07/02/2011

The future of pension systems

By Francoise Verburg-Petit, Dutch Press

Why start a debate on pensions?

The financial and economic crisis has seriously aggravated the underlying challenge of an ageing population. By demonstrating the interdependence of the various schemes and revealing weaknesses in some scheme designs it has acted as a wake-up call for all pension systems: higher unemployment, lower growth, higher national debt levels and financial market volatility have made it harder for all systems to deliver on pension promises. These impacts, on top of the underlying demographic challenge, mean difficult pension reforms can no longer be put off. Member States are facing the huge challenge of meeting their citizens' expectations on their pensions in the years to come.

Disparities between pension systems and the issue of mobility within the EU are key issues. The EU has to examine how Member States can be supported in keeping pensions safe, sustainable and adequate. That is why the European Commission has launched a Europe-wide public debate on how to ensure adequate, sustainable and safe pensions and how the EU can best support national efforts. Ageing populations in all Member States have put existing retirement systems under massive strain and the financial and economic crisis has only increased this pressure.

What is the role of the EU?

The European Commission launched a consultation document, the Green Paper, asking questions, inviting all interested parties to contribute their views, opinions and ideas on confronting the pension challenge and how the EU can contribute to solutions. It reviews the whole European pension framework. This is why many different issues are covered, such as longer working lives, the internal market for pensions and mobility of pensions across the EU. In today's labour market people need to be able to change jobs easily and without financial setbacks. Employers need to be able to recruit the right person with the right skills. And with ageing demographics, people need to have opportunities to work, build up and retain pension rights and not lose them because of a change of job. This is why the EU needs to tackle obstacles to free movement caused by pension rules.

Report in the European Parliament

Ria Oomen-Ruijten is the Rapporteur on the Green Paper on pensions in the European Parliament. She stresses that EU coordination is necessary, particularly for the functioning of the internal market, the EU2020 Strategy and the Stability and Growth Pact. Although Member States have the lead, there are aspects where coordination at a European level is important. The ageing of the population has a big impact because not all Member States have put money aside for their pensions. This could lead to enormous expenditure which will have consequences for the Stability and Growth Pact. A supervising authority should monitor pension systems and some Member States must be encouraged to foresee a safe and adequate pension system. Furthermore the portability of pensions is important; it should be an employee's right. But at the same time, considering the diversity and complexity of the various systems, portability of pension rights should begin only with new contracts.

Vote in the Employment and Social Affairs Committee

Mrs Oomen-Ruijten's report on pensions has been discussed and voted in the Employment and Social Affairs Committee. It was adopted by a large majority, with 40 in favour, 6 against and 1 abstention. It will be voted finally as a resolution with recommendations for further action in the February plenary session in Strasbourg. It is too early to be specific on the next steps, as these will naturally depend on the outcome of the consultation. Possible approaches could involve a White Paper and/or separate initiatives on issues where there has already been some work undertaken prior to the Green Paper.