Annexes to COM(2010)365 - Green Paper towards adequate, sustainable and safe European pension systems SEC(2010)830 - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2010)365 - Green Paper towards adequate, sustainable and safe European pension systems SEC(2010)830. |
|---|---|
| document | COM(2010)365  |
| date | July 7, 2010 |
As regards pension funds, Member States have also taken different approaches to protecting acquired pension rights[32]. The Commission conducted a consultation on this subject in 2008 and organised a public hearing in May 2009. During this process, stakeholders signalled that there needs to be a sui generis solvency regime for pension funds and that it is important to avoid pro-cyclical solvency rules. The Solvency II approach could be a good starting point, subject to adjustments to take account of the nature and duration of the pension promise, where appropriate. The suitability of Solvency II for pension funds needs to be considered in a rigorous impact assessment, examining notably the influence on price and availability of pension products.
A related question is whether, reflecting developments in banking, insurance and investment, there is a need for promoting pension benefit guarantee systems in the Member States, possibly coordinated or facilitated at EU level. Such systems can not only address failures in sponsor-backed DB schemes or book reserve schemes, but could also compensate for excessive losses in DC schemes. There are, however, important aspects to address such as moral hazard and potential implicit public support in very turbulent times.
18. What should an equivalent solvency regime for pension funds look like?
3.4.3. Addressing the risk of employer insolvency
Given the important role of sponsoring undertakings in the provision of benefits and the funding of IORPs, their insolvency presents a particular risk. The Insolvency Directive[33] provides for the protection of employees’ rights to supplementary occupational pensions in the event of the insolvency of their employer. However, there is no obligation on the Member State to fund the rights nor do full guarantees need to be provided, thus leaving considerable latitude on the level and modalities of protection. Moreover, the IORP Directive does not apply to companies using book reserve schemes for the payment of retirement benefits to their employees. The need to ensure the protection of supplementary occupational pensions in those instances becomes more acute in the present situation, since the financial and economic crisis will increase the number of company insolvencies.
The Commission presented a Staff Working Document[34] on the implementation of the provision concerning supplementary occupational pensions contained in the Insolvency Directive. As a follow-up to this document, the Commission has launched a study in 2009[35] covering DB and book reserve schemes and is currently gathering information on the protection of unpaid contributions to DC schemes in case of employer insolvency.
19. Should the protection provided by EU legislation in the case of the insolvency of pension sponsoring employers be enhanced and if so how?
3.4.4. Facilitating informed decisions
The trend towards DC schemes underlines the need for transparent and clear communication. The IORP and the Life Directives contain information disclosure requirements. But these provisions are based on minimum harmonisation and national approaches differ markedly. Moreover they were designed for DB schemes and may therefore need to be adjusted. In going forward, it would seem important to review the key information specifically for pension schemes and products (e.g. risk, nature of promise, cost/fees, payout method, etc.). This should take into account what is being developed for other financial products, seeking to ensure comparable information. Consumer testing combined with economic research could be used to improve the quality of information in terms of clarity and comparability.
Shifting choice and responsibility to the individual requires that people understand the information in order to make informed choices, especially as pensions have become more complex. Financial education can help as demonstrated by the work of the OECD and the EU already works with Member States on this. Financial education complements regulation of the industry, both prudential (e.g. the IORP Directive) and market conduct rules, and product disclosure rules. It is important that individuals are properly equipped with economic literacy and planning skills to adequately assess their need for financial and social protection and to avoid behavioural biases. For example, with the growing importance of DC schemes people need to make informed decisions about investments. It is also important that people have a competent body to turn to that can answer their questions relating to pensions, especially in a cross-border mobility context.
At the same time, national experiences suggest that the engagement rate that can be obtained through disclosure and financial education has an upper limit. It is therefore important to envisage an in-depth examination of the merits of auto-enrolment with opt-out clauses.
Informed decisions go hand in hand with adequate pension provision. When making saving decisions it is important that individuals be offered appropriate options. There could therefore be a case for defining what exactly the desirable features of pensions are: if they lack certain key characteristics, not only could this lead to confusion, but it could also lead to under provision in retirement, for example if early withdrawals lead to a depletion of savings or if no steady income is generated from the accumulated assets. Member States may consider putting in place a reliable pensions advice service to facilitate consumer choices.
20. Is there a case for modernising the current minimum information disclosure requirements for pension products (e.g. in terms of comparability, standardisation and clarity)?
21. Should the EU develop a common approach for default options about participation and investment choice?
4. IMPROVING EU STATISTICS ON PENSIONS
Data about pension systems available from the different national and EU-level sources could be streamlined to increase their comparability and make substantial cost savings. Building on existing international work (e.g. the OECD) and various EU initiatives, the development of an EU methodology for pension statistics could facilitate the assessment of the common policy and regulatory challenges. Pension funds are important institutional investors and their investment behaviour can affect financial stability. Citizens would benefit from the collection of accurate statistics about their retirement income from the different sources. Pensioners are set to grow as a group of consumers and firms would benefit from reliable and timely information about total disposable income.
Furthermore, the monitoring of implicit liabilities could be strengthened to allow for a better assessment of the impact on the sustainability of public finances of pension schemes run by both public and private entities.
5. ENHANCING GOVERNANCE OF PENSION POLICY AT EU LEVEL
Europe must help address citizens' concerns about future pensions and revisit how a strategy can be defined to deliver adequate, sustainable and safe pensions, including through better use of EU instruments.
Whilst Member States generally are responsible for the design and organisation of their pension systems, some specific areas relating to pensions fall directly within the EU's competencies. Member States have also recognised that acting together can be more effective and efficient and that the EU level can add value, not least since the challenges are similar across the EU and reform polices need to be consistent with existing frameworks such as the Stability and Growth Pact and Europe 2020.
As part of this strategy, the EU contributes with measures such as surveillance, coordination and mutual learning. Examples include best practice sharing, peer reviews, agreeing objectives and indicators, and gathering comparable statistics. EU regulation covers social security coordination of public pensions, rules for occupational pension funds, portability and the protection of supplementary pension rights in the event of the insolvency of the employer, as well as rules for life assurance undertakings.
If the EU is to offer appropriate support to national reform efforts, the framework of policy coordination must take an integrated approach to reflect the increasing complexity of pension systems. Moreover, given increasing economic and financial integration, the EU-level regulatory framework, as well as good coordination across the EU level policies and Member States' policies, is becoming ever more important.
Pension policy is a common concern for public authorities, social partners, industry and civil society at national and at EU level. A common platform for monitoring all aspects of pension policy and regulation in an integrated manner and bringing together all stakeholders could contribute to achieving and maintaining adequate, sustainable and safe pensions. The Commission is therefore keen to explore how this can best be achieved in support of the EU's wider economic and social objectives.
22. Should the policy coordination framework at EU level be strengthened? If so, which elements need strengthening in order to improve the design and implementation of pension policy through an integrated approach? Would the creation of a platform for monitoring all aspects of pension policy in an integrated manner be part of the way forward?
6. HOW TO RESPOND TO THE CONSULTATION
The Commission invites all interested parties to respond to the questions set out in this Green Paper, together with any additional comments, by 15 November 2010 by means of the online questionnaire available at:http://ec.europa.eu/yourvoice/ipm/forms/dispatch?form=pensions .
Alternatively, for those without web access, responses can be sent by post to:
European Commission
Directorate-General for Employment, Social Affairs & Equal Opportunities
Green Paper on Pensions consultation
Unit E4
rue Joseph II
Office J-27 1/216
B - 1040 Brussels
Please note, received contributions, together with the identity of the contributor, will be published on the Internet, unless the contributor objects to publication of the personal data on the grounds that such publication would harm his or her legitimate interests. In this case the contribution may be published in anonymous form. Otherwise the contribution will not be published nor will, in principle, its content be taken into account.
GLOSSARY AND STATISTICAL ANNEX
1. GLOSSARY
Accumulation phase – Period during which contributions are made and invested in a defined contribution scheme. (See also: Defined contribution (DC) schemes).
Accrual rate – Rate at which future pension benefits are built up. It is used in defined benefit schemes and based on the formula linked to the scheme. For example, a pension accrual rate could be 1.5% of final pensionable salary for each year of pensionable service (See also: Defined benefit (DB) schemes).
Annuity – A financial contract, sold by a life insurance company for example, that guarantees a fixed or variable payment of income benefit (monthly, quarterly, half-yearly, or yearly) for the life of a person(s) (the annuitant) or for a specified period of time. It differs from a life insurance contract which provides an income to the beneficiary after the death of the insured. An annuity may be bought on instalments or by paying a single lump sum. Benefits may start immediately or at a pre-defined time in the future or at a specific age. An annuity is one way of securing a regular retirement income for individuals who have saved in a defined contribution scheme. (See also: Defined contribution (DC) schemes).
Automatic (or auto-) enrolment – Generally refers to employees being members of their employer's pension scheme as a default choice, with the possibility of opting out on request.
Automatic adjustment mechanisms – Generally refers means of adjusting benefits, rights and/or contribution levels to changing circumstances, e.g. economic conditions, financial market returns or longevity assumptions.
Book reserve pension scheme – A method of accounting used by some sponsoring employers to finance pension promises. Sums are entered in the balance sheet of the scheme sponsor as reserves or provisions for scheme benefits. Some assets may be held in separate accounts for the purpose of financing benefits, but they are not legally or contractually pension plan assets. (See also: Defined benefit (DB) schemes).
Career average scheme – A defined benefit scheme where the future pension benefit earned for a specific year depends on the level of the member's earnings for the given year. (See also: Defined benefit (DB) schemes).
Cash balance schemes – A scheme where the employer guarantees a pension pot to scheme members, payable at the normal pension age, with which they can purchase an annuity. (See also: Normal pension age; Annuity).
Conditional indexation – Refers to defined benefit schemes where the provision of indexed benefits (generally revalued to inflation or wages) is conditional on the financial performance of the scheme's investments. (See also: Defined benefit (DB) schemes).
Defined benefit (DB) schemes – Pension schemes where the benefits accrued are linked to earnings and the employment career (the future pension benefit is pre-defined and promised to the member). It is normally the scheme sponsor who bears the investment risk and often also the longevity risk: if assumptions about rates of return or life expectancy are not met, the sponsor must increase its contributions to pay the promised pension. These tend to be occupational schemes. (See also: Defined contribution (DC) schemes).
Defined contribution (DC) schemes – Pension schemes where the level of contributions, and not the final benefit, is pre-defined: no final pension promise is made. DC schemes can be public, occupational or personal: contributions can be made by the individual, the employer and/or the state, depending on scheme rules. The pension level will depend on the performance of the chosen investment strategy and the level of contributions. The individual member therefore bears the investment risk and often makes decisions about how to mitigate this risk. (See also: Defined benefit (DB) schemes).
Effective retirement age – Age at which an individual actually retires. Not necessarily the same as the labour market exit age or normal retirement age. (See also: Labour market exit age, and Normal pension age).
Equity Release Scheme – Term used to describe both the process and the products that allow homeowners to secure substantial lump sums or regular income payments by realising part of the value of their homes, while being able to continue to live in it.
Final salary scheme – A defined benefit scheme where the pension benefit is typically based on the last or the last few years' of earnings before retirement. (See also: Defined benefit (DB) schemes).
Funded scheme – A pension scheme whose benefit promises are backed by a fund of assets set aside and invested for the purpose of meeting the scheme's liability for benefit payments as they arise. Funded schemes can be either collective or individual. (See also: Pay-As-You-Go schemes).
Governance (of pension funds) - The operation and oversight of a pension fund. The governing body is responsible for administration, but may employ other specialists, such as actuaries, custodians, consultants, asset managers and advisers to carry out specific operational tasks or to advise the scheme administration or governing body.
Hybrid pension scheme – In a hybrid scheme, elements of both defined contribution and defined benefits are present or, more generally, the risk is shared by the scheme's operator and beneficiaries.
Individual pension scheme - Access to these schemes does not depend on an employment relationship. The schemes are set up and administered directly by a pension fund or a financial institution acting as pension provider without the involvement of employers. Individuals independently purchase and select material aspects of the arrangements. The employer may nonetheless make contributions to individual pension schemes. Some schemes may have restricted membership.
Information disclosure regulations – The rules prescribing the periodicity, procedure, type and extent of information to be provided to members of pension plans and/or the supervisory authority.
Institutional investor - Generally refers to a group of investors such as pension funds, insurance companies, investment funds and, in some cases, banks.
Labour market exit age - Age at which an individual actually leaves the labour market. For data availability reasons labour market exit age is often used as a proxy for the effective retirement age. Differences between the two may exist, as some people leave the labour market before they actually retire while others continue working after retirement. (See also: Effective retirement age).
Lifestyling or life-cycling strategies – Investment strategies used in defined contribution pension schemes to reduce investment risk and volatility by gradually and automatically reducing the investment risk taken by the scheme member as they approach retirement. (See also: Defined contribution (DC) schemes).
Minimum return guarantees – Minimum level of pension benefit paid out regardless of investment performance in a defined contribution scheme.
Normal pension age – Age at which a member of the pension scheme is eligible to receive full pension benefits.
Occupational schemes – A pension plan where access is linked to an employment or professional relationship between the plan member and the entity that sets up the plan (the plan sponsor). Occupational pension schemes may be established by employers or groups of employers (e.g. industry associations) or labour or professional associations, jointly or separately, or by self-employed persons. The scheme may be administered directly by the sponsor or by an independent entity (a pension fund or a financial institution acting as pension provider). In the latter case, the sponsor may still have responsibility for overseeing the operation of the scheme.
Old-age dependency ratio – Population aged over 65 as a percentage of the working age population (usually defined as persons aged between 15 and 64).
Operational risk - The risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events.
Own funds (regulatory) – Refers to the additional assets of a pension funds above its technical provisions serving as a buffer. Regulation usually requires that these assets are free of all foreseeable liabilities and serve as a safety capital to absorb discrepancies between anticipated and actual expenditure and profits. Also referred to as regulatory capital. (See also: Technical provisions).
Pay-As-You-Go (PAYG) schemes – Pension schemes where current contributions finance current pension expenditure (See also: funded schemes).
Payout phase or decumulation phase – Period during which assets accrued in the accumulation phase are paid out to the pension scheme member in a funded scheme. An example of a payout phase is a period in which regular retirement income is received through the purchase of an annuity. (See also: Annuity).
Pension benefit guarantee system – An arrangement to pay compensation to members or beneficiaries of pension schemes in the event of insolvency of to the pension fund and/or sponsoring employer. Examples of a pension benefit guarantee systems include the Pensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit (PSVaG) in Germany and the Pension Protection Fund in the UK.
Pension pillar – Different types of pension schemes are usually grouped into two, three, four or more pillars of the pension system. There is however no universally agreed classification. Many pension systems distinguish between statutory, occupational and individual pension schemes, or between mandatory and voluntary pension schemes. Participation in occupational and individual pension schemes, usually private pension arrangements, can be mandatory or voluntary.
Replacement rate – Generally refers to an indicator showing the level of pension income after retirement as a percentage of individual earnings at the moment of take-up of pensions or of average earnings. Replacement rates measure the extent to which pension systems enable typical workers to preserve their previous living standard when moving from employment to retirement.
Solvency – The ability of a pension scheme's assets to meet the scheme's liabilities. The scheme's liabilities cover all future pension payments and must therefore be discounted well into the future, thus making substantial assumptions about longevity. The value of a scheme's assets is dependent on the type of accounting standard used. If a scheme is not deemed to have a sufficiently high solvency level, it needs to consider whether to increase contribution levels or reduce entitlements, where scheme rules permit.
Sponsor covenant - Refers to a sponsoring employer’s ability to support pension fund volatility by providing additional funding if required. The 'covenant' in this context is a very similar concept to 'creditworthiness' for borrowers. At a simple level, if a pension fund has a deficit then it is in many respects similar to a bond holder in financial market terms. It depends on the ability of the company to pay additional contributions in the future if investment returns are not sufficient to make up the shortfall.
Statutory pension scheme - Social security and similar statutory programmes administered by the general government (that is central, state, and local governments, plus other public sector bodies such as social security institutions). Public pension plans have traditionally been of the PAYG type.
Supplementary pension schemes –Mandatory or voluntary pension schemes which generally provide additional retirement income to the statutory pension scheme.
Technical provisions – The amount of liabilities corresponding to the financial commitments of a pension fund which arise out of its portfolio of existing pension contracts. See also Article 15 of Directive 2003/41/EC.
Transferability – The right to transfer accrued benefits or accumulated capital from one pension scheme to another, for example to the pension scheme of the new employer.
2. STATISTICAL ANNEX
Figure 1: Demographic structure of the population in 2008 and 2060
Figure 2: Old-age dependency ratios under different average exit age scenarios
Figure 3: Change in public pension expenditure as a share of GDP over 2007-60 (in percentage points)
Figure 4: Benefit ratios in EU Member States in 2007 and 2060
Figure 5: Change in theoretical replacement rates for an average wage earner retiring at 65 after 40 years career between 2006 and 2046 in percentage points
Figure 6: Standard pension eligibility age and average labour market exit age in EU -27
Figure 7: Overall, female and older workers employment rates in EU-27, 2000-2008, in percent
Figure 8: Pension benefit impact of shorter and longer working lives
Figure 9: Pension benefit impact of career breaks due to unemployment
Figure 10: Increasing significance of funded pensions
Figure 1: Demographic structure of the population in 2008 and 2060
2008 [pic]
2060
[pic]
Source: Commission services, graph published in the 2010 Interim Joint Report on pensions of the Economic Policy Committee and Social Protection Committee, noted by the 7-8 June 2010 EPSCO and ECOFIN Councils, p. 9, available at: http://europa.eu/epc/publications/index_en.htm .
Note: the red (dark) bar indicates the most numerous cohort.
Figure 2: Old-age dependency ratios under different average exit age scenarios
In 2010, when it is assumed that people leave the labour market on average at age 60, the dependency ratio, i.e. the number of people of working age relative to the number of people above age 60, amounts to 5 to 2. If by 2040 people were to remain until 67 the corresponding ratio would stay constant and the increase by 2060 would far less dramatic than at lower exit ages. There would be no increase if the exit age would increase another 3 years between 2040 and 2060.
[pic]Source: Eurostat, Population Projections, 2008 data.
Figure 3: Change in public pension expenditure as a share of GDP over 2007-60 (in percentage points)
[pic]
Source: Ageing report 2009, available at:
http://ec.europa.eu/economy_finance/publications/publication13782_en.pdf, data as updated at the Ageing Working Group in 2010.
Note: Hungary reformed its pension system in 2009. Following the reform, its impact was assessed through a peer review by the AWG, and endorsed by the EPC at their 22 February 2010 meeting. According to the revised pension projections, public pension expenditure is projected to decrease from 10.9% of GDP in 2007 to 10.5% of GDP in 2060, i.e. by 0.4 p.p. of GDP, compared with the projection in the 2009 Ageing Report, where an increase of 3 p.p. of GDP between 2007 and 2060 was projected.
Figure 4: Benefit ratios in EU Member States in 2007 and 2060
[pic]
Source: Ageing report 2009, available at:
http://ec.europa.eu/economy_finance/publications/publication13782_en.pdf.
Note: The 'Benefit ratio' is the average benefit of public pension and public and private pensions, respectively, as a share of the economy-wide average wage (gross wages and salaries in relation to employees), as calculated by the Commission. Public pensions used to calculate the Benefit Ratio includes old-age and early pensions and other pensions. Private pensions are not included for all Member States. Hence, the comparability of the figures is limited. The value of indicators might change as some Member States consider reforms of their pension systems (e.g. Ireland).
Figure 5: Change in theoretical replacement rates for an average wage earner retiring at 65 after 40 years career between 2006 and 2046 in percentage points
[pic]
Source: INDICATORS' SUBGROUP OF THE SOCIAL PROTECTION COMMITTEE (ISG) 2009 report on Theoretical Replacement Rates, "UPDATES OF CURRENT AND PROSPECTIVE THEORETICAL PENSION REPLACEMENT RATES 2006-2046", p.17, available at:
http://ec.europa.eu/social/main.jsp?catId=752&langId=en&moreDocuments=yes.
Note: Replacement rates are defined as the level of pension income during the first year of retirement as a percentage of individual earnings immediately before retirement. For countries with a projected drop in replacement rates it should be noted that the decrease can usually be counterbalanced by working longer.
It should be noted that EE, like other countries with a more positive evolutions in replacement rates (RO, BG and CY), start off from rather low initial levels of the rates.
Figure 6: Standard pension eligibility age and average labour market exit age in EU-27
There has been a more or less pronounced increase in the average exit age from the labour force of nearly all Member States between 2001 and 2008, with an EU27 average exit age of 61.4 years in 2008. For those countries with increasing pensionable ages until 2020 and beyond, the average exit age is expected to continue to increase. It appears that most countries are gradually moving to a universal pensionable age of at least 65, but countries such as DK, DE and UK have already legislated further increases in order to respond to continued advances in longevity.
Member State | Average exit age from the labour force in 2001 | Average exit age from the labour force in 2008 | Statutory retirement age for M/W in 2009 | Statutory retirement age for M/W in 2020 | Further increases in the statutory retirement age for M/W after 2020 |
Belgium | 56.8 | 61.6* | 65/65 | 65/65 |
Bulgaria | 58.4 | 61.5 | 63/60 | 63/60 |
Czech Republic | 58.9 | 60.6 | 62/60y8m | 63y8m/63y4m | 65/65 |
Denmark | 61.6 | 61.3 | 65/65 | 65/65 | 67+/67+*** |
Germany | 60.6 | 61.7 | 65/65 | 65y9m/65y9m | 67/67 |
Estonia | 61.1 | 62.1 | 63/61 | 63/63 |
Ireland | 63.2 | 64.1** | 65/65 | 65/65 (66/66) | (68/68) |
Greece | 61.3° | 61.4 | 65/60 | 65/60 | 65/65 |
Spain | 60.3 | 62.6 | 65/65 | 65/65 |
France | 58.1 | 59.3 | 60-65 | 60/60 |
Italy | 59.8 | 60.8 | 65/60 | 65/60**** | *** |
Cyprus | 62.3 | 63.5* | 65/65 | 65/65 |
Latvia | 62.4 | 62.7 | 62/62 | 62/62 |
Lithuania | 58.9 | 59.9** | 62y6m/60 | 64/63 | 65/65 |
Luxembourg | 56.8 | : | 65/65 | 65/65 |
Hungary | 57.6 | : | 62/62 | 64/64 | 65/65 |
Malta | 57.6 | 59.8 | 61/60 | 63/63 | 65/65 |
Netherlands | 60.9 | 63.2 | 65/65 | 65/65 (66/66) | (67/67) |
Austria | 59.2 | 60.9* | 65/60 | 65/60 | 65/65 |
Poland | 56.6 | 59.3* | 65/60 | 65/60 |
Portugal | 61.9 | 62.6* | 65/65 | 65/65 |
Romania | 59.8 | 55.5 | 63y8m/58y8m | 65/60 (65/61y11m) | (65/65) |
Slovenia | 56.6° | 59.8** | 63/61 | 63/61 (65/65) |
Slovakia | 57.5 | 58.7* | 62/59 | 62/62 |
Finland | 61.4 | 61.6* | 65/65, 63-68 | 65/65, 63-68 |
Sweden | 62.1 | 63.8 | 61-67 | 61-67 |
United Kingdom | 62.0 | 63.1 | 65/60 | 65/65 | 68/68 |
EU 27 average | 59.9 | 61.4 |
Source: Eurostat, MISSOC, Ageing Report, 2010 Interim Joint Report on pensions of the Economic Policy Committee and Social Protection Committee, noted by the 7-8 June 2010 EPSCO and ECOFIN Councils, available at: http://europa.eu/epc/publications/index_en.htm .
Note: ° - 2002, * - 2007, ** - 2006, in brackets – proposed, not yet legislated, *** retirement age evolves in line with life expectancy gains over time, introducing flexibility in the retirement provision. **** For Italy 65/65 for civil servants, starting from 2018.
Sweden: guarantee pension is available from the age of 65.
Romania: the National House of Pensions and other Social Insurance Rights.
Figure 7: Overall, female and older workers employment rates in EU-27, 2000-2008, in percent
[pic]
Source: Eurostat, LFS annual data, graph published in the 2010 Interim Joint Report on pensions of the Economic Policy Committee and Social Protection Committee, noted by the 7-8 June 2010 EPSCO and ECOFIN Councils, p.10, available at: http://europa.eu/epc/publications/index_en.htm .
Figure 8: Pension benefit impact of shorter and longer working lives
[pic]
Source: INDICATORS' SUBGROUP OF THE SOCIAL PROTECTION COMMITTEE (ISG) 2009 report on Theoretical Replacement Rates (TRR), "UPDATES OF CURRENT AND PROSPECTIVE THEORETICAL PENSION REPLACEMENT RATES 2006-2046", p.22, available at:
http://ec.europa.eu/social/main.jsp?catId=752&langId=en&moreDocuments=yes.
Figure 9: Pension benefit impact of career breaks due to unemployment
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*
[pic]
Source: SOCIAL PROTECTION COMMITTEE/INDICATORS' SUBGROUP OF THE SOCIAL PROTECTION COMMITTEE (ISG). Graph published in the 2010 Interim Joint Report on pensions of the Economic Policy Committee and Social Protection Committee, noted by the 7-8 June 2010 EPSCO and ECOFIN Councils, p.50, available at: http://europa.eu/epc/publications/index_en.htm
*The unemployment break is assumed to take place in the years just prior to old age retirement which is assumed here to be the statutory retirement age for men
Note: the values for MT and PT are equal to 0 and should not be interpreted as missing. The values are validated by Member States. Conditions of crediting unemployment breaks might have a positive impact on the replacement rate of a hypothetical worker in the base-case scenario, for whom values in the Figure are provided.
Figure 10: Increasing significance of funded pensions
This figure shows that for most of those countries represented, funded pensions will provide for a larger share of retirement income in 2046 than in 2006 as a result of pension reforms (measured by gross theoretical replacement rates).
Share of occupational and statutory funded pensions in total gross theoretical replacement rates in 2006 and 2046 in selected Member States
[pic]
Source: INDICATORS' SUBGROUP OF THE SOCIAL PROTECTION COMMITTEE (ISG) 2009 report on Theoretical Replacement Rates, "UPDATES OF CURRENT AND PROSPECTIVE THEORETICAL PENSION REPLACEMENT RATES 2006-2046", Annex – country fiches, available at:
http://ec.europa.eu/social/main.jsp?catId=752&langId=en&moreDocuments=yes.
Note: Data available only for a number of Member States
[1] The European Parliament is also engaging in a policy discussion on the lessons learnt from the crisis under the auspices of the Special Committee on the Financial, Economic and Social Crisis.
[2] Report available at http://europa.eu/epc/publications/index_en.htm, see Council Conclusions http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/114988.pdf.
[3] Including highly mobile workers such as researchers, see Council Conclusions 2 March 2010:http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/intm/113121.pdf.
[4] The Commission will issue a Report on Citizenship in 2010 on the entire life cycle of EU citizens, covering i) obstacles in the effective exercise of citizens' rights, including free movement rights, and ii) the solutions envisaged to remove these obstacles, along with a Roadmap for their adoption.
[5] Commission communication on Ageing of 29th April 2009 "Dealing with the impact of an ageing population in the EU (2009 Ageing Report)" and Commission staff working document Demography Report 2008 – Meeting social needs in an ageing society (SEC (2008) 2911).
[6] European Commission and Economic Policy Committee (2009) "2009 Ageing Report: Economic and budgetary projections for the EU-27 Member States (2008-2060)", European Economy, No 2.
[7] Ibid.
[8] "Quality and viability of pensions – Joint report on objectives and working methods in the area of pensions" [10672/01 ECOFIN 198 SOC 272].
[9] The Interim Joint Report on pensions of the Economic Policy Committee and the Social Protection Committee contains a more detailed assessment, see footnote 2.
[10] Section 4.2 p. 26 of SPC Report "Privately managed funded pension provision and their contribution to adequate and sustainable pensions" (2008) http://ec.europa.eu/social/main.jsp?catId=752&langId=en.
[11] This could include sharing experience on approaches such as 'communicating vessels' whereby the amount of tax relief available for voluntary individual savings is inversely related to the amount of statutory and occupational pensions an individual already has. See the "Proposal for a pension model with a compensating layer" by G.J.B. Dietvorst, EC Tax Review 2007 nr.3 p.142-145.
[12] See footnote 6.
[13] OECD, "Pensions and the crisis – How should retirement income systems respond to financial and economic pressures" 2009.
[14] OECD "Pension Markets in Focus", October 2009, Issue 6.
[15] Chapters 3.3 – 3.5 of the Interim Joint Report on pensions, see footnote 2.
[16] Presidency conclusions of the 23 March 2005 COUNCIL OF THE EUROPEAN UNION 7619/1/05, REV 1, stressed the need "to safeguard the sustainability of public finances in the long run, to promote growth, and to avoid imposing excessive burdens on future generations."
[17] In relation to the SGP the Commission has proposed to also take account of implicit liabilities, notably related to ageing, amongst other factors to reflect future risks (COM(2010) 367/2).
[18] Chapter 3.2.1 of the Interim Joint Report on pensions, see footnote 2.
[19] Presidency conclusions of the 15-16 March 2002 EUROPEAN COUNCIL SN 100/1/02 REV 1.
[20] A better transposition and application of the Employment Equality Directive (2000/78/EC) and the realisation of the added value of older staff is needed. Age is the most common perceived disadvantage when seeking a job, see http://ec.europa.eu/public_opinion/archives/ebs/ebs_317_en.pdf.
[21] Chapter 2.1 of the Interim Joint Report on pensions, see footnote 2.
[22] See Commission Staff Working Document SEC(2010)830.
[23] See footnote 22 for more information on the current EU framework on pensions.
[24] See Commission report on some key aspects concerning Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision (IORP Directive) of 30.4.2009, COM(2009) 203, available at http://ec.europa.eu/internal_market/pensions/docs/legislation/iorp_report_en.pdf.
[25] IAS 19 Employee Benefits applies to the sponsoring undertakings.
[26] IAS Regulation 1606/2002.
[27] The Monti Report also suggests an option to explore the 28th regime for supplementary pension rights, see A NEW STRATEGY FOR THE SINGLE MARKET AT THE SERVICE OF EUROPE'S ECONOMY AND SOCIETY, Report to the President of the European Commission José Manuel Barroso by Mario Monti, 9 May 2010, p.58.
[28] For example, setting up a cross-border EU pension fund for highly mobile workers (e.g. researchers) could be an option. See "Feasibility Study of a Pan-European pension fund for EU researchers", Hewitt Associates on behalf of the European Commission (DG RTD), May 2010.
[29] Commission vs. Belgium , Case C-522/04.
[30] EFRP survey on DC pensions 2010.
[31] OECD Pension Market in Focus Oct. 2009.
[32] Security mechanisms used today rely on a realistic valuation of technical provisions, own funds, sponsor covenants, pension protection funds or a combination of those elements (CEIOPS SSC report).
[33] 2008/94/EC
[34] SEC(2008) 475, 11.4.2008.
[35] OJ 2009/ S 230-329482.