there are often significant limitations as, for example, out-of-pocket costs for households to access care are prohibitive or waiting lists apply for healthcare accessible to low income groups. Only few Member States put in place additional benefits that can provide support for chronical disease costs, additional medical costs not covered by the health insurance or specific one-off costs (hospital treatment or pharmaceutical products). Though the gap (between persons under and above the poverty threshold) in self-reported unmet needs for medical examination has declined over the past years, reaching 3.4 percentage points in 2020, there are some Member States where this gap remains relatively high (such as Greece, Latvia, Belgium, Slovakia, Bulgaria and Portugal). The gap is relatively low (less than 1 percentage point) only in a few Member States (for example, Spain, Czechia and Germany). A lower proportion of children at risk of poverty or social exclusion benefit from formal childcare than their better-off peers . This is despite the fact that family and child benefits (or specific childcare vouchers) are available in most Member States for households with children. They are often available universally (like in Estonia, Hungary, Italy, Latvia, Luxembourg, Lithuania, the Netherlands, Sweden and Poland), or are targeted at households with low income. In some Member States (Italy, Lithuania and, Netherlands), the amount of the benefit is linked to the income of the household, with lower income households receiving higher benefits. Additional supports are provided to families with children to improve their integration in education (school meals, educational material, etc.) or for social activities (sports, cultural activities). Regarding housing, the gap (between persons under and above the poverty threshold) in housing cost overburden rate stands at 33 percentage points, highlighting the disproportionate cost of housing for those at risk of poverty or social exclusion . Access to essential services can also be problematic. In some Member States minimum income is implicitly or explicitly designed to support access to essential services. With increasing energy costs, the support to utility costs is gaining importance. In Austria and Poland, this support can cover, on an ad-hoc basis, additional expenses, such as repairs or buying new household appliances. In Sweden, social assistance benefits are divided into a first part covering consumption items, and a second covering ‘reasonable costs for housing’, which are determined locally