Green Paper towards adequate, sustainable and safe European pension systems SEC(2010)830
Date: 2010-07-07
Institutions: European Commission
Subjects: EU statistics, economic recession, free movement of capital, free movement of workers, pension scheme, population ageing, supplementary pension

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EUROPEAN COMMISSION 

Brussels, 7.7.2010 
COM(2010)365 final 

GREEN PAPER 

towards adequate, sustainable and safe European pension systems 

SEC(2010)830 

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GREEN PAPER 

towards adequate, sustainable and safe European pension systems 

1. 

INTRODUCTION 

An  adequate  and  sustainable  retirement  income  for  EU  citizens  now  and  in  the  future  is  a 
priority for the European Union. Achieving these objectives in an ageing Europe is a major 
challenge. Most Member States have sought to prepare for this through pension reforms. 

The  recent  financial  and  economic  crisis  has  aggravated  and  amplified  the  impact  of  the 
severe trend in demographic ageing. Setbacks in economic growth, public budgets, financial 
stability and employment have made it more urgent to adjust retirement practices and the way 
people build up entitlements to pensions. The crisis has revealed that more must be done to 
improve the efficiency and safety of pension schemes1 which not only provide a means for a 
decent life in old age but also represent the reward for a lifetime of work. 

In his political guidelines for this Commission, President José Manuel Barroso highlighted the 
importance of adequate and sustainable pensions for strengthening social cohesion: 

"Millions  of  Europeans  are  wholly  dependent  on  pensions.  The  crisis  has  shown  the 
importance  of  the  European  approach  to  pension  systems.  It  has  demonstrated  the 
interdependence of the various pension pillars within each Member State and the importance 
of  common  EU  approaches  on  solvency  and  social  adequacy.  It  has  also  underlined  that 
pension funds are an important part of the financial system. We need to ensure that pensions 
do  the  job  intended  of  providing  the  maximum  support  to  current  and  future  pensioners, 
including for vulnerable groups." 

Member  States  are  responsible  for  pension  provision:  this  Green  Paper  does  not  question 
Member States' prerogatives in pensions or the role of social partners and it does not suggest 
that  there  is  one  'ideal'  one-size-fits-all  pension  system  design.  The  principles  of  solidarity 
between  generations  and  national  solidarity  are  key  in  this  regard.  At  EU  level,  national 
retirement  systems  are  underpinned  by  a  framework  of  activities  spanning  from  policy 
coordination to regulation. Some common themes need to be addressed in a coordinated way 
such as the functioning of the internal market, the requirements of the Stability and Growth 
Pact,  or  ensuring  that  pension  reforms  are  consistent  with  the  Europe  2020  strategy.  Sound 
and adequate pension systems, enabling individuals to maintain, to a reasonable degree, their 
living standard after retirement, are crucial for citizens and for social cohesion. The impact of 
public  pension  expenditure  on  public  finances  in  one  Member  State  may  have  serious 
repercussions in others. EU policy coordination on pensions has proven useful and necessary 
to  make  progress  at  Member  State  level.  Pension  funds  are  an  integral  part  of  financial 
markets and their design can promote or inhibit the free movement of labour or capital. 

1 

The European Parliament is also engaging in a policy discussion on the lessons learnt from the crisis 
under the auspices of the Special Committee on the Financial, Economic and Social Crisis.  

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Following  a  decade  of  reforms  that  have  altered  pension  systems  in  most  Member  States, 
there is now a need to thoroughly review the EU framework. Demographic ageing has been 
faster  than  previously  expected  and  the  recent  financial  and  economic  crisis  had  a  dramatic 
impact  on  budgets,  capital  markets  and  companies.  There  have  also  been  deep  structural 
changes  such  as  new  intergenerational  balances,  shifts  from  Pay-As-You-Go  (PAYG)  to 
funded  pensions  and  the  shift  of  more  risks  to  individuals.  This  Green  Paper  launches  a 
European  debate  through  extensive  and  early  consultation  on  the  key  challenges  facing 
pension systems and how the EU can support Member State efforts to deliver adequate and 
sustainable pensions. 

This Green Paper takes an integrated approach across economic, social and financial market 
policies and recognises the links and synergies between pensions and the overall Europe 2020 
strategy  for  smart,  sustainable  and  inclusive  growth.  It  takes  into  account  work  by  the 
Economic Policy Committee and the Social Protection Committee on pensions. The Interim 
Joint  Report  was  noted  by  the  7-8  June 2010 Council (ECOFIN and EPSCO)2. The goal of 
generating  adequate  and  sustainable  retirement  incomes  through  pension  reforms  and  the 
goals  of  Europe  2020  are  mutually  reinforcing.  Europe  2020  emphasises  higher  and  better 
quality employment and positive transitions: both are decisive for workers (women and men) 
to accrue pension rights. Its 75% employment target requires employment rates significantly 
higher than the present levels in the age group 55 to 65. Addressing gaps in pension adequacy, 
which  can  be  a  significant  cause  of  poverty  among  the  elderly,  can  also  contribute  to 
achieving the Europe 2020 poverty reduction target. Policies in many areas can help to reduce 
poverty  in  older  ages  and  this  will  in  turn  contribute  to  enhancing  adequacy,  thus 
complementing pension  reforms.  Other goals include tackling  bottlenecks in  the completion 
of the single market, for example making the internal market in financial products safer and 
more  integrated  and  facilitating  the  mobility  of  all  workers3  and  citizens  across  the  EU4.  In 
turn, pension reforms will contribute towards reaching the Europe 2020 goals for employment 
and long-term sustainability of public finances. Moreover, completing the internal market for 
pension  products  has  a  direct  impact  on  the  EU's  growth  potential  and  therefore  directly 
contributes towards meeting the Europe 2020 objectives. 

2. 

KEY CHALLENGES 

2.1. 

Demographic ageing 

Whilst  it  is  well  known  that  Europe  is  facing  a  major  demographic  challenge5,  we  are 
reaching a critical stage as the first cohorts of baby boomers are now approaching retirement 
and Europe's working-age population is set to start shrinking from 2012 onwards. 

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5 

see  Council  Conclusions 

Report  available  at  http://europa.eu/epc/publications/index_en.htm, 
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/114988.pdf. 
Including  highly  mobile  workers  such  as  researchers,  see  Council  Conclusions  2  March  2010: 
http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/intm/113121.pdf. 
The  Commission  will  issue  a  Report  on  Citizenship  in  2010  on  the  entire  life  cycle  of  EU  citizens, 
covering i) obstacles in the effective exercise of citizens' rights, including free movement rights, and ii) 
the solutions envisaged to remove these obstacles, along with a Roadmap for their adoption. 
Commission  communication  on  Ageing  of  29th  April  2009  "Dealing  with  the  impact  of  an  ageing 
population  in  the  EU  (2009  Ageing  Report)"  and  Commission  staff  working  document  Demography 
Report 2008 – Meeting social needs in an ageing society (SEC (2008) 2911). 

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Living longer than ever before is of course an enormous achievement: over the last 50 years, 
life expectancy has risen by about five years in the EU. The latest demographic projections6 
reveal that a further rise of about seven years could materialise by 2060. Combined with low 
fertility rates this will lead to a dramatic change in the age composition of the population (see 
figure  1).  As  a  result,  the  old-age  dependency  ratio  will  double:  where  at  present  there  are 
four people of working age for every person over 65, by 2060 there will be just two people of 
working-age for every person over 65 (see figure 2). 

There  are  also  other  longstanding  trends  in  labour  markets:  starting  full-time  working  lives 
later because of the increased need for education and retiring earlier due to labour market age 
management  and  prevailing  policies.  Although  the  trend  of  early  retirement  has  started  to 
reverse,  most  people,  and  women  in  particular,  still  leave  the  labour  market  significantly 
before the typical pensionable age of 65 (see figure 6 and 7), highlighting the gender aspect. 

On  present  trends  the  situation  is  untenable.  Unless  people,  as  they  live  longer,  also  stay 
longer in employment, either pension adequacy is likely to suffer or an unsustainable rise in 
pension expenditure  may  occur.  The impact of the demographic challenge as aggravated by 
the crisis will tend to reduce economic growth and put pressure on public finances. The 2009 
Ageing  Report7  showed  that,  on  account  of  the  shrinking  labour  force,  the  only  source  of 
growth by 2020 will be labour productivity. While reforms have already significantly reduced 
the  impact  of  ageing  on  future  pension  costs,  age-related  public  expenditure  is  still  set  to 
increase  overall  by  almost  5  percentage  points  of  GDP  by  2060,  half  of  which  is  due  to 
spending  on  pensions  (see  figure  3  for  public  pension  expenditure  projections  for  Member 
States). 

Another  longstanding  trend  is  societal  change  –  such  as  single  households,  couples  without 
children  and  different  generations  of  a  family  living  far  apart  from  each  other  –  which  is 
fuelling  more  formal  provision  of  care  services  otherwise  provided  within  the  family.  This 
poses further challenges to the financing of the cost of health care and long-term care. 

Funded  pensions  could  also  be  affected  by  demographic  ageing.  Ageing  societies  would 
reduce the potential growth rate of the economy, implying lower real rates of return and this 
could  also  affect  financial  asset  prices.  Such  potentially  lower  returns  on  pension  fund 
investments  may  lead  to  higher  contributions,  lower  retirement  benefits,  increased  capital 
outflows to emerging markets or greater risk taking. 

Against  the  background  of  demographic  ageing,  the  2001  Stockholm  European  Council 
agreed a three-pronged strategy for dealing with the impact on public budgets consisting of: 

–  reducing debt rapidly; 

–  raising employment rates and productivity; and 

–  reforming pension, health care and long-term care systems. 

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7 

European  Commission  and  Economic  Policy  Committee  (2009)  "2009 Ageing  Report:  Economic  and 
budgetary projections for the EU-27 Member States (2008-2060)", European Economy, No 2. 
Ibid. 

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Moreover,  the  2001  Laeken  European  Council  agreed  a  set  of  common  objectives  for 
pensions emphasising the need to make them adequate, sustainable and adaptable8. 

2.2. 

Changes in pension systems 

While Member State systems differ markedly, a majority have been adapted so as to put them 
on a more sustainable footing over the past decades. At the same time, Member States have 
attempted to protect adequacy and to respond better to changes in labour markets and gender 
roles. Key trends have been9: 

(1) 

(2) 

Encouraging more people to work more and longer so as to obtain similar entitlements 
as  before:  increases  in  pensionable  ages;  rewarding  later  and  penalising  earlier 
retirement (see figure 8); moves from benefits based on earnings in best years towards 
entitlement based on working career average earnings; closing or restricting early exit 
pathways;  labour  market  measures  to  encourage  and  enable  older  workers  to  stay  in 
the labour market and encouraging greater gender equality in the labour market. 

The move from largely single to multi-tiered systems. This is a result of the trend in 
most, but not all, Member States to lower the share of public PAYG pensions in total 
provision while giving an enhanced role to supplementary, prefunded private schemes, 
which are often of a Defined Contribution (DC) nature (see figure 10). 

(3)  Measures to address adequacy gaps, e.g. through efforts to broaden coverage, support 
building  up  rights,  ease  access  to  pensions  for  vulnerable  groups  and  increase  in 
financial support for poorer pensioners. 

(4) 

Gender dimension: women tend to predominate among those with atypical contracts, 
they  tend  to  earn  less  than  men  and  tend  to  take  career  breaks  for  caring 
responsibilities  more  often  than  men.  As  a  consequence,  their  pensions  tend  to  be 
lower  and  the  risk  of  poverty  tends  to  be  higher  among  older  women,  also  because 
they live longer. While periods of care are recognised in some PAYG systems, this is 
less straightforward in funded  pension schemes,  with the question of how to  finance 
such solidarity. 

Reforms  have  underpinned  recent  increases  in  effective  retirement  ages  and  opened  new 
avenues to delivering adequate pensions in a sustainable manner. At the same time, reforms 
have  given  and  will  continue  to  give  rise  to  greater  individual  responsibility  for  outcomes. 
While  people  have  more  choice,  they  are  also  exposed  to  more  risk.  For  reforms  to  be 
successful, all pension schemes must deliver their part and risks must be well understood and 
managed. Future pension adequacy will rest on a combination of returns in financial markets 
and labour markets delivering opportunities for longer and less broken contributory  careers. 
To strengthen social cohesion, a number of Member States may want to address outstanding 
issues  such  as  minimum  pensions,  coverage  of  atypical  workers  and  crediting  of  some 
involuntary employment breaks, for example when caring for frail dependents. 

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"Quality  and  viability  of  pensions  –  Joint  report  on  objectives  and  working  methods  in  the  area  of 
pensions" [10672/01 ECOFIN 198 SOC 272]. 
The  Interim  Joint  Report  on  pensions  of  the  Economic  Policy  Committee  and  the  Social  Protection 
Committee contains a more detailed assessment, see footnote 2. 

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The reformed pension systems increase adequacy risks for a considerable number of workers. 
Net replacement rates will decline in many Member States, though the starting position and 
the degree of reduction vary significantly, and some countries, especially those with very low 
initial levels, have increased them (see figure 5). Delaying labour market exit can reduce the 
decline. 

In  many  Member  States  additional  reforms  may  be  needed  given  the  scale  of  demographic 
changes ahead and to ensure the lasting success of implemented reforms. For Member States 
where the reform process is not sufficiently advanced, there is an urgent need to review the 
pension  promise  in  view  of  what  the  rest  of  the  economy  –  and  public  budgets  -  can  be 
expected to provide. 

2.3. 

Impact of the financial and economic crisis 

The financial and economic crisis has seriously aggravated the underlying ageing challenge. 
By  demonstrating  the  interdependence  of  the  various  schemes  and  revealing  weaknesses  in 
some  scheme  designs  it  has  acted  as  a  wake-up  call  for  all  pensions,  whether  PAYG  or 
funded: higher unemployment, lower growth, higher national debt levels and financial market 
volatility have made it harder for all systems to deliver on pension promises. Private schemes 
can relieve some of the pressure on public pension provision. However, increasing reliance on 
private  schemes  has  fiscal  costs,  given  the  widespread  practice  of  providing  tax  incentives 
during  the  accumulation  phase.  The  costs  of  tax  relief  can  be  considerable  and  its 
effectiveness  and  redistributive  impacts  questionable10.  With  public  budgets  under  heavy 
pressure, some Member States are now reconsidering the efficiency of this spending. Better 
sharing of information on its costs and effectiveness may help policy makers across the EU11. 
Furthermore,  if  private  schemes  cannot  deliver  their  promises,  there  will  inevitably  be 
pressures on the public purse to pick up part of the tab. 

With  secure  incomes  from  public  pensions,  which  generally  have  been  allowed  to  perform 
their  role  as  automatic  stabilisers,  current  pensioners  have  so  far  been  among  those  least 
affected  by  the  crisis.  Exceptions  apart,  benefits  from  funded  schemes  still  play  a  marginal 
role and just a few Member States with very acute public budget problems or well-anchored 
automatic adjustment mechanisms were compelled to reduce public pensions in payment. But 
the crisis and lower growth prospects will affect all types of pension schemes. 

The  scale  of  fiscal  deterioration  following  the  crisis  is  equivalent  to  offsetting  20  years  of 
fiscal  consolidation,  implying  that  fiscal  constraints  will  be  very  strong  in  the  next  decade. 
Estimates suggest that the crisis will put further pressure on public pension spending over the 
long-term  because  economic  growth  is  set  to  be  considerably  lower  and  there  is  great 
uncertainty as to the timing of the full recovery.12 In a number of Member States some social 
security  contributions  were  diverted  to  newly  established  mandatory  funded  pensions.  The 
crisis has underscored this double payment problem and has caused a few governments to halt 
or lower contributions to private pensions to improve public pension finances. 

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12 

Section 4.2 p. 26 of SPC Report "Privately managed funded pension provision and their contribution to 
adequate and sustainable pensions" (2008) http://ec.europa.eu/social/main.jsp?catId=752&langId=en. 
This  could  include  sharing  experience  on  approaches  such  as  'communicating  vessels'  whereby  the 
amount  of  tax  relief  available  for  voluntary  individual  savings  is  inversely  related  to  the  amount  of 
statutory and occupational pensions an individual already has. See the "Proposal for a pension model 
with a compensating layer" by G.J.B. Dietvorst, EC Tax Review 2007 nr.3 p.142-145. 
See footnote 6. 

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In the short term, the return rates and solvency of funded schemes have been affected through 
falls  in  interest  rates  and  asset  values:  private  pension  funds  lost  over  20%  of  their  value 
during  200813.  Moreover  several  sponsors  of  occupational  pension  funds  were  hindered  in 
their  ability  to  honour  their  obligations.  However,  as  few  schemes  had  to  lock  in  losses  to 
meet their current liabilities, supervisors were able to ease valuation and solvency regulations 
to allow time for markets to recover. Pension funds were able to recoup some of their losses 
in 200914 but many still remain far off the required solvency levels. 

Variations  in  the  ability  of  funded  schemes  to  weather  the  crisis  have  demonstrated  that 
differences  in  design,  regulation  and  investment  strategy  clearly  matter.  Losses  vary  with 
investment practices and the ability to absorb the shock depends also on how well the burden 
is  shared  among  providers,  contributors  and  recipients.  Unfortunately,  schemes  in  countries 
where solvency requirements were lower and asset value losses particularly large also tend to 
have poorer protection of accrued entitlements and the least flexible mechanisms for burden 
sharing. As a result, entitlements can be lost and providers inclined to discontinue schemes, 
since they cannot afford to bring schemes back to solvency. 

The crisis will also have a serious impact on future pensions as many workers will have lost 
their jobs and have been unemployed for a certain period and others might have had to accept 
lower  earnings  or  shorter  working  hours15.  One  of  the  challenges  will  be  to  ensure  that 
adequate levels of pensions can be maintained also in these situations (see figure 9). 

The crisis has, therefore, added the following dimensions to the pre-existing reform agenda: 

–  a more pressing need to address adequacy gaps; 

–  a more pressing need for reforms that improve the sustainability of public finances; 

–  an increased emphasis on raising effective retirement ages; 

–  a need to revisit the regulation of funded pension schemes to ensure that they are efficient 
and  remain  safe  in  the  wake  of  major  financial  crises  whilst  ensuring  regulation  is 
proportionate  and  does  not  push  employers  into  insolvency  or  into  abandoning  pension 
schemes; 

–  a  need  to  ensure  that  financial  market  regulation  is  effective  and  intelligent  given  the 
growing role of pension funds. The G20 Pittsburgh and Toronto summits emphasised that 
all  financial  institutions  should  be  regulated  and  that  there  is  a  greater  need  for  common 
rules. 

3. 

PRIORITIES FOR MODERNISING PENSION POLICY IN THE EU 

The  overarching  objectives  of  pension  reforms  are  to  ensure  that  pension  systems  are 
adequate  and  sustainable.  There  has  been  a  tendency  to  treat  the  three-pronged  Stockholm 
strategy as a list from which to pick and choose. But if pension systems are to deliver and if 

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OECD,  "Pensions  and  the  crisis  –  How  should  retirement  income  systems  respond  to  financial  and 
economic pressures" 2009. 
OECD "Pension Markets in Focus", October 2009, Issue 6. 
Chapters 3.3 – 3.5 of the Interim Joint Report on pensions, see footnote 2. 

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the Europe 2020 strategy is to succeed, it will now be necessary to address all three issues in a 
coordinated way. 

3.1. 

Overarching objectives: adequacy and sustainability 

Adequacy and sustainability are two sides of the same coin. If pensions are at risk of being 
inadequate, there may be pressure for ad hoc increases in pensions or higher demand for other 
benefits, jeopardising sustainability. Equally if a pension system is unsustainable it will prove 
to be inadequate in the long run when sudden corrections are needed. The issues of pension 
adequacy and sustainability need to be considered jointly.  

Addressing pension adequacy 

Ensuring  adequate  retirement  income  is  the  purpose  of  pension  systems  and  is  a  matter  of 
fundamental inter- and intra-generational solidarity. Most reforms of pension systems so far 
have been aimed at improving sustainability. Further modernisation of pension systems will 
be needed to address adequacy gaps. As public pension replacement rates in most cases will 
decline  (see  figure  4),  it  is  important  to  provide  sufficient  opportunities  for  complementary 
entitlements:  e.g.  enabling  longer  working  lives  and  increasing  access  to  supplementary 
pension schemes. The lack of compensatory crediting for periods of unemployment, sickness 
or caring duties can also lead to gaps, as can lack of coverage of vulnerable groups, such as 
short-term  contract  and  atypical  workers,  or  insufficient  minimum  pension  guarantees  or 
income  provision  for  older  people,  but  these  raise  questions  about  financing.  In  funded 
schemes, reducing investment risk, notably close to and in the pay-out phase, and improving 
risk  sharing  between  pension  savers  and  pension  providers,  building  on  the  advantages  of 
collective insurance, can boost the adequacy of retirement income. Broadening the sources of 
retirement income beyond pensions may also need to be considered. 

Securing sustainability 

Many  pension  reforms  have  contributed  to  limiting  the  increase  in  future  public  pension 
spending,  but  additional  steps  are  urgently  needed  to  put  systems  on  a  more  sustainable 
footing,  thereby  contributing  to  the  long  term  sustainability  of  public  finances,  notably  in 
countries where future public pension spending is projected to be high. Failing to take resolute 
policy  action  to  enhance  sustainability  will  push  the  burden  of  adjustment  forward  either  to 
future workers or to future pensioners who might not have prepared for lower than expected 
pensions, as underlined by the European Council16. 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  on  all  policies,  including  pensions.  The  Stability 
and  Growth  Pact  (SGP)  provides  the  framework  for  monitoring  the  sustainability  of  public 
finances, including pension systems17. Moreover, there could be further pressure for spending 
on  care  for  the  elderly  should  formal  care  increasingly  replace  informal  care  in  the  future. 
Reforms that enhance the EU's economic growth potential, e.g. by stimulating labour supply, 
are therefore particularly important. Higher labour productivity growth benefits all citizens, as 
it  enables  higher  living  standards.  As  regards  fiscal  sustainability,  achieving  higher 
employment rates in particular for older workers is even more important. 

16 

17 

Presidency  conclusions  of  the  23  March  2005  COUNCIL  OF  THE  EUROPEAN  UNION  7619/1/05, 
REV 1, stressed the need "to safeguard the sustainability of public finances in the long run, to promote 
growth, and to avoid imposing excessive burdens on future generations." 
In relation to the SGP the Commission has proposed to also take account of implicit liabilities, notably 
related to ageing, amongst other factors to reflect future risks (COM(2010) 367/2). 

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(1) 

(2) 

How can the EU support Member States' efforts to strengthen the adequacy of pension 
systems?  Should  the  EU  seek  to  define  better  what  an  adequate  retirement  income 
might entail? 

Is  the  existing  pension  framework  at  the  EU  level  sufficient  to  ensure  sustainable 
public finances? 

3.2. 

Achieving a sustainable balance between time spent in work and in retirement 

Time spent in retirement has increased considerably over the past century and there are large 
variations between Member States. Currently, typically about one third of adult life is spent in 
retirement  and  this  share  will  increase  substantially  with  future  gains  in  life  expectancy18 
unless the length of working life increases and people retire later. Less than 50% of people are 
still  in  employment  by  the  age  of  60.  This  goes  against  Member  State  commitments  at  the 
Barcelona  European  Council  to  postpone  the  age  at  which  people  stop  working  by  five 
years19.  It  is  also  inconsistent  with  the  objective  of  reaching  the  Europe  2020  75% 
employment rate target and impacts negatively on growth potential. The steep rise in old-age 
dependency  ratios  could  be  largely  avoided  if  people  would  work  longer  (see  figure  2). 
Without  this  a  painful  combination  of  lower  benefits  and  higher  contributions  would  be 
inevitable. 

Ensuring  that  the  time  spent  in  retirement  does  not  continue  to  increase  compared  to  time 
spent  working  would  support  adequacy  and  sustainability.  This  means  increasing  the  age  at 
which one stops working and draws a pension. Many Member States have already decided to 
raise the eligibility age for a full pension in their public pension schemes (see figure 6). There 
is  a  growing  awareness  that  this  represents  an  important  signal  to  workers  and  employers, 
which  motivates  them  to  aim  for  higher  effective  retirement  ages.  A  number  of  Member 
States have demonstrated that a promising policy option for strengthening the sustainability of 
pension  systems  is  an  automatic  adjustment  that  increases  the  pensionable  age  in  line  with 
future  gains  in  life  expectancy.  While  this  approach  of  contingent  adjustments  could  be 
contemplated  for  other  risks  as  well,  committing  to  periodic  reviews  of  the  adequacy  and 
sustainability of pensions could be an alternative or complementary way to facilitate a timely 
and smooth response to changing conditions many of which are hard to predict. 

The  feasibility  of  universal  pensionable  ages  has  always  been  debated  due  to  occupational 
differences  in  labour  market  entry  ages  and  the  health  status  of  workers  in  different 
occupations. Most Member States address this challenge through resolute policies to improve 
health and safety at work while providing access to pathways for those in real need before the 
pensionable  age.  National  efforts  are  underpinned  by  the  European  Health  and  Safety 
Strategy.  A  few  Member  States  have  acknowledged  differences in  entry  ages  by  combining 
measures to increase pensionable ages with those increasing the number of contributory years 
required  for  a  full  pension.  Furthermore,  whilst  taking  measures  to  extend  working  lives,  it 
will  also  be  important  to  address  issues  such  as  gender  gaps  in  both  pay  and  the  labour 
market. 

As labour market exit ages are still low, the question is whether common EU principles and 
pathways to adequate and sustainable pensions, applied in a differentiated manner, to cater for 

18 
19 

Chapter 3.2.1 of the Interim Joint Report on pensions, see footnote 2. 
Presidency conclusions of the 15-16 March 2002 EUROPEAN COUNCIL SN 100/1/02 REV 1. 

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differences in pension systems, would be helpful? Such pathways would aim to enable people 
to  build  adequate  entitlements  whilst  also  making  EU  economies  more  sustainable.  This 
requires pension system reforms to be supplemented with substantial efforts to allow workers 
to maintain their employability throughout their working lives, offering appropriate retraining 
opportunities. New technologies and services to provide flexible work arrangements through 
telework and upgrading of skills can help to accommodate older workers in the workplace for 
longer. 

Key measures enabling older workers, both women and men, to remain longer in the labour 
market  would  include  access  for  all,  irrespective  of  age,  gender  and  ethnicity,  to  labour 
markets,  to  training  and  disability  adjustments20.  The  European  Social  Fund  supports 
measures to improve the employability and raise the employment rates of women and men of 
all  working  ages.  The  Commission  is  preparing  a  European  Year  on  Active  Ageing  2012 
which should encourage Member States, social partners and other stakeholders to create better 
opportunities  and  working  conditions  for  the  participation  of  older  workers  in  the  labour 
market. 

This could involve adapting social and financial incentives to work, including Member States 
examining  the  role  of  their  tax  rules.  Other  measures  could  include  adjusting  age 
management,  working  arrangements  and  attitudes  in  labour  markets  and  work-places,  and 
considering  conditions  for  older  self-employed  workers.  Prolonging  working  lives  to  reflect 
continuous  gains  in  life  expectancy  over  time  would  bring  a  double  dividend:  higher  living 
standards and more sustainable pensions. In order to achieve more sustainable and adequate 
pensions, it is important that workers, and very often younger ones, spend more time in jobs 
with wages and working hours entitling them to future pension rights. 

Member States are already taking measures to support longer working lives21. Health policies 
aimed  at  helping  citizens  age  in  better  health  can  contribute  to  extending  working  lives, 
reduce pressure on pension systems and can improve sustainability22. Poor health is one of the 
drivers of early retirement. 

(3) 

(4) 

How can higher effective retirement ages best be achieved and how could increases in 
pensionable  ages  contribute?  Should  automatic  adjustment  mechanisms  related  to 
demographic changes  be introduced in pension systems in order to balance the time 
spent in work and in retirement? What role could the EU level play in this regard? 

How can the implementation of the Europe 2020 strategy be used to promote longer 
employment, its benefits to business and to address age discrimination  in  the labour 
market? 

3.3. 

Removing obstacles to mobility in the EU 

Policies  and  regulation  need  to  facilitate  the  free  movement  of  production  factors,  notably 
labour  and  capital,  so  as  to  use  resources  efficiently  and  create  favourable  conditions  to 
maximise incomes. Greater flexibility in job mobility supports the adjustment capacity of the 

20 

21 
22 

A  better  transposition  and  application  of  the  Employment  Equality  Directive  (2000/78/EC)  and  the 
realisation of the added value of older staff is needed. Age is the most common perceived disadvantage 
when seeking a job, see http://ec.europa.eu/public_opinion/archives/ebs/ebs_317_en.pdf. 
Chapter 2.1 of the Interim Joint Report on pensions, see footnote 2. 
See Commission Staff Working Document SEC(2010)830. 

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economy  and  strengthens  the  European  social  model.  Unleashing  the  full  potential  of  the 
single market could bring significant benefits for all citizens23. 

3.3.1. 

Strengthening the internal market for pensions 

The adoption of the Directive on Institutions for Occupational Retirement Provision (IORP) 
in 2003 was a major achievement. But this Directive only covers those funded pensions that 
are  occupational  in  nature  and  not  even  all  occupational  schemes  fall  under  its  scope  (e.g. 
book reserve schemes are excluded). It is not a framework directive, which makes it difficult 
to  adapt  regulation  to  market  changes.  First  experience  has  shown  that  there  are  still 
considerable  barriers  to  cross-border  activity.  They  prevent  the  full  realisation  of  efficiency 
gains arising from scale economies and competition, thereby raising the cost of pensions and 
restricting  consumer  choice.  Barriers  are  in  many  cases  the  result  of  regulatory  differences 
and  legal  uncertainties,  such  as  an  unclear  definition  of  cross-border  activity,  a  lack  of 
harmonisation  of  prudential  regulation  and  complex  interaction  between  EU  regulation  and 
national law. Removing these obstacles may require a review of the IORP Directive, further 
supervisory convergence and more transparency about national differences. Moreover, aspects 
concerning custodianship24 and pension fund governance need to be addressed, including an 
adequate  understanding  and  supervision  of  investment  decisions,  remuneration,  incentive 
structures for service providers and socially responsible investment (SRI). 

Appropriate  and  comparable  accounting  standards  are  important  to  enhancing  transparency 
about  pension  liabilities.  The  International  Accounting  Standards  Board  (IASB)  has 
undertaken  a  project  to  review  its  pension  accounting  standard  IAS  1925.  The  European 
Commission  jointly  with  its  technical  advisor,  the  European  Financial  Reporting  Advisory 
Group (EFRAG), closely monitors the IASB project to improve pension accounting, possibly 
also  for  pension  funds  themselves,  in  accordance  with  the  endorsement  process  established 
under the IAS Regulation26. 

The free movement of capital is facilitated by Member States giving the same tax treatment to 
dividends and interest received by IORPs investing in their territory but established elsewhere 
in  the  European  Economic  Area  (EEA).  Following  the  Commission's  decision  to  launch 
infringement action against several Member States because of discriminatory features of their 
tax rules in this area, some Member States have already aligned their pension's tax legislation 
with the requirements of EU law. 

Although  the  Internal  Market  for  insurance  products  has  been  in  place  for  a  longer  time, 
cross-border activity for life assurance products has also remained limited, representing well 
below  10%  of  total  life  assurance  premiums  written  in  most  Member  States.  The  Internal 
Market could also be helpful in extending access to additional sources of retirement income 
beyond pensions, such as reverse mortgages. There have also been calls to create a regulatory 

23 
24 

25 
26 

See footnote 22 for more information on the current EU framework on pensions. 
See Commission report on some key aspects concerning Directive 2003/41/EC on the activities and 
supervision of institutions for occupational retirement provision (IORP Directive) of 30.4.2009, 
COM(2009) 203, available at 
http://ec.europa.eu/internal_market/pensions/docs/legislation/iorp_report_en.pdf. 
IAS 19 Employee Benefits applies to the sponsoring undertakings. 
IAS Regulation 1606/2002. 

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framework for an EU-wide private pension regime alongside the existing pension regimes in 
Europe27. 

(5) 

In  which  way  should  the  IORP  Directive  be  amended  to  improve  the  conditions  for 
cross-border activity? 

3.3.2.  Mobility of pensions 

EU Regulations on the coordination of social security systems have been protecting pension 
rights  of  mobile  EU  citizens  and  their  family  members  for  the  past  five  decades.  The  new 
Regulations 883/2004 and 987/2009 expand this protection and ensure that for the accrual of 
pension  rights,  insurance  periods  acquired  in  another  Member  State  will  be  taken  into 
account. These Regulations are limited to statutory and occupational pension schemes where 
rights are based on legislation: recent national reforms as outlined above may thus require an 
extension of the coordination regulations and minimum standards to improve mobile workers' 
access to supplementary pension rights within and between Member States. 

The Commission proposed a Directive in 2005 to set minimum standards for the acquisition, 
preservation  and  transferability  of  supplementary  pension  rights.  Internal  mobility  was 
included because a separation of internal and external mobility was impractical. 

The  proposal  was  revised  by  the  Commission  in  2007  to  drop  the  transferability  element 
which had been opposed by some as technically difficult and potentially burdensome or open 
to  abuse.  This  left  the  emphasis  on  the  timely  acquisition  of  pension  rights  and  their 
subsequent  preservation.  However,  it  has  still  not  been  possible  to  achieve  the  unanimity 
needed in the Council to pass the Directive. 

Fresh impetus is needed to reach a solution for all mobile workers28. In today's labour market, 
with the added challenges from the financial and economic crisis, people need to be able to 
change jobs easily throughout their working life and employers should be able to recruit the 
right  person  with  the  right  skills.  Further  need  for  action  comes  from  the  rise  in  the 
importance  of  funded  pensions  in  diverse  forms.  This  raises  the  issue  of  scope:  e.g.  should 
statutory mandatory funded schemes be included in EU measures? 

Some Member States operate pension tracing services which help people keep track of their 
pension rights from different sources within that Member State. Given the growing degree of 
labour  mobility  and  reliance  on  a  broader  set  of  public  and  private  sources  of  retirement 
income, an EU level tracking system could help mobile individuals keep track of their pension 
rights. 

Discriminatory tax rules can be an obstacle to the mobility of pensions. The Court of Justice 
has  ruled  that  it  is  contrary  to  EU  law  to  tax  transfers  of  pension  capital  from  domestic 
pension  funds  to  funds  established  elsewhere  in  the  EEA  if  transfers  of  pension  capital 

27 

28 

The Monti Report also suggests an option to explore the 28th regime for supplementary pension rights, 
see  A  NEW  STRATEGY  FOR  THE  SINGLE  MARKET  AT  THE  SERVICE  OF  EUROPE'S 
ECONOMY  AND  SOCIETY,  Report  to  the  President  of  the  European  Commission  José  Manuel 
Barroso by Mario Monti, 9 May 2010, p.58. 
For  example,  setting  up  a  cross-border  EU  pension  fund  for  highly  mobile  workers  (e.g.  researchers) 
could be an option. See "Feasibility Study of a Pan-European pension fund for EU researchers", Hewitt 
Associates on behalf of the European Commission (DG RTD), May 2010. 

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between domestic pension funds are tax free29. The Commission intends to examine whether 
there are any other Member States with similar rules. 

(6)  What  should  be  the  scope  of  schemes  covered  by  EU  level  action  on  removing 

obstacles for mobility? 

(7) 

Should  the  EU  look  again  at  the  issue  of  transfers  or  would  minimum  standards  on 
acquisition and preservation plus a tracking service for all types of pension rights be a 
better solution? 

3.4. 

Safer, more transparent pensions with better awareness and information 

Safety in pensions is important to support adequacy. Moreover, the macroeconomic benefits 
can be felt quickly as pensioners are a growing source of stable and regular consumption. The 
disparate  developments  in  Member  States'  pension  systems  and  the  trend  towards  DC 
schemes, however, raise new policy questions. 

3.4.1.  Closing gaps in EU regulation 

As pension provision moves from single to multi-tiered systems and from simple to complex 
pension  packages,  the  fragmented  and  incomplete  character  of  the  present  European 
framework may no longer be sufficient. 

(1) 

(2) 

(3) 

(4) 

Reforms  have  led  to  some  funded  pension  schemes,  both  public  and  private,  being 
covered  by  EU  regulation  in  some  Member  States  but  not  in  others.  This  is  not 
consistent  with  the  relevant  G20  Pittsburgh  declaration  (“13.  […]  All  firms  whose 
failure  could  pose  a  risk  to  financial  stability  must  be  subject  to  consistent, 
consolidated  supervision  and  regulation  with  high  standards.  […]”),  as  reinforced  at 
the G20 Toronto summit, nor does it reflect the fact that pension funds have become 
major players in financial markets. 

Similar  pension  schemes  are  covered  by  different  EU  rules  thus  raising  issues  of 
consistency. 

There  are  unclear  boundaries  between:  social  security  schemes  and  private  schemes; 
occupational and individual schemes; and voluntary and mandatory schemes. 

It is not always clear what differentiates general saving from pensions. This raises the 
question  whether  the  label  'pension'  should  not  be  restricted  to  a  product  that  has 
certain features such as security and rules restricting access including a payout design 
which incorporates a regular stream of payments in retirement. 

Moreover,  the  trend  towards  DC  schemes,  away  from  defined  benefit  (DB)  schemes,  is 
continuing.  The  aim  of  tying  employees  to  the  company  through  occupational  pension 
promises  is  losing  ground:  employers  are  less  reliant  on  firm-specific  skills  due  to 
technological  advances  and  employees  are  increasingly  preferring  flexibility  and  mobility. 
Furthermore,  while  occupational  DB  schemes  provide  greater  certainty  about  future 
retirement  income  and  reduce  costs  because  of  their  size  and  risk  sharing,  they  can  be  an 
untenable burden on employers. 

29 

Commission vs. Belgium, Case C-522/04. 

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Today,  nearly  60  million  Europeans  are  enrolled  in  DC  schemes30.  Such  schemes  are  much 
more prevalent today than they were a decade ago and will continue to grow in importance. 
The  sponsor  does  not  bear  the  financial  risk  and  DC  schemes  are  more  likely  to  promote 
longer  working  lives.  But  a  key  implication  is  that  they  shift  the  investment,  inflation  and 
longevity risks to scheme members, who are less well placed to bear these risks individually. 
There are, however, ways to reduce these risks. Minimum return guarantees and life-styling 
portfolio compositions come at a cost but good practice across Member States has shown that 
they can reduce short-term volatility. Market performance can be enhanced by good economic 
and  public  finance  policies  and  better  regulation.  Better  investment  practice  and  scheme 
design  can  substantially  mitigate  risk  and  increase  capacity  for  shock  absorption  thus 
achieving  a  better  balance  between  risks,  security  and  affordability  for  both  savers  and 
providers. 

Collective risk sharing through hybrid schemes, such as a DC scheme with a minimum return 
guarantee or a part-DB and part-DC scheme, could change the current trend to individualised 
DC  schemes.  Moreover,  high  quality  schemes  are  being  promoted  by  industry  initiatives. 
Some occupational DB schemes have also adapted to demographic and structural changes by 
increasing  risk  sharing  between  sponsors,  workers  and  pensioners.  Existing  collective 
governance  structures  in  DB  schemes  facilitate  this.  Examples  include  moving  from  final 
salary to career average schemes, establishing cash balance schemes, allowing for longevity 
adjustments,  changing  accrual  rates,  adjusting  the  normal  pension  age,  and  applying 
conditional indexation. 

International  policy  discussions  raise  the  question  whether  current  EU  regulation  is  able  to 
cope  with  the  shift  towards  DC  schemes31.  A  reassessment  of  the  IORP  Directive  may  be 
required  in  areas  such  as  governance,  risk  management,  safekeeping  of  assets,  investment 
rules and disclosure. In addition, the current EU framework does not address the accumulation 
phase.  This  includes  (i)  plan  design  to  mitigate  short-term  volatility  in  returns  and  (ii) 
investment  choice  and  default  investment  options.  Moreover,  given  that  the  size  of  the 
pension  in  DC  schemes  can  depend  on  the  year  in  which  the  pensioner  retires,  market 
regulation  needs  to  address  the  payout  phase  such  as  rules  on  purchasing  an  annuity  (e.g. 
whether it is mandatory or voluntary, and the timing). 

(8) 

(9) 

Does  current  EU  legislation  need  reviewing  to  ensure  a  consistent  regulation  and 
supervision of funded (i.e. backed by a fund of assets) pension schemes and products? 
If so, which elements? 

How  could  European  regulation  or  a  code  of  good  practice  help  Member  States 
achieve  a  better  balance  for  pension  savers  and  pension  providers  between  risks, 
security and affordability? 

3.4.2. 

Improving the solvency regime for pension funds 

The  IORP  Directive's  minimum  prudential  requirements  include  solvency  rules  for  DB 
schemes.  These  solvency  rules  are  currently  the  same  as  those  that  apply  to  life  assurance 
undertakings.  With  the  entry  into  force  of  the  Solvency  II  Directive  in  2012,  insurance 
undertakings  will  be  able  to  benefit  from  a  three-pillar,  risk-based  solvency  regime  and  the 

30 
31 

EFRP survey on DC pensions 2010. 
OECD Pension Market in Focus Oct. 2009. 

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question  is  whether  this  new  regime  should  also  apply  to  IORPs.  There  is  little  agreement 
among  stakeholders,  partly  reflecting  the  difference  in  the  ways  occupational  pensions  are 
delivered: book reserve, pension fund or insurance contract. 

As regards pension funds, Member States have also taken different approaches to protecting 
acquired pension rights32. The Commission conducted a consultation on this subject in 2008 
and organised a public hearing in May 2009. During this process, stakeholders signalled that 
there needs to be a sui generis solvency regime for pension funds and that it is important to 
avoid pro-cyclical solvency rules. The Solvency II approach could be  a good starting point, 
subject  to  adjustments  to  take  account  of  the  nature  and  duration  of  the  pension  promise, 
where appropriate. The suitability of Solvency II for pension funds needs to be considered in 
a  rigorous  impact  assessment,  examining  notably  the  influence  on  price  and  availability  of 
pension products. 

A related question is whether, reflecting developments in banking, insurance and investment, 
there  is  a  need  for  promoting  pension  benefit  guarantee  systems  in  the  Member  States, 
possibly coordinated or facilitated at EU level. Such systems can not only address failures in 
sponsor-backed  DB  schemes  or  book  reserve  schemes,  but  could  also  compensate  for 
excessive  losses  in  DC  schemes.  There  are,  however,  important  aspects  to  address  such  as 
moral hazard and potential implicit public support in very turbulent times. 

(10)  What should an equivalent solvency regime for pension funds look like? 

3.4.3.  Addressing the risk of employer insolvency 

Given  the  important  role  of  sponsoring  undertakings  in  the  provision  of  benefits  and  the 
funding  of  IORPs,  their  insolvency  presents  a  particular  risk.  The  Insolvency  Directive33 
provides  for  the  protection  of  employees’  rights  to  supplementary  occupational  pensions  in 
the event of the insolvency of their employer. However, there is no obligation on the Member 
State to fund the rights nor do full guarantees need to be provided, thus leaving considerable 
latitude  on  the  level  and  modalities  of  protection.  Moreover,  the  IORP  Directive  does  not 
apply to companies using book reserve schemes for the payment of retirement benefits to their 
employees.  The  need  to  ensure  the  protection  of  supplementary  occupational  pensions  in 
those instances becomes more acute in the present situation, since the financial and economic 
crisis will increase the number of company insolvencies. 

The  Commission  presented  a  Staff  Working  Document34  on  the  implementation  of  the 
provision  concerning  supplementary  occupational  pensions  contained  in  the  Insolvency 
Directive. As a follow-up to this document, the Commission has launched a study in 200935 
covering  DB  and  book  reserve  schemes  and  is  currently  gathering  information  on  the 
protection of unpaid contributions to DC schemes in case of employer insolvency. 

(11) 

Should  the  protection  provided  by  EU  legislation  in  the  case  of  the  insolvency  of 
pension sponsoring employers be enhanced and if so how? 

32 

33 
34 
35 

Security  mechanisms  used  today  rely  on  a  realistic  valuation  of  technical  provisions,  own  funds, 
sponsor covenants, pension protection funds or a combination of those elements (CEIOPS SSC report). 
2008/94/EC 
SEC(2008) 475, 11.4.2008. 
OJ 2009/ S 230-329482. 

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3.4.4.  Facilitating informed decisions 

The trend towards DC schemes underlines the need for transparent and clear communication. 
The  IORP  and  the  Life  Directives  contain  information  disclosure  requirements.  But  these 
provisions  are  based  on  minimum  harmonisation  and  national  approaches  differ  markedly. 
Moreover  they  were  designed  for  DB  schemes  and  may  therefore  need  to  be  adjusted.  In 
going forward, it would seem important to review the key information specifically for pension 
schemes  and  products  (e.g.  risk,  nature  of  promise,  cost/fees,  payout  method,  etc.).  This 
should  take  into  account  what  is  being  developed  for  other  financial  products,  seeking  to 
ensure comparable information. Consumer testing combined with economic research could be 
used to improve the quality of information in terms of clarity and comparability. 

Shifting  choice  and  responsibility  to  the  individual  requires  that  people  understand  the 
information  in  order  to  make  informed  choices,  especially  as  pensions  have  become  more 
complex. Financial education can help as demonstrated by the work of the OECD and the EU 
already works with Member States on this. Financial education complements regulation of the 
industry,  both  prudential  (e.g.  the  IORP  Directive)  and  market  conduct  rules,  and  product 
disclosure rules. It is important that individuals are properly equipped with economic literacy 
and planning skills to adequately assess their need for financial and social protection and to 
avoid behavioural biases. For example, with the growing importance of DC schemes people 
need  to  make  informed  decisions  about  investments.  It  is  also  important  that  people  have  a 
competent body to turn to that can answer their questions relating to pensions, especially in a 
cross-border mobility context. 

At the same time, national experiences suggest that the engagement rate that can be obtained 
through  disclosure  and  financial  education  has  an  upper  limit.  It  is  therefore  important  to 
envisage an in-depth examination of the merits of auto-enrolment with opt-out clauses. 

Informed decisions go hand  in hand  with adequate pension provision. When  making saving 
decisions it is important that individuals be offered appropriate options. There could therefore 
be a case for defining what exactly the desirable features of pensions are: if they lack certain 
key  characteristics,  not  only  could  this  lead  to  confusion,  but  it  could  also  lead  to  under 
provision in retirement, for example if early withdrawals lead to a depletion of savings or if 
no  steady  income  is  generated  from  the  accumulated  assets.  Member  States  may  consider 
putting in place a reliable pensions advice service to facilitate consumer choices. 

(12) 

Is  there  a  case  for  modernising  the  current  minimum  information  disclosure 
requirements for pension products (e.g. in terms of comparability, standardisation and 
clarity)? 

(13) 

Should  the  EU  develop  a  common  approach  for  default  options  about  participation 
and investment choice? 

4. 

IMPROVING EU STATISTICS ON PENSIONS 

Data about pension systems available from the different national and EU-level sources could 
be streamlined to increase their comparability and make substantial cost savings. Building on 
existing international work (e.g. the OECD) and various EU initiatives, the development of an 
EU methodology for pension statistics could facilitate the assessment of the common policy 
and  regulatory  challenges.  Pension  funds  are  important  institutional  investors  and  their 

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investment behaviour can affect financial stability. Citizens would benefit from the collection 
of accurate statistics about their retirement income from the different sources. Pensioners are 
set  to  grow  as  a  group  of  consumers  and  firms  would  benefit  from  reliable  and  timely 
information about total disposable income. 

Furthermore, the monitoring of implicit liabilities could be strengthened to allow for a better 
assessment of the impact on the sustainability of public finances of pension schemes run by 
both public and private entities. 

5. 

ENHANCING GOVERNANCE OF PENSION POLICY AT EU LEVEL 

Europe must help address citizens' concerns about future pensions and revisit how a strategy 
can be defined to deliver adequate, sustainable and safe pensions, including through better use 
of EU instruments. 

Whilst  Member  States  generally  are  responsible  for  the  design  and  organisation  of  their 
pension  systems,  some  specific  areas  relating  to  pensions  fall  directly  within  the  EU's 
competencies. Member States have also recognised that acting together can be more effective 
and  efficient  and  that  the  EU  level  can  add  value,  not  least  since  the  challenges  are  similar 
across the EU and reform polices need to be consistent with existing frameworks such as the 
Stability and Growth Pact and Europe 2020. 

As part of this strategy, the EU contributes with measures such as surveillance, coordination 
and  mutual  learning.  Examples  include  best  practice  sharing,  peer  reviews,  agreeing 
objectives  and  indicators,  and  gathering  comparable  statistics.  EU  regulation  covers  social 
security coordination of public pensions, rules for occupational pension funds, portability and 
the protection of supplementary pension rights in the event of the insolvency of the employer, 
as well as rules for life assurance undertakings. 

If the EU is to offer appropriate support to national reform efforts, the framework of policy 
coordination must take an integrated approach to reflect the increasing complexity of pension 
systems.  Moreover,  given  increasing  economic  and  financial  integration,  the  EU-level 
regulatory framework, as well as good coordination across the EU level policies and Member 
States' policies, is becoming ever more important. 

Pension policy is a common concern for public authorities, social partners, industry and civil 
society at national and at EU level. A common platform for monitoring all aspects of pension 
policy  and  regulation  in  an  integrated  manner  and  bringing  together  all  stakeholders  could 
contribute  to  achieving  and  maintaining  adequate,  sustainable  and  safe  pensions.  The 
Commission is therefore keen to explore how this can best be achieved in support of the EU's 
wider economic and social objectives. 

(14) 

Should the policy coordination framework at EU level be strengthened? If so, which 
elements  need  strengthening  in  order  to  improve  the  design  and  implementation  of 
pension policy through an integrated approach? Would the creation of a platform for 
monitoring all aspects of pension policy in an  integrated manner be part of the way 
forward? 

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6. 

HOW TO RESPOND TO THE CONSULTATION 

The Commission invites all interested parties to respond to the questions set out in this Green 
Paper, together with any additional comments, by 15 November 2010 by means of the online 
questionnaire available at: 
http://ec.europa.eu/yourvoice/ipm/forms/dispatch?form=pensions. 

Alternatively, for those without web access, responses can be sent by post to:  

European Commission 

Directorate-General for Employment, Social Affairs & Equal Opportunities 

Green Paper on Pensions consultation 

Unit E4 

rue Joseph II 

Office J-27 1/216 

B - 1040 Brussels 

Please  note,  received  contributions,  together  with  the  identity  of  the  contributor,  will  be 
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contribution  may  be  published  in  anonymous  form.  Otherwise  the  contribution  will  not  be 
published nor will, in principle, its content be taken into account. 

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GLOSSARY AND STATISTICAL ANNEX 

1. 

GLOSSARY 

Accumulation phase – Period during which contributions are made and invested in a defined 
contribution scheme. (See also: Defined contribution (DC) schemes). 

Accrual rate – Rate at which future pension benefits are built up. It is used in defined benefit 
schemes and based on the formula linked to the scheme. For example, a pension accrual rate 
could  be  1.5%  of  final  pensionable  salary  for  each  year  of  pensionable  service  (See  also: 
Defined benefit (DB) schemes). 

Annuity – A financial contract, sold by a life insurance company for example, that guarantees 
a fixed or variable payment of income benefit (monthly, quarterly, half-yearly, or yearly) for 
the life of a person(s) (the annuitant) or for a specified period of time. It differs from a life 
insurance contract which provides an income to the beneficiary after the death of the insured. 
An annuity may be bought on instalments or by paying a single lump sum. Benefits may start 
immediately or at a pre-defined time in the future or at a specific age. An annuity is one way 
of  securing  a  regular  retirement  income  for  individuals  who  have  saved  in  a  defined 
contribution scheme. (See also: Defined contribution (DC) schemes). 

Automatic  (or  auto-)  enrolment  –  Generally  refers  to  employees  being  members  of  their 
employer's pension scheme as a default choice, with the possibility of opting out on request. 

Automatic  adjustment  mechanisms  –  Generally  refers  means  of  adjusting  benefits,  rights 
and/or  contribution  levels  to  changing  circumstances,  e.g.  economic  conditions,  financial 
market returns or longevity assumptions. 

Book  reserve  pension  scheme  –  A  method  of  accounting  used  by  some  sponsoring 
employers to finance pension promises. Sums are entered in the balance sheet of the scheme 
sponsor  as  reserves  or  provisions  for  scheme  benefits.  Some  assets  may  be  held  in  separate 
accounts  for  the  purpose  of  financing  benefits,  but  they  are  not  legally  or  contractually 
pension plan assets. (See also: Defined benefit (DB) schemes). 

Career average scheme – A defined benefit scheme where the future pension benefit earned 
for a specific year depends on the level of the member's earnings for the given year. (See also: 
Defined benefit (DB) schemes). 

Cash balance schemes – A scheme where the employer guarantees a pension pot to scheme 
members, payable at the normal pension age, with which they can purchase an annuity. (See 
also: Normal pension age; Annuity). 

Conditional indexation – Refers to defined benefit schemes where the provision of indexed 
benefits (generally revalued to inflation or wages) is conditional on the financial performance 
of the scheme's investments. (See also: Defined benefit (DB) schemes). 

Defined benefit (DB) schemes – Pension schemes where the benefits accrued are linked to 
earnings and the employment career (the future pension benefit is pre-defined and promised to 
the member). It is normally the scheme sponsor who bears the investment risk and often also 
the  longevity  risk:  if  assumptions  about  rates  of  return  or  life  expectancy  are  not  met,  the 

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sponsor  must  increase  its  contributions  to  pay  the  promised  pension.  These  tend  to  be 
occupational schemes. (See also: Defined contribution (DC) schemes). 

Defined contribution (DC) schemes – Pension schemes where the level of contributions, and 
not  the  final  benefit,  is  pre-defined:  no  final  pension  promise  is  made.  DC  schemes  can  be 
public, occupational or personal: contributions can be made by the individual, the employer 
and/or  the  state,  depending  on  scheme  rules.  The  pension  level  will  depend  on  the 
performance of the chosen investment strategy and the level of contributions. The individual 
member therefore bears the investment risk and often makes decisions about how to mitigate 
this risk. (See also: Defined benefit (DB) schemes). 

Effective  retirement  age  –  Age  at  which  an  individual  actually  retires.  Not  necessarily  the 
same as the  labour market exit  age  or  normal retirement age. (See also: Labour market exit 
age, and Normal pension age). 

Equity Release Scheme – Term used to describe both the process and the products that allow 
homeowners to secure substantial lump sums or regular income payments by realising part of 
the value of their homes, while being able to continue to live in it. 

Final salary scheme – A defined benefit scheme where the pension benefit is typically based 
on the last or the last few years' of earnings before retirement. (See also: Defined benefit (DB) 
schemes). 

Funded scheme – A pension scheme whose benefit promises are backed by a fund of assets 
set aside and invested for the purpose of meeting the scheme's liability for benefit payments 
as they arise. Funded schemes can be either collective or individual. (See also: Pay-As-You-
Go schemes).  

Governance  (of  pension  funds)  -  The  operation  and  oversight  of  a  pension  fund.  The 
governing  body  is  responsible  for  administration,  but  may  employ  other  specialists,  such  as 
actuaries,  custodians,  consultants,  asset  managers  and  advisers  to  carry  out  specific 
operational tasks or to advise the scheme administration or governing body. 

Hybrid  pension  scheme  –  In  a  hybrid  scheme,  elements  of  both  defined  contribution  and 
defined benefits are present or, more generally, the risk is shared by the scheme's operator and 
beneficiaries. 

Individual  pension  scheme  -  Access  to  these  schemes  does  not  depend  on  an  employment 
relationship.  The  schemes  are  set  up  and  administered  directly  by  a  pension  fund  or  a 
financial  institution  acting  as  pension  provider  without  the  involvement  of  employers. 
Individuals  independently  purchase  and  select  material  aspects  of  the  arrangements.  The 
employer may nonetheless make contributions to individual pension schemes. Some schemes 
may have restricted membership. 

Information disclosure regulations – The rules prescribing the periodicity, procedure, type 
and extent of information to be provided to members of pension plans and/or the supervisory 
authority. 

Institutional  investor  -  Generally  refers  to  a  group  of  investors  such  as  pension  funds, 
insurance companies, investment funds and, in some cases, banks. 

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Labour market exit age - Age at which an individual actually leaves the labour market. For 
data  availability  reasons  labour  market  exit  age  is  often  used  as  a  proxy  for  the  effective 
retirement  age.  Differences  between  the  two  may  exist,  as  some  people  leave  the  labour 
market before they actually retire while others continue working after retirement. (See also: 
Effective retirement age). 

Lifestyling  or  life-cycling  strategies  –  Investment  strategies  used  in  defined  contribution 
pension  schemes  to  reduce  investment  risk  and  volatility  by  gradually  and  automatically 
reducing the investment risk taken by the scheme member as they approach retirement. (See 
also: Defined contribution (DC) schemes). 

Minimum  return  guarantees  –  Minimum  level  of  pension  benefit  paid  out  regardless  of 
investment performance in a defined contribution scheme. 

Normal pension age – Age at which a member of the pension scheme is eligible to receive 
full pension benefits. 

Occupational  schemes  –  A  pension  plan  where  access  is  linked  to  an  employment  or 
professional  relationship  between  the  plan  member  and  the  entity  that  sets  up  the  plan  (the 
plan sponsor). Occupational pension schemes may be established by employers or groups of 
employers  (e.g.  industry  associations)  or  labour  or  professional  associations,  jointly  or 
separately,  or  by  self-employed  persons.  The  scheme  may  be  administered  directly  by  the 
sponsor or by an independent entity (a pension fund or a financial institution acting as pension 
provider).  In  the  latter  case,  the  sponsor  may  still  have  responsibility  for  overseeing  the 
operation of the scheme. 

Old-age  dependency  ratio  –  Population  aged  over  65  as  a  percentage  of  the  working  age 
population (usually defined as persons aged between 15 and 64). 

Operational  risk  -  The  risk  of  loss  arising  from  inadequate  or  failed  internal  processes, 
personnel or systems, or from external events. 

Own  funds  (regulatory)  –  Refers  to  the  additional  assets  of  a  pension  funds  above  its 
technical provisions serving as a buffer. Regulation usually requires that these assets are free 
of  all  foreseeable  liabilities  and  serve  as  a  safety  capital  to  absorb  discrepancies  between 
anticipated  and  actual  expenditure  and  profits.  Also  referred  to  as  regulatory  capital.  (See 
also: Technical provisions). 

Pay-As-You-Go  (PAYG)  schemes  –  Pension  schemes  where  current  contributions  finance 
current pension expenditure (See also: funded schemes). 

Payout  phase  or  decumulation  phase  –  Period  during  which  assets  accrued  in  the 
accumulation  phase  are  paid  out  to  the  pension  scheme  member  in  a  funded  scheme.  An 
example of a payout phase is a period in which regular retirement income is received through 
the purchase of an annuity. (See also: Annuity). 

Pension  benefit  guarantee  system  –  An  arrangement  to  pay  compensation  to  members  or 
beneficiaries  of  pension  schemes  in  the  event  of  insolvency  of  to  the  pension  fund  and/or 
sponsoring employer. Examples of a pension benefit guarantee systems include the Pensions-
Sicherungs-Verein  Versicherungsverein  auf  Gegenseitigkeit  (PSVaG)  in  Germany  and  the 
Pension Protection Fund in the UK. 

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Pension pillar – Different types of pension schemes are usually grouped into two, three, four 
or more pillars of the pension system. There is however no universally agreed classification. 
Many  pension  systems  distinguish  between  statutory,  occupational  and  individual  pension 
schemes, or between mandatory and voluntary pension schemes. Participation in occupational 
and individual pension schemes, usually private pension arrangements, can be mandatory or 
voluntary. 

Replacement  rate  –  Generally  refers  to  an  indicator  showing  the  level  of  pension  income 
after retirement as a percentage of individual earnings at the moment of take-up of pensions or 
of average earnings. Replacement rates measure the extent to which pension systems enable 
typical workers to preserve their previous living standard when moving from employment to 
retirement. 

Solvency  –  The  ability  of  a  pension  scheme's  assets  to  meet  the  scheme's  liabilities.  The 
scheme's liabilities cover all future pension payments and must therefore be discounted well 
into the future, thus making substantial assumptions about longevity. The value of a scheme's 
assets  is  dependent  on  the  type  of  accounting  standard  used.  If  a  scheme  is  not  deemed  to 
have a sufficiently high solvency level, it needs to consider whether to increase contribution 
levels or reduce entitlements, where scheme rules permit. 

Sponsor  covenant  -  Refers  to  a  sponsoring  employer’s  ability  to  support  pension  fund 
volatility by providing additional funding if required. The 'covenant' in this context is a very 
similar concept to 'creditworthiness' for borrowers. At a simple level, if a pension fund has a 
deficit  then  it  is  in  many  respects  similar  to  a  bond  holder  in  financial  market  terms.  It 
depends  on  the  ability  of  the  company  to  pay  additional  contributions  in  the  future  if 
investment returns are not sufficient to make up the shortfall. 

Statutory pension  scheme -  Social  security and  similar statutory programmes administered 
by  the  general  government  (that  is  central,  state,  and  local  governments,  plus  other  public 
sector bodies such as social security institutions). Public pension plans have traditionally been 
of the PAYG type. 

Supplementary pension schemes –Mandatory or voluntary pension schemes which generally 
provide additional retirement income to the statutory pension scheme. 

Technical provisions – The amount of liabilities corresponding to the financial commitments 
of  a  pension  fund  which  arise  out  of  its  portfolio  of  existing  pension  contracts.  See  also 
Article 15 of Directive 2003/41/EC.  

Transferability  –  The  right  to  transfer  accrued  benefits  or  accumulated  capital  from  one 
pension scheme to another, for example to the pension scheme of the new employer. 

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2. 

STATISTICAL ANNEX 

Figure 1: Demographic structure of the population in 2008 and 2060 

Figure 2: Old-age dependency ratios under different average exit age scenarios 

Figure  3:  Change  in  public  pension  expenditure  as  a  share  of  GDP  over  2007-60  (in 
percentage points) 

Figure 4: Benefit ratios in EU Member States in 2007 and 2060 

Figure 5: Change in theoretical replacement rates for an average wage earner retiring at 
65 after 40 years career between 2006 and 2046 in percentage points 

Figure 6: Standard pension eligibility age and average labour market exit age in EU-27 

Figure 7: Overall, female and older workers employment rates in EU-27, 2000-2008, in 
percent 

Figure 8: Pension benefit impact of shorter and longer working lives 

Figure 9: Pension benefit impact of career breaks due to unemployment 

Figure 10: Increasing significance of funded pensions 

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Figure 1: Demographic structure of the population in 2008 and 2060 

2008 

2060 

Source:  Commission  services,  graph  published  in  the  2010  Interim  Joint  Report  on  pensions  of  the  Economic 
Policy Committee and Social Protection Committee, noted by the 7-8 June 2010 EPSCO and ECOFIN Councils, 
p. 9, available at: http://europa.eu/epc/publications/index_en.htm. 

Note: the red (dark) bar indicates the most numerous cohort. 

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Figure 2: Old-age dependency ratios under different average exit age scenarios 

In  2010,  when  it  is  assumed  that  people  leave  the  labour  market  on  average  at  age  60,  the 
dependency ratio, i.e. the number of people of working age relative to the number of people 
above age 60, amounts to 5 to 2. If by 2040 people were to remain until 67 the corresponding 
ratio would stay constant and the increase by 2060 would far less dramatic than at lower exit 
ages. There would be no increase if the exit age would increase another 3 years between 2040 
and 2060. 

EU-27 old-age dependency ratios, 2010-2060, under four exit 
assumptions (working ages from 20 to 59 through 69)

20 to 59 / 60+

20 to 63 / 64+

20 to 66 / 67+

20 to 69 / 70+

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

2010

2020

2030

2040

2050

2060

Source: Eurostat, Population Projections, 2008 data. 

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 Figure  3:  Change  in  public  pension  expenditure  as  a  share  of  GDP  over  2007-60  (in 
percentage points) 

LU

EL

CY

RO

SI

ES

MT

BE
NO
IE
LT

NL

SK
FI
CZ
BG
EA16
UK
EU27
DE
PT

FR
AT

DK

SE
LV
HU
IT
EE

PL

-8

-6

-4

-2

0

2

4
Social Security Pension /GDP

6

8

10

12

14

16

Source: Ageing report 2009, available at: 
http://ec.europa.eu/economy_finance/publications/publication13782_en.pdf,  data  as  updated  at  the  Ageing 
Working Group in 2010.  

Note: Hungary  reformed  its  pension  system  in  2009.  Following  the reform,  its  impact  was  assessed  through a 
peer review by the AWG, and endorsed by the EPC at their 22 February 2010 meeting. According to the revised 
pension projections, public pension expenditure is projected to decrease from 10.9% of GDP in 2007 to 10.5% of 
GDP  in  2060,  i.e.  by  0.4  p.p.  of  GDP,  compared  with  the  projection  in  the  2009  Ageing  Report,  where  an 
increase of 3 p.p. of GDP between 2007 and 2060 was projected.  

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Figure 4: Benefit ratios in EU Member States in 2007 and 2060 

BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
NO

2007
45
44
45
39
51
26
27
73
58
63
68
54
24
33
46
39
42
44
55
56
46
29
41
45
49
49
35
51

Benefit Ratio (%)

Public pensions

2060 % change

Public and private pensions
2007

2060 % change

43
36
38
38
42
16
32
80
52
48
47
57
13
28
44
36
40
41
39
26
33
37
39
33
47
30
37
47

-4
-20
-17
-4
-17
-40
16
10
-10
-25
-31
5
-47
-16
-4
-8
-6
-7
-30
-54
-29
26
-6
-27
-5
-39
7
-8

44

64

26

62

24
33
46
39

74

56
47
29
41
45

64

41

75

22

57

25
32
44
38

81

31
33
41
40
40

46

-8

17

-18

-8

4
-2
-4
-3

10

-44
-31
41
-2
-11

-27

Source: Ageing report 2009, available at: 
http://ec.europa.eu/economy_finance/publications/publication13782_en.pdf. 

Note: The 'Benefit ratio' is the average benefit of public pension and public and private pensions, respectively, as 
a share of the economy-wide average wage (gross wages and salaries in relation to employees), as calculated by 
the  Commission.  Public  pensions  used  to  calculate  the  Benefit  Ratio  includes  old-age  and  early  pensions  and 
other pensions. Private pensions are not included for all Member States. Hence, the comparability of the figures 
is  limited.  The  value  of  indicators  might  change  as  some  Member  States  consider  reforms  of  their  pension 
systems (e.g. Ireland). 

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Figure 5: Change in theoretical replacement rates for an average wage earner retiring at 
65 after 40 years career between 2006 and 2046 in percentage points 

Change in TRR in pp, 2006-2046

55

45

35

25

15

5

-5

-15

-25

Z
C

T
P

L
P

R
F

E
S

V
L

S
E

I

E F

I

T
M

L
E

K
U

T
L

U
L

I

E S
D

T
K I
S

E
B

T
A

U
H

L
N

K
D

E
E

Y
C

G
B

O
R

Net RR

Gross RR

Source:  INDICATORS'  SUBGROUP  OF  THE  SOCIAL  PROTECTION  COMMITTEE  (ISG)  2009  report  on 
Theoretical Replacement Rates, "UPDATES OF CURRENT AND PROSPECTIVE THEORETICAL PENSION 
REPLACEMENT RATES 2006-2046", p.17, available at: 
http://ec.europa.eu/social/main.jsp?catId=752&langId=en&moreDocuments=yes. 

Note:  Replacement  rates  are  defined  as  the  level  of  pension  income  during  the  first  year  of  retirement  as  a 
percentage  of  individual  earnings  immediately  before  retirement.  For  countries  with  a  projected  drop  in 
replacement rates it should be noted that the decrease can usually be counterbalanced by working longer. 

It should be noted that EE, like other countries with a more positive evolutions in replacement rates (RO, BG and 
CY), start off from rather low initial levels of the rates. 

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Figure 6: Standard pension eligibility age and average labour market exit age in EU-27 

There  has  been  a  more  or  less  pronounced  increase  in  the  average  exit  age  from  the  labour 
force of nearly all Member States between 2001 and 2008, with an EU27 average exit age of 
61.4  years  in  2008.  For  those  countries  with  increasing  pensionable  ages  until  2020  and 
beyond, the average exit age is expected to continue to increase. It appears that most countries 
are gradually moving to a universal pensionable age of at least 65, but countries such as DK, 
DE  and  UK  have  already  legislated  further  increases  in  order  to  respond  to  continued 
advances in longevity. 

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Member State 

Average exit age 
from the labour force 
in 2001 

Average exit age from 
the labour force in 
2008 

Statutory retirement 
age for M/W in 2009 

Statutory retirement 
age 

for M/W in 2020 

Further increases 

in the statutory retirement age 

for M/W after 2020 

Belgium 

Bulgaria 

Czech Republic 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

56.8 

58.4 

58.9 

61.6 

60.6 

61.1 

63.2 

61.3° 

60.3 

58.1 

59.8 

62.3 

62.4 

58.9 

56.8 

57.6 

57.6 

60.9 

59.2 

56.6 

61.9 

59.8 

61.6* 

61.5 

60.6 

61.3 

61.7 

62.1 

64.1** 

61.4 

62.6 

59.3 

60.8 

63.5* 

62.7 

: 

: 

59.8 

63.2 

60.9* 

59.3* 

62.6* 

55.5 

Slovenia 

56.6° 

59.8** 

Slovakia 

Finland 

Sweden 

United 
Kingdom 

57.5 

61.4 

62.1 

62.0 

EU 27 average 

59.9 

58.7* 

61.6* 

63.8 

63.1 

61.4 

65/65 

63/60 

65/65 

63/60 

62/60y8m 

63y8m/63y4m 

65/65 

65/65 

65/65 

63/61 

65/65 

65/60 

65/65 

60-65 

65/60 

65/65 

62/62 

65/65 

62/62 

61/60 

65/65 

65/60 

65/60 

65/65 

65/65 

67+/67+*** 

65y9m/65y9m 

67/67 

63/63 

65/65 (66/66) 

65/60 

65/65 

60/60 

(68/68) 

65/65 

65/60**** 

*** 

65/65 

62/62 

64/63 

65/65 

64/64 

63/63 

65/65 (66/66) 

65/60 

65/60 

65/65 

65/65 

65/65 

65/65 

(67/67) 

65/65 

63y8m/58y8m 

65/60 (65/61y11m) 

(65/65) 

63/61 

62/59 

63/61 (65/65) 

62/62 

65/65, 63-68 

65/65, 63-68 

61-67 

65/60 

61-67 

65/65 

68/68 

59.9** 

62y6m/60 

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Source:  Eurostat,  MISSOC,  Ageing  Report,  2010  Interim  Joint  Report  on  pensions  of  the  Economic  Policy 
Committee  and  Social  Protection  Committee,  noted  by  the  7-8  June  2010  EPSCO  and  ECOFIN  Councils, 
available at: http://europa.eu/epc/publications/index_en.htm. 

Note: ° - 2002, * - 2007, ** - 2006, in brackets – proposed, not yet legislated, *** retirement age evolves in line with life 
expectancy gains over time, introducing flexibility in the retirement provision. **** For Italy 65/65 for civil servants, starting 
from 2018. 

Sweden: guarantee pension is available from the age of 65. 

Romania: the National House of Pensions and other Social Insurance Rights. 

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Figure 7: Overall, female and older workers employment rates in EU-27, 2000-2008, in 
percent 

Overall, female and older workers employment rates 
in EU-27 2000-2008 in %

n
o
i
t
a
l

u
p
o
p
e
g
a

e
v
i
t
c
e
p
s
e
r

f
o
%

70

65

60

55

50

45

40

35

30

2000

2001

2002

2003

2004

2005

2006

2007

2008

Total 15-64

Females 15-64

Total 55-64

Source:  Eurostat,  LFS  annual  data,  graph  published  in  the  2010  Interim  Joint  Report  on  pensions  of  the 
Economic Policy Committee and Social Protection Committee, noted by the 7-8 June 2010 EPSCO and ECOFIN 
Councils, p.10, available at: http://europa.eu/epc/publications/index_en.htm. 

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Figure 8: Pension benefit impact of shorter and longer working lives 

Difference in Net TRR percentage points for an average earner working until the 
age of 63 or 67 (ie 38 or 42 contributory years) compared with working until 65 (ie 
40 years career - basecase). Prospective Calculations, 2046

16,0
14,0
12,0
10,0
8,0
6,0
4,0
2,0
0,0
-2,0
-4,0
-6,0
-8,0
-10,0
-12,0
-14,0

U
L

K
D

E

I

K
U

S
E

I

E S
B

R
F

T
L

T

I

I

O F
R

E
S

E
D

L
N

L
E

V
L

G
B

L
P

U
H

E
E

T
A

Z
C

K
S

T
P

Y
C

T
M

Difference in Net TRR after a 38 year career compared with a 40 year career

Difference in Net TRR after a 42 year career compared with a 40 year career

Source:  INDICATORS'  SUBGROUP  OF  THE  SOCIAL  PROTECTION  COMMITTEE  (ISG)  2009  report  on 
Theoretical  Replacement  Rates  (TRR),  "UPDATES  OF  CURRENT  AND  PROSPECTIVE  THEORETICAL 
PENSION REPLACEMENT RATES 2006-2046", p.22, available at: 
http://ec.europa.eu/social/main.jsp?catId=752&langId=en&moreDocuments=yes. 

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33 

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Figure 9: Pension benefit impact of career breaks due to unemployment 

Accumulated difference in net theoretical replacement rates for an average earner entering the 
labour market at 25 and retiring at the statutory retirement age with a 1, 2 or 3 year career 
break due to unemployment compared with no break* 

2

1

0

-1

-2

-3

-4

-5

-6

-7

T
M

T
P

R
F

Z
C

S
E

U
H

G
B

L
E

K
D

E

I

L
N

T
A

T
L

E
E

I

S

K
U

E
B

E
S

U
L

Y
C

E
D

L
P

V
L

 1 year

2 years

3 years

I

T F

I

K
S

O
R

Source:  SOCIAL  PROTECTION  COMMITTEE/INDICATORS'  SUBGROUP  OF  THE  SOCIAL 
PROTECTION  COMMITTEE  (ISG).  Graph  published  in  the  2010  Interim  Joint  Report  on  pensions  of  the 
Economic Policy Committee and Social Protection Committee, noted by the 7-8 June 2010 EPSCO and ECOFIN 
Councils, p.50, available at: http://europa.eu/epc/publications/index_en.htm 

*The unemployment break is assumed to take place in the years just prior to old age retirement which is assumed 
here to be the statutory retirement age for men 

Note: the values for MT and PT are equal to 0 and should not be interpreted as missing. The values are validated 
by  Member  States.  Conditions  of  crediting  unemployment  breaks  might  have  a  positive  impact  on  the 
replacement rate of a hypothetical worker in the base-case scenario, for whom values in the Figure are provided. 

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Figure 10: Increasing significance of funded pensions 

This figure shows that for most of those countries represented, funded pensions will provide 
for  a  larger  share  of  retirement  income  in  2046  than  in  2006  as  a  result  of  pension  reforms 
(measured by gross theoretical replacement rates). 

Share of occupational and statutory funded pensions in total gross theoretical 
replacement rates in 2006 and 2046 in selected Member States 

2046

2006

70%

60%

50%

40%

30%

20%

10%

0%

IT RO BG BE DE HU SE EE

LT UK

PL SK

IE

LV DK NL

Source:  INDICATORS'  SUBGROUP  OF  THE  SOCIAL  PROTECTION  COMMITTEE  (ISG)  2009  report  on 
Theoretical Replacement Rates, "UPDATES OF CURRENT AND PROSPECTIVE THEORETICAL PENSION 
REPLACEMENT RATES 2006-2046", Annex – country fiches, available at: 
http://ec.europa.eu/social/main.jsp?catId=752&langId=en&moreDocuments=yes. 

Note: Data available only for a number of Member States 

EN 

35 

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