Opinion of the Economic and Social Committee on the "Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee: Supporting national strategies for safe and sustainable pensions through an integrated approach"

(2002/C 48/23)

On 5 July 2001, the Commission decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Employment, Social Affairs and Citizenship, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 November 2001. The rapporteur was Ms Cassina.

At its 386th plenary session (meeting of 29 November 2001) the Economic and Social Committee adopted the following opinion by 92 votes in favour with one abstention.

1. Introduction

1.1. In response to the mandate entrusted to it by the Stockholm(1) and Gothenburg(2) European Councils, on 3 July 2001 the Commission published a Communication(3) to the Council, the European Parliament and the Economic and Social Committee on "Supporting national strategies for safe and sustainable pensions through an integrated approach".

1.2. The discussions and assessment of the content of the communication will provide input for a report for submission at the Laeken European Council (December 2001), when the Member States are to reach an agreement on the objectives and on the means of securing safe, sustainable pension systems in the EU. This should be done within a framework of voluntary cooperation, coordination, exchange of best practice and comparable statistics, along the lines of the Commission's proposals in its 1999 communication on the more general aspects of social protection(4).

1.3. Before it received the referral mentioned in point 1.1 above, the Economic and Social Committee had already decided to set up a subcommittee to draft an opinion on "Economic growth, taxation and sustainability of pension rights in the EU". The subcommittee's opinion will comment mainly on the sections of the communication which deal specifically with the link between growth, taxation and sustainability of pension rights, whilst the present opinion will focus on certain aspects of consistency between the policies involved, and of the methods for developing cooperation in this area. Consequently, the two opinions are complementary, and together make up the Committee's overall contribution to the ongoing debate.

2. Gist of the Commission proposal

2.1. The Commission divides its proposed common objectives into three main groups:

- Adequacy of pensions

- Financial sustainability of public and private pension schemes

- Modernisation of pension systems(5).

2.2. The Commission also proposes developing indicators for underpinning the open method of coordination between the Member States, in order to provide a comprehensive, integrated approach to the objectives (social and financial sustainability), policies (employment, social protection, economic), and coordination between all stakeholders in the process.

2.3. A report will be presented at the Laeken European Council (c.f. point 1.2), setting out the objectives and methods in the area of pensions. The Member States will then have to frame their national strategies by July 2002. The Commission will assess them, identifying best practice and innovative approaches for inclusion in a joint Commission/Council report for discussion at the Spring European Council in 2003. The national strategy reports will be updated annually, whilst a major review of the subject will be carried out in 2005.

2.4. The Social Protection Committee (SPC), the Employment Committee (EMCO) and the Economic Policy Committee (EPC) will assess, respectively, the national strategies and their consistency with the objectives (SPC); the progress of the European employment strategy (EMCO); and the budgetary implications of an ageing population as part of the multilateral surveillance process (EPC).

3. General comments

3.1. The general framework

3.1.1. The Committee feels that in order to fully appreciate the content of the communication, it must constantly bear in mind the strategic objective for the new decade, adopted at the Lisbon European Council in March 2000: "... to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion".

3.1.2. For the European Union and its Member States, this implies a number of commitments in terms of policy promotion and readiness to accept responsibility. A strategic objective on the scale of the Lisbon objective must be the focus of all the various policy areas, whilst also providing a guarantee of consistency and compatibility between the various strategies to achieve it. In other words, the Lisbon scenario is a conscious policy choice and a strategic milestone in the integration process, on which the EU and its Member States are staking their public credibility, as they did with the single market and EMU.

3.1.3. Within the Lisbon framework, the decision to boost employment is the priority objective if economic, social and more specifically, pension strategies are to be conducted properly.

3.1.4. The Committee is surprised that the Commission does not refer to the applicant countries, and would point out that a number of them will already have joined the EU before the intended review in 2005. It is therefore essential immediately to involve the applicant countries in the pensions cooperation procedure.

3.2. Subsidiarity

3.2.1. While the Committee appreciates the care the Commission has taken to ensure the communication complies with the subsidiarity principle in such a complex, thorny area as pensions, it would reiterate the view already put forward in previous opinions, viz. that the subsidiarity principle is not just a mechanism for regulating powers between the EU and the Member States it is above all a dynamic principle which provides a network of authority and responsibility for the various players at all levels, in the complex institutional and social architecture of the European Union and its Member States. The Committee would point out that the convergence of social security systems launched under the "open coordination method" must comply fully with the subsidiarity principle on the basis of autonomous policy decisions by the Member States. Responsibility for pensions decisions will basically remain with Member State legislators, but since the decisions impact radically on the lives of all citizens, they must be reached by systematically involving regional and local administrations, the social partners and civil society organisations, which must be able to help in framing and implementing the different strategies in compliance with national procedural rules and practice. This will be dealt with in greater detail in point 3.4 below.

3.3. Objectives

3.3.1. The subcommittee opinion contains an analysis and assessment of most of the ten objectives proposed in the Commission communication (cf. point 1.3). Consequently, only certain objectives or part of these will be addressed here.

3.3.1.1. Objective 1(6) is of a universal nature in that it reconfirms solidarity as a basic principle of the European social model. The Committee would stress the need to maintain and strengthen - including as part of the pensions modernisation and review process - robust solidarity instruments (solidarity between generations, between those in work and the unemployed, and between the well-off and the needy). Although these instruments change over time, they must continue to weave the fabric of our societies. Objective 1 should be interpreted as providing all older people (including those who have not been able to pay contributions, those who have physical or mental disabilities, illnesses, etc.) with a decent standard of living enabling them to feel that they are an active part of the society and economic system in which they live. It is an extremely important objective, focusing on social cohesion, equal rights for all in our society, and preventing the risk of older people being marginalised.

3.3.1.2. Objective 2(7) refers to the availability of appropriate pensions systems, whereby "appropriate" should be interpreted above all as the ability of pensions systems to respond to citizens' expectations in this sphere and enable them to plan responsibly for a full, satisfying life. The Committee would point out that life expectancy has lengthened considerably, but this almost always also means pensions have to be paid out for longer. It is therefore essential to be able to estimate how long someone can expect to lead an independent life (after retirement), and when a more dependent lifestyle will begin. The Committee would point out that there are increasing numbers of dependent elderly people in all EU countries. In addition to the significant problems in terms of social services expenditure, there is also a risk of these people gradually being marginalised. This must be prevented.

3.3.1.3. Objectives 3(8), 4(9) and 5(10) have been amply discussed and assessed in the subcommittee opinion referred to in point 1.3.

3.3.1.4. Objectives 6(11) and 7(12) are discussed in the subcommittee opinion referred to in point 1.3 above. The Committee would merely express its appreciation of the declared intention to provide pillar II and III regimes with national and Community regulatory frameworks to enable the sound, efficient management needed to help ensure members are paid the pension benefits to which they are entitled (Objective 7). As to the contribution which the pillar II and III regimes could make to maintaining the balance between the active and the retired, and to the achievement of the social objectives, the Committee notes that this contribution is useful and necessary. The pillar I regime objective to ensure universal entitlement must be safeguarded. The ESC would not endorse watering down pillar I and a general shift towards private schemes (in any case, the Commission is not proposing such a shift). However, the balance between the different regimes is a tricky question which must be resolved at national level.

3.3.1.5. Turning to Objective 8(13), the Committee notes the reference to employment contracts other than full-time, permanent contracts, i.e. to part-time and fixed-term contracts and other new forms of employee and para-employee relationships which have become increasingly common over recent decades. As a matter of principle, a fair and balanced pensions system must not penalise those employed on new-style contracts, workers who move around within or beyond national borders, or the self-employed. Unfortunately, owing to a certain rigidity in the current pensions systems and the labour market, and to the quantitive and qualitative shortcomings which still affect the labour market supply and demand scenario in many situations, this still happens in some cases. The first step towards equality for all forms of work involves minimising the risks of losing pension rights, and removing disincentives to the proper use (within a clear regulatory framework) of these new employment forms. For the Committee, the main thing is to provide workers on atypical contracts, migrant workers and the self-employed with some degree of security in their working lives. The future benchmarking exercise could also usefully take on board best practice in this field. This could include forms of temporary risk insurance, cover for unpaid contributions during periods of unemployment, tax credits for training/retraining periods, or for periods when a worker receives no pay regardless of his willingness to work, etc.

3.3.1.6. Since Objective 9(14) is addressed in the subcommittee opinion, the Committee would stress the importance of Objective 10(15) here. Until just over ten years ago, workers were more or less automatically guaranteed a pension at the end of their working life. Nowadays a worker has to start to plan seriously - despite the inevitable risks involved - for the rest of his life from the very first day at work, if not even from the classroom. However, people cannot be expected to adapt this initial "lifeplan" at short notice. Consequently, comprehensive, regular information must be provided on the major trends (demographic, social, economic, etc.) so that everyone will be able to prepare in advance for changes to pensions regimes or systems. Any changes to these systems must also be accompanied by measures to enable workers to compensate for any negative effects the changes might bring. Workers must be able to access these measures and opportunities responsibly in order to keep their original lifeplan more or less on track.

3.4. Method

3.4.1. As the communication points out, the overriding objective of the method used is to achieve a real synergy and consistency between social, employment and economic policy. Without prejudice to the remit and responsibility of national lawmakers and authorities in this area, the goal of consistency can be best achieved by systematically involving the social partners. They are key players in all societal change. To neglect this would be to condemn all pension strategies to failure. The Committee notes that the Commission has not paid sufficient attention to this, given that it is only mentioned in two minor paragraphs of the communication. The Committee would point out that the conclusions of the Stockholm European Council highlighted the role of the social partners in managing change.

3.4.2. Social partner involvement must also be promoted and/or stepped up in employment policy and, in particular, in economic policy. The Commission suggests, for example, setting up reserve funds. Where possible, however, these funds should be set up within a negotiating and/or regulatory framework which establishes clearly how they are to be composed, financed, operated and used.

3.4.3. Achieving social consensus is not just a matter of providing people with accurate, exhaustive information; it also means ensuring all stakeholder civil society and social partner organisations can play an enlightened, active role. Social partner organisations represent their members' interests by involving them in their internal affairs in an ongoing, wide-ranging debate. Consequently, they have a solid negotiating mandate.

3.4.4. The success of the open method of coordination cannot, then, rest solely on exchanges of know-how and best practice between Member State authorities/experts and the Commission, or on the albeit capable efforts of the various committees (SPC, EMCO and EPC). Several ESC opinions(16) have stressed the need for any changes to social and welfare policy to be agreed with the social partners and stakeholder representative organisations. Every Member State has its own system and fora for this, and the Committee is not suggesting here that the relevant structures and practices should be standardised. However, the communication should have included an explicit call for all the social partners to be solidly involved.

3.4.5. The Commission should call on the national members of the above committees to open information, consultation and participation channels with the social partners, taking into account the regional and local aspects of the problems. Quality of life for pensioners depends partly on local availability of good health and welfare services and other general infrastructure. A climate conducive to socially sustainable pensions systems cannot be achieved through national targets alone; the local level also needs to be adequately equipped and involved.

3.4.6. When considering reforms, the first thing to decide is whether there is a need for, and the scope of, any change. This also requires input from the relevant stakeholders. In the case of substantive reform which might involve major changes to contribution, entitlement and payment systems, the negotiating procedure - in those countries where it is traditional or standard practice - must be long enough to enable a consensus to be built around the necessary measures. However, if a consensus cannot be reached, or if negotiations continue beyond a reasonable timeframe, the legislator will have to face up to his responsibilities.

3.4.7. Moreover, it is essential that the scenarios and forecasts presented to stakeholders should be clear, structured and based on fact, and that the reform plans should include a specific timeframe for the submission of a national impact assessment(17). For their part, the social partners must inform their members properly and comprehensively, and provide them - as is the case in many countries - with members' services to help workers to devise and plan individual and collective pension arrangements.

3.4.8. While there is a clear link between sustainable pension strategies and economic and budgetary policy, many other policies (all, in fact) also tie in with pensions policies. Generally speaking, it is inappropriate to include even partial changes to pension systems in budgetary legislation: this would inevitably make the overall objective of sustainability take second place to mere financial sustainability, and also lend an air of contingency planning to policies which are, by their very nature, part of a medium- long-term scenario.

4. Indicators

4.1. The communication stresses the need to develop "appropriate indicators which should aim at providing comparable information on the major economic, financial and demographic trends affecting long-term sustainability of pensions, as well as on the progress of pensions reform and its likely impact, while allowing for the large diversity of national pensions systems." The Committee would point out that the communication does not specify the type of indicators intended, given that the SPC "indicators" subgroup is addressing this issue, and that the EPC already used a number of indicators in its November 2000 Report(18). The Committee trusts that the three committees (SPC, EMCO and EPC) will work together closely to ensure that the indicators proposed do in fact make it possible to underpin the open method of coordination with a range of comparable statistics which give the full picture of the situation and current procedures in the Member States.

4.2. The Committee would particularly stress the need to develop sufficiently detailed indicators which can give a true picture of the full implications of the framework analyses and projections. In this connection the Committee would refer to the comments contained in its opinion on "Improving the quality dimension of social and employment policy"(19) with regard to the need for high quality, comparable indicators and reliable statistics.

4.3. With regard to the present opinion, for example, and to the comments made on Objective 2, the Committee would suggest supplementing the life expectancy indicator with a sub-indicator on "disability-free life expectancy"(20). Moreover, statistics on the quality of life of pensioners(21), and on the quality of work and life of older workers and people with disabilities are important elements which depend on a number of factors for which there are hardly ever any statistics. These include the ability to communicate, mobility, levels of social integration in the residential milieu, ownership or otherwise of accommodation, safety of the environment in which they live, availability of leisure services and facilities, etc. These factors should be included in an analysis of national systems, not only because they make it possible to assess the social sustainability of pensions systems and of current and planned reforms, but also because they have a considerable impact on the financial sustainability of the systems. The Committee reserves the right to draw up a specific opinion as soon as the indicators document (currently being drafted by the SPC "indicators" subgroup) is published.

Brussels, 29 November 2001.

The President

of the Economic and Social Committee

Göke Frerichs

(1) "... the potential of the open method of coordination should be used to the full, particularly in the field of pensions, taking due account of the principle of subsidiarity."

(2) "... to prepare a progress report for the Laeken European Council, on the basis of a Commission communication setting out the objectives and working methods in the area of pensions" ...

(3) COM(2001) 362 final.

(4) COM(1999) 347 final "A concerted strategy for modernising social protection".

(5) Appended to the subcommittee opinion is a detailed list of the ten objectives, which are reviewed individually in point 3.3.

(6) "ensure that all older people enjoy a decent living standard, share in the economic well-being of their country and are able to participate actively in public, social and cultural life."

(7) "provide access for all individuals to appropriate pension arrangements necessary to maintain the living standard of their choice after retirement due to old age or invalidity and that of their dependants in the event of their death."

(8) "in the context of the Employment Strategy, achieve a high level of employment so that the ratio between the active and the retired remains as favourable as possible."

(9) "ensure that pension systems, and in particular early retirement and invalidity schemes, and their interaction with tax-benefit systems, offer effective incentives for the participation of older workers; that workers are not encouraged to take up early retirement and are not penalised for staying in the labour market beyond the standard retirement age; and that pension systems facilitate the option of gradual retirement."

(10) "in the context of sustainability of public finances as well as of the need to cope with the budgetary impact of ageing populations, ensure that public spending on pensions is maintained at a level in terms of percent of GDP that is compatible with the Growth and Stability Pact. This may include setting up dedicated reserve funds, if considered appropriate by the authorities."

(11) "strike a fair balance between the active and the retired through appropriate adjustments to the levels of contributions and taxes and of pension benefits."

(12) "ensure, through appropriate regulatory frameworks at national and European level and through sound management, that private funded pension schemes will continue to provide, with increased efficiency and affordability, the pensions to which scheme members are entitled."

(13) "ensure that pension systems are compatible with the requirements of flexibility and security on the labour market, that labour market mobility within the Member States and across borders and non-standard employment forms do not result in undue losses of pension entitlements and that self-employment is not discouraged by pension systems."

(14) review pension systems with a view to eliminating discrimination based on sex while addressing the sources of gender-related inequalities in pension entitlements (e.g. career breaks for family reasons, actuarial factors).

(15) "Make pension systems more transparent, predictable, and adaptable to changing circumstances. provide reliable and easy-to-understand information on the long-term perspectives of pension systems including assessments of the impact of demographic, social and economic change and the impact of envisaged policy measures on the performance of pension systems, notably with regard to the likely evolution of benefit levels ..."

(16) Opinion of the Economic and Social Committee on the "Communication from the Commission: A concerted strategy for modernising social protection", OJ C 117, 26.4.2000.

(17) The communication provides for a general review of the system in 2005.

(18) Progress Report to the Ecofin Council on the impact of the ageing population on public pension systems (EPC/ECFIN/581/00-Rev. 1, November 2000.

(19) OJ C 311, 7.11.2001.

(20) This is already used by Eurostat, which provides all Member States with data on "disability-free life expectancy".

(21) See for example Merrill Lynch's Progress Report: European pension reform (17 January 2001), which attributes considerable importance to the pensioners' living standards indicator.