Social Security : Commission Puts Pension Reform on Drawing Board

European Social Policy, June 10, 2010 | Go to article overview

Social Security : Commission Puts Pension Reform on Drawing Board


The European Union, confronted with the ageing of its population and a lingering economic and financial crisis, is obliged to come up with ways of safeguarding and reforming pensions systems in the member states. The European Commission is working actively on this question. Its draft green paper on pensions, obtained by Europolitics social, makes a number of recommendations, among which an increase in retirement age, the development of diversified pension systems and legislation for greater pension mobility. The executive also proposes to set up a common platform responsible for monitoring all aspects of pension policy and related regulations in an integrated manner.

According to several sources, this very general green paper could subsequently lead to a more sector-based white paper matched with an impact assessment and draft legislation. For now, however, the aim is to review the problem as a whole, without limiting it, as initially planned, to funded pensions (for which there was EU competence). The public pillar, access to housing, health care and long-term care, the question of women, pension portability and solvency and insolvency standards will also be addressed in the paper.

TWOFOLD CHALLENGE

The challenge is huge: ensuring adequate and sustainable pensions, knowing that by 2060, only two persons will be of working age for one person aged 65 or over, compared with four to one today. It is vital to waste no time and to start tackling both the quantitative (sustainability) and qualitative (adequacy) aspects of pensions, concludes the draft green paper.

The first subject addressed is pension adequacy. Replacement rates (the ratio between the net pension and the net salary at the time of retirement) under public pension systems are going to decline so it is important to give people the possibility of earning additional entitlement. These measures could include working longer and increasing access to supplementary pension systems. The draft green paper suggests certain options: sources of retirement income could be expanded and funded schemes made more secure by reducing the risk of investments in pension funds and improving risk-sharing. In parallel, the green paper sounds the alarm over pension sustainability: "Given the dire state of public finances and the projected unsustainable increase in public debt levels with unchanged policies, fiscal consolidation will be a binding constraint for some time to come on all policies, including pensions." It stresses the role that could be played by the Stability and Growth Pact and higher labour productivity on public finances.

To meet these challenges, the Commission is considering setting up a common platform charged with monitoring all aspects of pension policy and regulated regulations, and which would take account of their interconnection and bring together all stakeholders. "The Commission is keen to explore how best to render pension systems adequate, sustainable and safe in support of the EU's wider economic and social objectives."

WORKING LONGER

Precipitated by the effects of the crisis, there have been a number of announcements of pension reforms in recent weeks (particularly in Greece, Spain, Romania, France and Belgium). One of the main changes is an increase in retirement age. The statistics are alarming: one third of adult life is spent in retirement, while only about half of people over aged 50 still work. …

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