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OVERVIEW OF THE PRIVATELY MANAGED PENSION FUNDS SECOND AND THIRD PILLAR IN THE EU MEMBER STATES

OVERVIEW OF THE PRIVATELY MANAGED PENSION FUNDS SECOND AND THIRD PILLAR IN THE EU MEMBER STATES. Prof. dr. Yves Stevens institute for social law President Belgian occupational pension board. Overview. Is there no three pillar model? Privately managed pension funds in the EU Conclusions.

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OVERVIEW OF THE PRIVATELY MANAGED PENSION FUNDS SECOND AND THIRD PILLAR IN THE EU MEMBER STATES

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  1. OVERVIEW OF THE PRIVATELY MANAGED PENSION FUNDS SECOND AND THIRD PILLAR IN THE EU MEMBER STATES Prof. dr. Yves Stevens institute for social law President Belgian occupational pension board

  2. Overview • Is there no three pillar model? • Privately managed pension funds in the EU • Conclusions

  3. I.IS THERE NO THREE PILLAR MODEL ?

  4. “Three pillars” • A model that does not exist • Different approaches • Anglo saxon and worldbank • Continental “old” Europe • A common European vision ? • Main advantage

  5. The three pillar pension systemThe world bank vision 1. Social security 2. Madatory funded systems 3. Voluntary supplemental benefits

  6. The three pillar pension systemThe continental “old” European vision 3. Voluntary supplementary benefits 2. Mandatory industry sector pensions Company sponsored benefits 1. Social security benefits

  7. Example Bulgaria • 1st Pillar • State social security • Flows of finance are controlled by public institutions. • 2nd Pillar • Obligatory • Individual accounts • Funded • 3rd Pillar WORLDBANK

  8. Example Belgium • 1st Pillar • State social security • Flows of finance are controlled by public institutions. • 2nd Pillar • Occupational and work-related character • Mainly voluntary character (for employer, not for employee) • Flows of finance controlled by social partners or employers, outsourced to pension funds and/or financial institutions. • 3rd Pillar • Flows of finance controlled by private institutions • Private individual character - voluntary individual choice to take part. “OLD” CONTINENTAL EUROPE

  9. The three pillar pension systemWhat some critics say 2. Madatory funded systems 3. Voluntary supplemental benefits 1. Social security

  10. The three pillar pension systemWhat some critics say 3. Voluntary supplementary benefits 2. Mandatory industry sector pensions Company sponsored benefits 1. The social security benefits

  11. voluntary obligatory mixed national industry-wide company individual funds insurers banks internal external mixed overall categories individual EEE ETT ETE EET TET TEE ETE TTE TTT organising supervising managing none repartition open – closed capitalisation mixed organising regulating managing controling How difficult to define ? Europe’s quilt affiliation level actors booking coverage fiscal control prudent man  strict state supervision participation risk/cost indvidual  employer  society finance government

  12. What exists … • An integrated pillar coordinated view on every pension system • Everything is linked to everything

  13. II. PRIVATELY MANAGED PENSION FUNDS

  14. Privately managed pension funds • Facts • strong increases in the last 10 years in Europe • increasing number of individual accounts • increasing number of DC plans with further deterioration of DB plans • Shift towards the “anglo-saxon model” ? • Directive 2003/41 • Proposal of directive on portability • Does the World bank model prevail in the new member states ?

  15. Privately managed pension funds • Some examples: what happens in … • France • Germany • Italy • Ireland • Sweden • UK • …

  16. III.CONCLUSIONS

  17. Conclusions • The proportion between state and additional pensions determines the degree of solidarityof the system. • The bigger the portion of the state pension, the higher the income redistribution. • The bigger the additional component, the more the distribution follows the hierarchy of salaries. • The GDP percentage for pensions (state + additional) is almost the same everywhere in the EU, BUT the smaller the role of the state pension, the bigger the income inequality is. • On macro-economical level, all pillars constitute a whole. Save in the 1th pillar and leave the additional pensions free, is no solution. All pillars should be regarded together (including tax benefits to the third pillar).

  18. Conclusions • Budget and political constraints limit the possibilities for the development of the first pillar. • The role of other pillars becomes more important. • Pension policy is part of a global social policy including health care for the elderly, dependency, poverty exclusion measures, ... • Every Euro spent in whatever pillar remains a cost that needs to be gained through the economy. • Economic prosperity and growth is a prerequisite for a sound social system.

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