THE SECOND ANNUAL EUROPEAN PENSIONS CONFERENCE

1. A PENSIONS ROLE MODEL FOR EUROPE? THE SECOND ANNUAL EUROPEAN PENSIONS CONFERENCE ANNE MAHER Chief Executive 20 April 2004 The Pensions Board Ireland

2. WHAT I WILL COVER • Current European models • Influences on suitability of model • Does/should EU want a model?

3. CURRENT EUROPEAN MODELS • Four pillars • social security • supplementary pension schemes • individual saving • earnings in retirement • Huge diversity in EU member state models • Some models planned but most evolved • Differences arise from different • political tendencies • cultural influences • social traditions • employment traditions • external events e.g. war

4. CURRENT EUROPEAN MODELS • UK/Ireland/Netherlands Model • Southern European Model • Central and Eastern European Model • Various Other Unique Models, for example • Germany • France • Denmark • Sweden

5. CURRENT EUROPEAN MODELS • UK • universal flat-rate basic social security pension • mandatory additional earnings-related social security cover • minimum income guarantee • long tradition of funded occupational pension schemes • personal pensions and stakeholder pensions • Netherlands • universal flat-rate safety-net social security pension • extensive complementary funded pension schemes • high proportion of industry wide schemes • Ireland • universal basic flat-rate social security pension • large number of funded occupational pension schemes • personal pensions and Personal Retirement Savings Accounts • partial funding of social security pension through National Pensions Reserve Fund

6. CURRENT EUROPEAN MODELS • Southern European (Italy, Greece, Spain, Portugal) • extensive First Pillar social security covers retirement, death and disability • social security funded on PAYG basis • social security usually earnings related up to high earnings ceiling • very little private Second Pillar provision because unnecessary • Central and Eastern European • comprehensive social security pensions on PAYG basis • low retirement ages are serious issue • complementary pensions are new phenomena

7. CURRENT EUROPEAN MODELS Other Unique Models • Germany • First Pillar at level which encourages employers to establish private schemes • private occupational schemes but mostly book reserves (with insolvency insurance) rather than funded • France • Second Pillar complementary pension schemes • PAYG • operated on industry wide basis • compulsory for most employed people • based on concept of solidarity • very few private funded occupational schemes

8. CURRENT EUROPEAN MODELS • Denmark • flat-rate First Pillar based on residence and financed out of general taxation • funded private pensions negotiated by industry, financed by specialised pension insurance companies • Sweden • PAYG defined benefit First Pillar recently transformed into notional defined contribution scheme • employees must also contribute to funded pension arrangement • other forms of complementary pension arrangements also common

9. CURRENT EUROPEAN MODELS Issues Arising • Demographic changes • Falling birth rate • Longer life expectancy • Increasing old-age dependency • Pressure on public finances • Pension cost increasing as % GDP • IMF, ECB, and OECD calls for reform • Pension system sustainability in EU • Some have private funded pensions • Threat to monetary union • Common Debates • Funding of public and private pensions • Mandatory or voluntary supplementary pensions • Defined benefit or defined contribution • Appropriate fund investment

10. CURRENT EUROPEAN MODELS Pension Reform • High priority in every EU country • Reforming Social Security • Increasing retirement age • Part-time working as transition • Changes in early exit • Lowering replacement ratios • Developing occupational pensions • Tax incentives • Prudential rules • Transfer rights • Developing individual pensions • Market development • Tax incentives • Information campaigns

11. INFLUENCES ON SUITABILITY OF MODEL • Adequacy • Prevent social exclusion in old age • Allow people to maintain living standards • Promote solidarity between generations • Financial sustainability of pension systems • Raise employment levels • Extend working lives • Ensure sustainable pensions in context of sound public finances • Adjust benefits and contributions so as to share financial consequences of ageing in balanced way between generations • Ensure that private pension provision is adequate and financially sound • Responding to changing needs • Adapt to more flexible employment and career patterns • Meet aspirations for greater gender equality • Make pension systems more transparent and demonstrate ability to meet challenges

12. DOES EU WANT MODEL? EU Says No • Commission regularly confirms principle of subsidiarity saying that Member States retain full responsibility • for organisation of their pension systems and • for role of each of Three Pillars of pensions in their system. • EU commitment is to • full internal market for financial services, including • internal market for occupational retirement provision organised on European scale.

13. DOES EU WANT MODEL? EU Says No But … • Pensions Directive • Protection of members • Freedom of investment • First step to Single Market for pensions • Tax Co-ordination • European Court cases • Tax Communication • Current moves to enforce • Joint Commission/Council Report on Adequate andSustainable Pensions • Evaluates adequacy, effectiveness, financial sustainability and responding to changing needs • Other Areas of Interest • Mobility and portability • Equality

14. SHOULD EU WANT MODEL? No because • All Member States starting from very different positions • Different • demographics • economies • cultures • Too inflexible • Would lack opportunities for creativity and development • No single model could suit all

15. SHOULD EU WANT MODEL? No but • Member States need common understanding of each others systems • Statistics, measurement and evaluation must be based on commonly accepted basics (for example, measurement of funding) • Supervision must operate with strong cross-border co-operation

16. CONCLUSION • We are on the brink of • Cross-border pensions and • Pan European pensions • Some synchronization and common agreements will be needed • It is a time of change and opportunity for pensions But we should all retain our separate national pension models.