Brussels wants pensions pegged to life expectancy

Pensions 9June2010.JPG

The European Commission is working to convince member states to adopt "automatic adjustments" in their pension legislations so that the retirement age is pegged to longevity, reads an internal document obtained by EURACTIV.

Three commissioners are actively involved in shaping EU policy on pensions with the intention of encouraging reform and influencing decisions taken by member states.

László Andor, the EU commissioner for employment and social affairs, Michel Barnier, in charge of the internal market, and Olli Rehn, responsible for economic affairs, are holding regular meetings to better define the EU executive's action in the field of pensions.

In their last meeting on 9 February, they discussed "how the Commission can ensure that member states follow up on questions such as increasing the retirement age, linking it to life expectancy [and] reducing early retirement schemes," according to the meeting document obtained by EURACTIV.

The Commission plans to hold an "orientation debate" on demography during the first meeting of the College in March. The debate "may have implications on the Commission's pension policy," reads the document.

After having collected positions from relevant stakeholders for its Green Paper on pensions, the Commission's next move will be to publish a White Paper in the third quarter of 2011, which will define more clearly the EU executive's objectives regarding pension reform.

EU leaders meeting for a summit at the end of March are also likely to address the pension issue in relation to Franco-German proposals for a 'Competitiveness Pact', which considers "adapting pension systems to demographic developments".

However, Brussels is moving only cautiously on this contentious issue. Although there is wide consensus on the need for reform, not all member states are convinced that automatic adjustments are the way forward. Public opposition to reform in this direction is also widespread.

Parliament split over automatic adjustments

The divisive nature of this issue was confirmed yesterday (16 February) by a resolution adopted by the European Parliament, which omitted references to automatic adjustments. 

The Socialists & Democrats (S&D) and leftist (GUE/NGL) groups are opposed to the idea of raising the retirement age and believe that automatic adjustments are unnecessary.

The original text, drafted by Dutch EPP MEP Ria Oomen-Ruijten, had stated that the Parliament "observes that life expectancy is growing and calls on member states to consider linking the statutory retirement age to life expectancy".

Despite support for this view by the influential EPP and liberal ALDE groups, the sentence had to scrapped from the final text. 

For the leftists, other means could be used to collect the funding necessary to make pensions sustainable in the longer term, for instance new taxes, especially on the financial sector.

The S&D group, for its part, is not convinced that life expectancy will actually rise in the coming years and argues this will depend on a number of unpredictable factors, perhaps related to living conditions and access to health care, which are not the same for all citizens. 

Other issues

MEPs also discussed less divisive issues, such as the portability of pensions for citizens who have spent their working lives in several EU countries.

The resolution also stressed MEPs' concern over "the inadequate information provided to the public by public authorities and bodies administering pensions concerning the necessity, possibilities, accumulated entitlements, likely results and actual state of affairs with regard to old-age pensions".

Indeed, obtaining relevant information on pension entitlements often proves a difficult task in many EU countries. 

Dutch MEP Ria Oomen-Ruijten (European People's Party), who drafted the European Parliament's resolution, said: "Many member states have already increased the pension age. It is wise to discuss the link between retirement age and life expectancy, but a fixed European retirement age is impossible because of the huge differences in life expectancy in member states."

"On the other hand, putting in place measures to encourage the extension of working life, flexibility and adapted pension schemes is something I strongly advocate," she added.

French Socialist MEP Françoise Castex took a different view: "They say that since people live longer we should work longer, otherwise we won't have balanced pensions. We don't know what it will happen in 10 or 20 years for life expectancy and demography. In some social classes, for instance, there are problems in accessing medical care and for this reason life expectancy is decreasing."

"The economy should adapt itself to the needs of people and not vice-versa. France will never accept a European proposal that we have to work more. It is against our European social model. We need to protect employed people and to ensure enough pension funds," she added.

Irish MEP Marian Harkin, ALDE group coordinator and shadow rapporteur on the EU asembly's employment committee, commented: "Some people speak of the pensions time-bomb and given some of the figures that I have seen, which estimate the gap between what we currently set aside for pensions, both public and private, and the resources that will be needed to ensure that there are adequate pension provisions for the next 40 years, that gap is huge." 

"We need to defuse this time bomb," she added.

Portuguese GUE/NGL MEP Ilda Figueiredo criticised the Parliament's vote: "We presented an alternative resolution to this report which demonstrates that it is possible to improve pensions and retirement conditions without increasing the statutory retirement age. This can be done via employment rights, particularly for young people, better wages, and higher taxes on the financial sector and financial transactions."

EuroHealthNet Director Clive Needle said "much attention is focusing on the so-called 'demographic time bomb', financial pillars of pension provision and how states can manage what is too often seen as a burden. However, evidence on healthy ageing and social determinants of health shows that addressing inequities through life can help turn older people into a real asset for communities and economies".

"The EU has a real role to promote that as set out in its Treaty objectives of promoting well-being and cohesion for all its citizens from pregnancy to pensions," Needle said. 

The question of how to reform Europe's generous pension systems is growing in importance as Europe's population continues to age.

The European Commission launched a long-awaited 'Green Paper' on pension reform last July, hoping to gather the pulse of relevant stakeholders.

Life expectancy for men will increase from 76 years in 2008 to 84 in 2060 and for women from 82 in 2008 to 89 in 2060. Europe will become greyer.

Consequently, while at present there are four people of working age for every person over 65, by 2060 there will be just two. The burden on public finance is expected to grow steadily without significant policy changes.

While pension reform is still ultimately decided at national level, the EU - through the open method of coordination – aims to support, monitor and assess the impact and implementation of national reforms.

  • 3 March 2011: College of commissioners to hold debate on demography.
  • 11 March 2011: Extraordinary eurozone summit
  • 24-25 March 2011: EU summit.
  • May 2011: Commission expected to publish results of Green Paper on Pensions.
  • July-Sept. 2011: Expected publication of White Paper on Pensions.

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