"People often tell me that the EU should leave pensions alone, arguing that pensions policy is the responsibility of member states alone. I have no doubt that many respondents to the European Commission's Green Paper on Pensions will say just that.
I don't agree. With the growing pressure on Europe's pension systems, the EU can and must take on a greater role in pensions policy. For example, by helping to encourage a greater savings culture, by explaining in honest terms the inevitability and impact of a reduced role for the State, and by stressing the importance of increased self-responsibility and personal provision at an earlier age. This would helpfully support the actions, and responsibilities, of national governments to address the pensions gap faced by their own citizens.
The pensions gap is the difference between the pension savings that people due to retire across the EU between 2011 and 2051 ought to be putting aside to maintain an adequate standard of living in retirement, and the actual savings being put aside. Aviva has recently published its research into the size of this gap across the EU, and found that it is €1.9 trillion every year. That's equivalent to 19% of EU GDP.
Some of this gap can of course be filled by non-pension assets, such as property or stocks and shares, but this may only fund as little as 20% of the gap.
Our research also shows that the gap is most severe for those within 10 years of the state retirement age. These people won't have enough time to build up more savings before retirement and will need to consider alternative strategies such as retiring later, working in retirement or lowering expectations of what income they'll receive.
The picture is brighter for younger generations – if they start saving sooner. The research confirmed that saving more and saving earlier will have a significant positive impact on an individual's retirement income. For example, in Spain the average person needs to save an extra €7,000 a year to fill their pensions gap, but this falls to €2,900 a year for a forty year old and then further to €1,200 for someone in their twenties.
The bottom line is this: in the future, individuals will need to take greater responsibility for their retirement provision, and do so earlier in their lives.
In my view, there are four areas where the EU could make a difference.
Firstly, by exploring potential new national mechanisms that could deliver, by 2020, an annual pension statement to all adult EU citizens, setting out what they stand to get in retirement. This is already the case in Sweden with their 'Orange Envelope' for the state pension, and the website 'minpension.se' provides an integrated projection including occupational pension benefits too. All citizens across the EU should have access to this sort of information - if people are more aware of the level of pension they are likely to receive, I am convinced this would prompt many of them to take greater personal responsibility for their own financial futures.
Secondly, by reviewing the optimum structure and shape of incentives to save into pensions, in particular to engage lower and modest income earners. We need to change the language of pensions, making it much more straightforward for people to see and understand what the 'deal' is that is on offer.
Let me be clear, I'm not advocating cuts in expenditure on tax incentives, rather a re-shaping to make them much more effective. Incentives should be clear, simple and their benefits understandable to the 'man in the street'. Tax relief is not currently understood by those that have most to gain from it.
Thirdly, by developing a European Quality Standard for Pensions, that would demonstrate the quality and security of private pension products, facilitate comparability and increase consumer confidence. As many more people take greater personal responsibility for their financial future, it is entirely reasonable for policymakers to expect the private sector to demonstrate that appropriate safeguards are in place regarding the products people are guided into.
Fourthly and finally, by establishing long-term savings targets, variable by country and calculated as a percentage of GDP or distribution across each pillar, that encourage member states to move their national pension systems towards a much more sustainable financial position in terms of future funding provision.
We cannot ignore the fact that longer life expectancy poses serious public policy challenges for Europe, and particularly Western European countries.
So I am issuing a call to arms to European policymakers: work in partnership with the private sector to explore, design and build new and better ways for individuals to save and protect themselves and their families into the future."
