European Economic and Social Committee Challenges facing European pension systems Krzysztof Pater

Some demographic facts EU Green Paper and White Paper on pensions Main trends in pension reforms European Economic and Social Committee

Source: Eurostat EU labour market – exit age Average exit age, 2001 and 2008

Source: Eurostat 2010 employment rates (55-64 age group)

Source: Eurostat, unemployment rate in accordance with ILO criteria Unemployment rate (55-64 years)

Source: Eurostat, unemployment rates in accordance with ILO criteria Unemployment rates in EU in <25 age group

Old-age dependency ratios (%) 65+/15-64 years Source of data: Eurostat

Median age in 2000 and 2010 Source of data: Eurostat

Demographic balance European Economic and Social Committee Source: Europop 2008 (in millions)

Life expectancy in 2060 European Economic and Social Committee M: 75.2 W:81.5M: 84.5 W:89.0

Some demographic trends Baby boomers reaching their sixties Number of people +60 rising by 2 million every year Population aged starts shrinking Life expectancy gap between men and women getting smaller European Economic and Social Committee

European population in 2008 and 2060 European Economic and Social Committee Source: Commission services

“Towards adequate, sustainable and safe European pension systems” European Commission Green Paper published in July 2010 European Commission White Paper published in February 2012 European Economic and Social Committee

Organised civil society’s position on pension reforms (1) pension system reform is a matter decided at national level no specific type of reform should be promoted or penalised by EU regulations despite the diversity of systems, pay-as-you- go mandatory schemes must continue to play a fundamental role European Economic and Social Committee

Organised civil society’s position on pension reforms (2) raising the effective retirement age up to the existing legal retirement age is a priority bonus system encouraging workers to continue working beyond the legal retirement age has to be introduced attractive models for a flexible transition from work to retirement must be developed European Economic and Social Committee

Organised civil society’s position on pension reforms (3) merely raising the legal retirement age won’t solve the problems retirement age, lower wages, longer parental breaks, higher risk of long term unemployment put women at higher risk of poverty pensions are not a "reward" but rather a form of deferred wages or savings European Economic and Social Committee

Organised civil society’s position on pension reforms (4) European citizens' level of financial literacy with regard to pension products should be raised EU methodology on pension statistics needs to be developed European Economic and Social Committee

Pension reforms are challenging citizens don’t accept or fully understand changes tendency to postpone reforms, to leave problems for the next government(s) and generations European Economic and Social Committee

Key questions European Economic and Social Committee How to divide up increases in longevity between work and leisure time?... share the costs of longer lives between and within generations?... achieve a balance between the number of working and retirement years?

Objectives for EU pension systems European Economic and Social Committee adequate retirement incomes r eforms on the basis of consensus financial sustainability transparency

Major trends in reforms hybrid designs self-balancing mechanisms between liabilities and revenues European Economic and Social Committee

Most popular changes in the pension systems contribution period: change from “best years” to average life-time earnings extended qualifying period for a minimum pension equal pension age for women and men increased pensionable age strengthened bonus-malus system European Economic and Social Committee

Pre-funding as policy response to the demographic challenge new defined-contribution (DC) schemes expansion of existing occupational schemes reserve funds European Economic and Social Committee

Increasing role of funded schemes European Economic and Social Committee Share of occupational and statutory funded pensions in total gross replacement rates in 2006 and 2046 in selected Member States

European Economic and Social Committee Valorisation and indexation Variablevalorisationindexation Wages√√ Prices and wages√√ Prices√√ Discretionary√ Progressive√

Impact of career breaks on pension benefits European Economic and Social Committee Accumulated difference in net theoretical replacement rates for an average earner entering the labour market at 25 and retiring at the statutory retirement age with a 1, 2 or 3 year career break due to unemployment compared with no break

Conclusions European Economic and Social Committee 1) Further pension reforms are needed. 2) Lessons learned from the crisis must be taken into account. 3) Pension systems must be based on synergies between various policies.

European Economic and Social Committee Thank you for your attention Krzysztof Pater