Commission publishes White Paper on sustainable pensions

In February 2012, the European Commission published a White Paper looking at how to create adequate, safe and sustainable pensions in the European Union. The White Paper contains a range of hard and soft initiatives intended to help create conditions that will enable a balance between time spent working and time in retirement, to ensure that those who move to another country can keep their pension rights, and to help people obtain adequate pensions once they are retired.

Background

On 16 February 2012, the European Commission published a White Paper entitled An agenda for adequate, safe and sustainable pensions (303Kb PDF). The White Paper describes the ageing of the European population as the main challenge for the future of the EU’s pension system.

The number of people over 60 in Europe is currently increasing by two million each year, almost twice the rate of increase as in the late 1990s and early 2000s. By contrast, the number of people of prime working age (20–59) will fall every year over the coming decades.

It is therefore urgent, as highlighted in the White Paper, to develop comprehensive strategies to adapt pension systems that take account of the economic consequences of these demographic changes.

Identifying challenges

The White Paper identifies a number of main challenges to the sustainability and adequacy of pension systems.

• Financial sustainability: Despite reforms, EU pension systems still face financial difficulties caused by the proportion of those in work shrinking in relation to the number of retired people, and so further reforms are needed.

• Maintaining the adequacy of pension benefits: Although schemes in the EU allow most older people to enjoy decent living standards and economic independence, the Commission highlights a number of vulnerable groups, such as women over the age of 75. Recent pension reforms will also result in lower pensions for those who will retire in years to come.

• Raising the labour market participation of women and older workers: The Commission states that the trend in recent decades towards earlier retirement has been reversed, although more needs to be done. Labour force participation is currently still too low in the age groups just below retirement age and progress in changing this is too limited. Although many recent reforms are intended to increase the eligibility age for pensions, their success depends on better opportunities for older women and men to stay in the labour market.

In the light of these challenges, the White Paper makes a number of proposals for EU-level initiatives to support Member States’ efforts to reform their pension systems.

Balancing time spent in work and retirement

Achieving a better balance between the time spent in work and time spent in retirement requires adjustments to pension systems, raising retirement ages and strengthening the incentives offered to persuade people to work for longer.

The Commission’s support in this area includes monitoring of and support for Member State actions, awareness-raising, support for policy coordination and joint work on enabling and encouraging older workers, women in particular, to stay longer in the labour market. It does this primarily through the Europe 2020 Strategy, and, within the framework of European social dialogue, by asking EU social partners to develop ways of adapting workplace and labour market practices to facilitate longer working lives. This includes career management, particularly for strenuous jobs.

The Commission states that it will also consult social partners on how mandatory retirement ages could be revised in collective agreements and through national legislation.

Developing complementary private retirement savings

Complementary pension schemes are an important element of overall pension provision. The Commission states that second pillar (occupational) and third pillar (private) arrangements are underdeveloped and lacking in cost-effectiveness and safety in many Member States. Improving hard and soft EU regulation can contribute significantly to the performance and reliability of these types of schemes.

To this end, the Commission states that it will, during 2012, present a legislative proposal to review Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision. The aim of this is to promote more cross-border activity in this field and help improve overall pension provision in the EU.

The Commission will also, during 2012, take initiatives to ensure more effective protection of workers’ occupational pension rights in the event of employer insolvency.

Furthermore, the Commission intends to resume work during 2012 on a pension portability directive that will set minimum standards for the acquisition and preservation of supplementary pension rights and pursue ongoing work on a pan-European pension fund for researchers.

For second pillar products, the Commission will develop a code of good practice for occupational pension schemes, addressing issues such as better coverage of employees, payouts, risk-sharing and mitigation, cost-effectiveness and shock absorption.

For third pillar products, the Commission will present an initiative by 2013 to raise the quality of these products and improve consumer information and protection standards through voluntary codes and possibly an EU certification scheme.

In addition, it hopes to showcase and disseminate good practice in terms of complementary pension provision.

Increased reporting

There will also be an increase in EU-level reporting in the area of pensions. The Commission will release the 2012 Ageing Report, assessing the economic and budgetary impact of ageing, which will form the basis for a thorough assessment of the sustainability of public finances, envisaged for release in the Commission’s 2012 Sustainability Report.

Furthermore, it will prepare a Pension Adequacy Report that can help Member States assess the adequacy of their pension systems for women and men.

Commentary

The sustainability of pensions in the EU is a key issue for workers and policymakers in the current demographic and economic context. It is vital to ensure that the next generation of retired people are properly provided for and that pension policy is in line with demographic shifts, including the ageing population and longer life expectancy.

This White Paper contains a raft of both hard and soft law measures intended to help and support Member States while they meet these challenges.

Andrea Broughton, Institute for Employment Studies