1 Promoting Adequate and Sustainable Pensions through the Open Method of Co-ordination ADEQUACY, FINANCIAL SUSTAINABILITY and MODERNISATION European Commission

2 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination ASSESSING ADEQUACY Data gathered through the European Community Household Panel (ECHP) Measurement of poverty risks, relative income levels, income inequality at household level Shortcomings: –income data for 1998 –small sample sizes –no imputed rent (money saved by living in one’s own accommodation or without paying rent) –no mortgage repayments –no wealth

3 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination PENSIONS ADEQUACY ? Source: Eurostat, ECHP

4 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination PENSIONS ADEQUACY ? Source: Eurostat, ECHP

5 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination PENSIONS ADEQUACY ? Source: Eurostat, ECHP

6 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination FUTURE ADEQUACY Current adequacy varies among Member States Minimum pension guarantees to protect against poverty in old age Replacement ratios from 1st pillar schemes expected to fall in many Member States … … but income of older people’s households also depends on –higher pensions for women due to higher female employment rates –supplementary pensions –career lengths (working longer leads to higher pensions) –wealth

7 FINANCIAL SUSTAINABILITY OF PENSIONS SYSTEMS: Common objectives Raise employment levels Extend working lives Make pension systems sustainable in a context of sound public finances Adjust benefit and contributions in a balanced way Ensure that private pension provision is adequate and financially sound Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination

8 EMPLOYMENT RATES AND THE LISBON AND STOCKHOLM TARGETS (2001) Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination Source: EU-LFS, EUROSTAT

9 ECONOMIC POLICY CO-ORDINATION Broad Economic Policy Guidelines (BEPGs) –Multilateral surveillance of implementation –Cardiff reports by Member States Stability and Growth Pact (SGP) –Stability / convergence programmes by Member States –Assessment of programmes (Commission) –ECOFIN Council opinions Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination

10 EPC PROJECTIONS: USAGE AND COVERAGE Made by the Ageing Working Group of the Economic Policy Committee Covers several age-related expenditure items Main purpose of EPC projections is to feed into the assessment of the sustainability of public finances as part of the Stability and Growth Pact and the Broad Economic Policy Guidelines Contribution to the assessment of the sustainability of public pension schemes in the Open Method of Coordination Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination

11 EPC APPROACH TO PENSION PROJECTIONS Common demographic scenario by EUROSTAT Agreement on macroeconomic assumptions Member States use their own models based on a “no policy change” scenario Peer review by the Commission and Ageing Working Group Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination

12 NEXT ROUND OF PENSION PROJECTIONS Eurostat demographic scenario ready in mid for EU-25 Based on common assumptions and methodology agreed in Ageing Working Group, new projections on age-related (including pensions) expenditure to be finalised by mid-2005 Compatible with timetable for submission of National Strategy Reports in 2005 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination

13 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination MODERNISATION OF PENSION SYSTEMS Ensure compatibility with labour market flexibility and mobility: Access and portability Abolish gender discrimination Monitor pension outcomes for women and men Increase transparency and predictability of pension systems and their capacity to adapt to changing circumstances –Aggregate information –Adaptability and adjustment mechanisms –Information to individuals

14 Promoting Adequate and Sustainable Pensions in the EU: The Open Method of Coordination ASSESSING MODERNISATION Mostly qualitative assessment Quantitative assessment of gender impact in relation to adequacy Exchange of good practice particularly useful in relation to modernisation Special studies to be conducted