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Explore the current state and future directions of pension reform in the European Union, covering public and private pensions, legislative frameworks, policy coordination, and sustainability challenges.
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European Union • Pension Reform Outlook • Ruth Paserman • Deputy Head of Unit Social Protection, Social Services • EUROPEAN COMMISSION • DG Employment, Social Affairs and Equal Opportunities
Pension policy in the European Union • Public pensions: • Coordination of social security schemes • Coordination of pension policy at political level (no harmonization) • Occupational, private pensions: • Trend towards more legislation Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Co-ordination of social security schemes • Why? • Freedom of movement of the European Union citizen • How? • Regulation 1408/71/EEC on co-ordination of social security schemes • Summing up of contribution periods in different schemes and paying of benefits by the country of domicile • No comparable instrument for supplementary pensions Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Some elements of European legislation: • Insurance Directives • Directive 98/49 on safeguarding supplementary pension rights of employed and self-employed persons moving within the Community • Directive 2003/41 on the activities and supervision of institutions for occupational retirement provision (IORP) • Proposal for a Directive on portability of supplementary pension rights Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Open Method of Coordination • Social inclusion, Pensions, Health • Definition of common objectives and agreed indicators • National reporting • Evaluation and synthesis in order to facilitate mutual learning and exchange of good practices • All this through Social Protection Committee, in link with Economic Policy Committee and Employment Committee Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Policy co-ordination... Why? • Member States depend on each other • Mutual challenges • Legitimacy for difficult reforms • Policy design: learn from each other • Right for social policy to intervene in EU financial and employment policies • Balanced European goals for pension reforms: Influence also on other co-ordination processes Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Objective: • Providing adequate and sustainable pensions • Adequacy • Sustainability • Modernisation Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Synthesis report on pensions 2006 • Common policy challenges • Working longer – labour market reforms • Strengthening the link between contributions and benefits • Adjustment to the structural change in society and labour market • Minimum pensions • Improved governance • Private pensions: supplement or replace public provision? New tasks for State Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Trend of replacement rates at a given age • A trend toward a decline in most statutory schemes Source : Stylised illustration from ISG results on gross replacement rates Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
How to compensate for this decline ? Working longer and private pensions Source : Stylised illustration from ISG results on gross replacement rates Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
The role of private and supplementary pensions in the EU • An expected increase of the contribution of privately managed schemes to the income of retired people • But public PAYG pension schemes are expected to remain the principal source of income of pensioners in all but a few Member States Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Current situation Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Current situation and expected evolution in selected countries Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
New and proposed EU legislative requirements – Portability Directive, IORP and Solvency II • IORP • pension funds benefit from the Internal Market principles of free movement of capital and free provision of services. • establish rigorous prudential standards ensuring that pension beneficiaries are properly protected • Portability • facilitate the acquisition of occupational pension rights • guarantee an adequate protection of dormant rights of outgoing workers, facilitate the transfer of acquired pension rights and • ensure appropriate information of workers in the event of professional mobility • Solvency II • a fundamental and wide-ranging review of the current insurance Directives • ensure adequate policyholder protection in all EU Member States. • Increase the level of harmonisation in general, including that of supervisory methods, tools and powers Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Further investigation – report 2008 • Transition costs and impacts when changing from p-a-y-g to funded provision • Decumulation phase of private and supplementary pensions • Information requirements • Administrative costs Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
International experiences of administrative costs – can these be lowered? Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Key challenges • Future adequacy • Administrative charges • Transparency • Portability • Solidarity • Security • Data Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Conclusions • The rising complexity of pension systems and the importance of common issues is closely linked to adequacy and sustainability • Special Study for the Social Protection Committee to feed into the next joint report Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit
Further information • All information about the European Union: • http://europa.eu.int • Synthesis reports on Pensions (2003, 2006) and the National Strategy Reports (2002, 2005): • http://europa.eu.int/comm/employment_social/soc-prot/pensions/index_en.htm • Reports by the Economic Policy Committee on the budgetary implications of ageing: • http://europa.eu.int/comm/economy_finance/epc/epc_ageing_en.htm Directorate-General for Employment, Social Affairs and Equal Opportunities ─ Unit