European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities1 Pension systems across the EU - Before & after.

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Presentation transcript:

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities1 Pension systems across the EU - Before & after reform - Fritz von Nordheim Nielsen

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities2 An illustration of the basic organisation of pension systems

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities3 Going deeper into the organisation of pension schemes

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities4 How are pensions financed? General taxes Usually for redistributive pensions Earmarked social contributions Usually for PAYG income-related DB pensions Payments can be shared between State, Employer and Individual Earmarked pension insurance contributions Usually for DC and funded pensions Payments usually shared between Employer and Individual Reserve funds Mostly for PAYG schemes Meant to smoothen out demographic imbalances Not all are pension specific Still being developed

European Commission There is a wide variation of systems in the EU after reform

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities6 Main reforms in Europe – Sustainability & Adequacy Entitlements closely linked to contributions DB to DC Lower annual generosity Similar volume in retirement Greater affordability Greater actuarial equity Adequacy : for analysis Social Protection improvements Improved indexation and minimum pensions Improved coverage – better gender and LM fit Increased pre-funding: diversification & extra funds

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities

European Commission 8 A shift in the organisation of pension schemes

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit9 Future roles of public payg and private funded pensions in the EU Contribution of funded schemes to retirement income set for radical increase But public PAYG schemes will remain principal source of pensioner income in all but a few Member States

European Commission EU's innovative approach 1 Social OMC takes the diversity of pension designs across the Union as given - Be helpful to all Promoting convergence towards a common pension blueprint is not a goal Better deliverance is and the devil is in the detail Social OMC therefore concentrates on improving the performance of the various systems in relation to 11 commonly agreed objectives for socially & economically sustainable pensions Objectives apply to all designs

European Commission Common pension objectives (I) Adequate Pensions Ensure a decent living standard, a share in the economic well-being of one’s country and the ability to participate in public, social and cultural life Provide access to appropriate pension arrangements necessary to maintain one’s living standard

European Commission Common pension objectives (II) Financial Sustaina- bility Achieve a high level of employment Offer effective incentives for labour market participation of older workers Employment Sound Public Finances Pension Reforms Ensure sustainability of public finances Strike a fair balance between the active and the retired Ensure the financial sustainability of private pension schemes

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities14 Main reforms in Europe – improving work incentives Higher retirement ages Stronger link between contributions and benefits a life cycle approach coverage for non-standard careers Increasing flexibility Bonus/malus systems

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities16 Trade/offs and synergies in pensions in an ageing society There are two sides to the coin which must be balanced: Adequacy and Financial Sustainability Longer lives & retirement periods and Longer working lives Entitlement accruals and value of contributions Higher pensionable age and better employment opportunities for OW Wider coverage and wider contribution base

European Commission 23 Feb 2010Directorate-General for Employment, Social Affairs and Equal Opportunities17 Thank you for your kind attention! Questions or Comments?