EU tables pensions plan, but it is ‘not ambitious enough’

The European Commission’s proposals on pensions presented yesterday (16 February) by the EU employment and social affairs chief, László Andor, was met by a flurry of criticism.

Presenting the so-called White Paper on pensions, which builds on the results of a wide consultation with stakeholders launched in 2010, Andor stressed that it is not too late to meet the challenge of an ageing population if "we follow through on our commitment to reform."

Even though pension systems are largely the competence of EU member states, Brussels has some say as national reforms are evaluated within the Europe 2020 strategy. In 2011, 16 member states received country-specific recommendations concerning pensions and a further five signed up to pension reforms as part of their Memoranda of Understanding.

Indeed, the EU executive anchored pension sustainability to the annual growth agenda survey in order to ensure better balance between time spent in employment and time spent in retirement.  As such, the Commission supported increasing the retirement age, linking it to life expectancy, while restricting access to early retirement.

But a coalition of NGOs led by AGE Platform Europe stressed that a sustainable and long-term strategy to guarantee balanced financing of the pension schemes has to be based also on increasing the young entrants in the labour market and not only on prolonging the pension age. 

“The objective of financial sustainability should go hand-in-hand with social sustainability,” the NGOs said in a statement. The coalition also includes the European Youth Forum and the European Women’s Lobby.

The pension plan should be supported by a stronger agenda for quality job creation, added AGE.

Supplementary pension schemes

Activists believe the Commission could have gone further on its proposal to push member states to develop complementary private retirement schemes, encouraging social partners to develop such schemes and governments to optimise tax and other incentives.

Reforms adopted across Europe have set lower annual pensions in the future so as to offset longer retirements and fewer workers. That means that many people have to save more for retirement through supplementary schemes and work longer if they want to get a higher pension.

“Tackling some specific issues around complementary private retirement savings is necessary but not enough to address the concerns of millions of workers and retired women and men across the EU who have seen their private savings erode as a result of financial markets turmoil,” said the NGOs.

Pressure on employers?

Meanwhile in the UK, industry organisations said businesses could be pushed into insolvency by European pension proposals.

In a letter to European Commission President José Manuel Barroso, the National Association of Pension Funds (NAPF), the Confederation of British Industry and the TUC labour union warned the new rules would have a disastrous impact.

"By demanding dramatic increases in funding from employers, the Commission's plans would – at best – force all remaining defined-benefit schemes to close and – at worst – push many businesses into insolvency, leading to significant job losses," they wrote.

The European Insurance and Occupational Pensions Authority (EIOPA), a pan-European watchdog, is due to send final recommendations on its EU pensions directive to the EU Commission, aimed at addressing shortfalls in pensions schemes and improving risk management.

EIOPA is proposing to adapt Solvency II capital rules, originally aimed at the insurance industry, which could force pension funds to hold large cash buffers in proportion to their liabilities, to guard against risks.

Solvency II has been more than 10 years in the making, and its original 2012 introduction date has already been postponed once, drawing criticism from the insurance industry.

NAPF, which represents 1,200 pension schemes in the UK, with 15 million members and assets of around £800 billion pounds (€965 billion), has already warned that the new rules could cost the industry £300 billion (€362 billion).

Background

Europeans are living longer and, together with low birth rates, Europe's population is ageing rapidly. Since 1960, life expectancy has climbed by eight years and demographic projections foresee a further five-year increase over the next four or five decades. 

A recent Eurobarometer survey has found that the majority of Europeans (71%) are aware that the population is getting older, but this is a concern for only 42%.

Definitions of 'old' and 'young' differ across countries. On average, Europeans believe that people start being considered as old just before 64 years and are no longer considered young from the age of 41.8 years.

Further Reading