THE SECOND ANNUAL EUROPEAN PENSIONS CONFERENCE ANNE MAHER Chief Executive20 April 2004 The Pensions Board Ireland A PENSIONS ROLE MODEL FOR EUROPE?

2. WHAT I WILL COVER  Current European models  Influences on suitability of model  Does/should EU want a model?

3.  Four pillars  social security  supplementary pension schemes  individual saving  earnings in retirement  Huge diversity in EU member state models  Some models planned but most evolved  Differences arise from different  political tendencies  cultural influences  social traditions  employment traditions  external events e.g. war CURRENT EUROPEAN MODELS

4.  UK/Ireland/Netherlands Model  Southern European Model  Central and Eastern European Model  Various Other Unique Models, for example  Germany  France  Denmark  Sweden CURRENT EUROPEAN MODELS

5.  UK  universal flat-rate basic social security pension  mandatory additional earnings-related social security cover  minimum income guarantee  long tradition of funded occupational pension schemes  personal pensions and stakeholder pensions  Netherlands  universal flat-rate safety-net social security pension  extensive complementary funded pension schemes  high proportion of industry wide schemes  Ireland  universal basic flat-rate social security pension  large number of funded occupational pension schemes  personal pensions and Personal Retirement Savings Accounts  partial funding of social security pension through National Pensions Reserve Fund CURRENT EUROPEAN MODELS

6.  Southern European (Italy, Greece, Spain, Portugal)  extensive First Pillar social security covers retirement, death and disability  social security funded on PAYG basis  social security usually earnings related up to high earnings ceiling  very little private Second Pillar provision because unnecessary  Central and Eastern European  comprehensive social security pensions on PAYG basis  low retirement ages are serious issue  complementary pensions are new phenomena CURRENT EUROPEAN MODELS

7. Other Unique Models  Germany  First Pillar at level which encourages employers to establish private schemes  private occupational schemes but mostly book reserves (with insolvency insurance) rather than funded  France  Second Pillar complementary pension schemes  PAYG  operated on industry wide basis  compulsory for most employed people  based on concept of solidarity  very few private funded occupational schemes CURRENT EUROPEAN MODELS

8.  Denmark  flat-rate First Pillar based on residence and financed out of general taxation  funded private pensions negotiated by industry, financed by specialised pension insurance companies  Sweden  PAYG defined benefit First Pillar recently transformed into notional defined contribution scheme  employees must also contribute to funded pension arrangement  other forms of complementary pension arrangements also common CURRENT EUROPEAN MODELS

9. Issues Arising  Demographic changes  Falling birth rate  Longer life expectancy  Increasing old-age dependency  Pressure on public finances  Pension cost increasing as % GDP  IMF, ECB, and OECD calls for reform  Pension system sustainability in EU  Some have private funded pensions  Threat to monetary union  Common Debates  Funding of public and private pensions  Mandatory or voluntary supplementary pensions  Defined benefit or defined contribution  Appropriate fund investment CURRENT EUROPEAN MODELS

10. Pension Reform  High priority in every EU country  Reforming Social Security  Increasing retirement age  Part-time working as transition  Changes in early exit  Lowering replacement ratios  Developing occupational pensions  Tax incentives  Prudential rules  Transfer rights  Developing individual pensions  Market development  Tax incentives  Information campaigns CURRENT EUROPEAN MODELS

11.  Adequacy  Prevent social exclusion in old age  Allow people to maintain living standards  Promote solidarity between generations  Financial sustainability of pension systems  Raise employment levels  Extend working lives  Ensure sustainable pensions in context of sound public finances  Adjust benefits and contributions so as to share financial consequences of ageing in balanced way between generations  Ensure that private pension provision is adequate and financially sound  Responding to changing needs  Adapt to more flexible employment and career patterns  Meet aspirations for greater gender equality  Make pension systems more transparent and demonstrate ability to meet challenges INFLUENCES ON SUITABILITY OF MODEL

12. EU Says No  Commission regularly confirms principle of subsidiarity saying that Member States retain full responsibility  for organisation of their pension systems and  for role of each of Three Pillars of pensions in their system.  EU commitment is to  full internal market for financial services, including  internal market for occupational retirement provision organised on European scale. DOES EU WANT MODEL?

13. EU Says No But …  Pensions Directive  Protection of members  Freedom of investment  First step to Single Market for pensions  Tax Co-ordination  European Court cases  Tax Communication  Current moves to enforce  Joint Commission/Council Report on Adequate and Sustainable Pensions  Evaluates adequacy, effectiveness, financial sustainability and responding to changing needs  Other Areas of Interest  Mobility and portability  Equality DOES EU WANT MODEL?

14. No because  All Member States starting from very different positions  Different  demographics  economies  cultures  Too inflexible  Would lack opportunities for creativity and development  No single model could suit all SHOULD EU WANT MODEL?

15. No but  Member States need common understanding of each others systems  Statistics, measurement and evaluation must be based on commonly accepted basics (for example, measurement of funding)  Supervision must operate with strong cross-border co-operation SHOULD EU WANT MODEL?

16.  We are on the brink of  Cross-border pensions and  Pan European pensions  Some synchronization and common agreements will be needed  It is a time of change and opportunity for pensions But we should all retain our separate national pension models. CONCLUSION