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"
Date: 2001-11-29
Institutions: European Economic and Social Committee
Subjects: composition of the population, economic and social cohesion, economic policy, pension scheme, social policy, statistical method

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Official Journal of the European Communities

C 48/101

The Committee recommends

8.7.
the applicant
countries be encouraged to undertake similar assessments of
their pension systems to assess long-term sustainability.

that

Brussels, 29 November 2001.

8.8.
Finally the Committee stresses again the need for
action now to address the crucial issue of the sustainability of
pensions which is of vital concern to all existing and future
pensioners in the EU.

The President

of the Economic and Social Committee

Göke FRERICHS

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) ‘... 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.

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).

Before it received the referral mentioned in point 1.1
1.3.
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

(4) COM(1999) 347 final
social protection’.

‘A concerted strategy for modernising

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mainly on the sections of the communication which deal
specifically with the link between growth, taxation and sus-
tainability 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.

3. General comments

3.1. The general framework

2. Gist of the Commission proposal

The Commission divides its proposed common objec-

2.1.
tives into three main groups:

— Adequacy of pensions

— Financial sustainability of public and private pension

schemes

— Modernisation of pension systems (1).

The Commission also proposes developing indicators
2.2.
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, econ-
omic), 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
identifying best practice and innovative
will assess them,
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 Employ-
ment 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).

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

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 Com-
mission 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

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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
they must
impact radically on the lives of all citizens,
be reached by systematically involving regional and local
administrations, the social partners and civil society organis-
ations, 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.

Objective 2 (2) refers to the availability of appropri-
3.3.1.2.
ate pensions systems, whereby ‘appropriate’ should be inter-
preted 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. Objectives

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

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.

Objectives 6 (6) and 7 (7) are discussed in the
3.3.1.4.
subcommittee opinion referred to in point 1.3 above. The

Objective 1 (1) is of a universal nature in that it
3.3.1.1.
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 unem-
ployed, 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.

(1) ‘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.’

(2) ‘provide access for all individuals to appropriate pension arrange-
ments 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.’

(3) ‘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.’

(4) ‘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.’

(5) ‘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.’

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

(7) ‘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 mem-
bers are entitled.’

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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.

this initial

Since Objective 9 (2) is addressed in the subcommit-
3.3.1.6.
tee opinion, the Committee would stress the importance of
Objective 10 (3) 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
‘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 oppor-
tunities responsibly in order to keep their original lifeplan
more or less on track.

Turning to Objective 8 (1), the Committee notes
3.3.1.5.
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 relation-
ships 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.

3.4. 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.

(1) ‘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.’

(2) 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).

(3) ‘Make pension systems more transparent, predictable, and adapta-
ble 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 ...’

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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.

3.4.6. 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 nego-
tiating 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.

3.4.3.
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.

it

that

3.4.7. Moreover,
the scenarios and
is essential
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 (2). 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.

3.4.4.
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 (1)
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.

3.4.8. 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.

3.4.5.
The Commission should call on the national mem-
bers of the above committees to open information, consul-
tation 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
level also needs to be
the local
targets alone;
national
adequately equipped and involved.

4.

Indicators

4.1.
The communication stresses the need to develop
‘appropriate indicators which should aim at providing compar-
able information on the major economic,
financial and
demographic trends affecting long-term sustainability of pen-
sions, as well as on the progress of pensions reform and its
likely impact, while allowing for the large diversity of national
that
pensions systems.’ The Committee would point out

(1) Opinion of the Economic and Social Committee on the ‘Com-
munication from the Commission: A concerted strategy for
modernising social protection’, OJ C 117, 26.4.2000.

(2) The communication provides for a general review of the system

in 2005.

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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 (1). 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’ (2) with
regard to the need for high quality, comparable indicators and
reliable statistics.

(1) 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.
(2) OJ C 311, 7.11.2001.

Brussels, 29 November 2001.

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’ (3). Moreover,
statistics on the quality of life of pensioners (4), 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.

(3) This is already used by Eurostat, which provides all Member States

with data on ‘disability-free life expectancy’.

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

The President

of the Economic and Social Committee

Göke FRERICHS