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# 52012SC0007

**COMMISSION STAFF WORKING DOCUMENT ANNEXES TO THE IMPACT ASSESSEMENT /\* SWD/2012/0007 \*/**

  

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

WHITE PAPER

An Agenda for Adequate, Safe and
Sustainable Pensions

Disclaimer
This Impact Assessment report commits only the Commission’s services involved
in its preparation and the text is prepared as a basis for comment and does not
prejudge the final form of any decision to be taken by the Commission.

1.      Procedural
issues and consultations.. 4

2.      Problem
Definition.. 7

2.1.       Challenges
that Member States face in the delivery of adequate, sustainable and safe
pensions  8

2.2.       Increasing
interdependence: Pensions as a matter of common concern for the EU.. 13

2.3.       The  
EU Framework to support  Member States in their efforts to deliver adequate,
safe and sustainable pensions. 14

2.4.       Subsidiarity.. 14

2.5.       Weaknesses
of the current EU approach to pensions. 15

3.      Objectives.. 16

4.      Policy
options.. 17

4.1.       Option
I: Status Quo.. 18

4.2.       Option
II: Holistic (comprehensive & integrated) approach to pension policy at the
EU level  19

4.2.1.     Sub-Option IIa:
Integrated, comprehensive approach. 19

4.2.2.     Sub-Option IIb:
Integrated, comprehensive approach with stronger instruments. 23

4.2.3.     Differences between
sub-options IIa and IIb: 26

4.3.       Option
III: Harmonization of national pension policies (not retained for in-depth
analysis) 27

5.      Assessment
of impacts.. 28

5.1.       Option
I: Status Quo.. 28

5.1.1.     Option I: Economic
Impacts. 29

5.1.2.     Option  I: Social
Impacts. 29

5.2.       Option
II: Holistic (integrated and comprehensive) approach to pension policy.. 30

5.2.1.     Sub-option IIa
Integrated, comprehensive approach. 30

5.2.2.     Sub-option IIa: Economic
impacts. 31

5.2.3.     Sub-option
IIa: Social impacts. 32

5.3.       Sub-option IIb:
Integrated, comprehensive approach with stronger instruments. 33

5.3.1.     Sub-option IIb: Economic
impacts. 34

5.3.2.     Sub-option IIb: Social
impacts. 34

6.      Comparison
of options.. 37

6.1.       Effectiveness. 37

6.1.1.     Option I (Status Quo) 37

6.1.2.     Option II (holistic
approach) 37

6.2.       Efficiency.. 39

6.2.1.     Option I (Status Quo) 39

6.2.2.     Option II (holistic
approach) 39

6.3.       Coherence. 40

6.3.1.     Option I (Status Quo) 40

6.3.2.     Option II (holistic
approach) 40

6.4.       The
choice of the preferred option.. 41

7.      Monitoring
and evaluation.. 43

1.
Procedural issues and consultations

Against the background of accelerating demographic ageing, the
economic crisis and a decade which had seen major changes in pension systems in
a number of Member States, there was a clear need to open a new debate on how
the EU level pensions framework could best support Member States in ensuring that
their citizens enjoy adequate, sustainable and safe pension systems both now
and in the future.  Hence in his political guidelines for this Commission, of
September 2009 President Barroso said “We need to ensure that pensions do the
job intended of providing maximum support to current and future pensioners,
including for vulnerable groups.”  Subsequently Commissioner Andor was tasked
by the President to “…work with other Commissioners to develop proposals to
secure Europe’s pension systems."

Accordingly, the
European Commission examined the full scope of the current EU pension's
framework in view of possible improvement to better support Member States. 
This led to a public consultation via a Green Paper[1] on Pensions published on 7 July
2010.  The Green Paper took an integrated approach across economic, social and
financial market policies and recognised the links and synergies between
pensions and the overall Europe 2020 strategy for smart, sustainable and
inclusive growth.  An accompanying document[2]
published alongside the Green Paper covered the current framework of EU
legislation, coverage and related initiatives in more detail including the
results of a mapping exercise undertaken with national pension regulators via
the Committee of European Insurance and Occupational Pensions Supervisors
(CEIOPS)[3].

The Green Paper
was underpinned by the joint analysis of the Economic Policy Committee (EPC)
and Social Protection Committee (SPC)[4]
which took stock of progress in national pension reforms over the last decade
and re-assessed these advances in the light of crisis setbacks and the
accentuated challenges of delivering pensions in a context of lower growth,
accelerating ageing and severely deteriorated fiscal positions. The final
EPC/SPC joint report[5]
formed the basis for the Council Conclusions of 17 November 2010[6] which stated[7]:

"The Council RECOGNISES that many
recent pension reforms have made benefits more contingent on the ability of
labour markets to provide opportunities for longer and less interrupted
contributory careers, and on positive returns from financial markets. In the
light of significant increases in longevity measures to extend working lives
and increase the effective retirement age will continue to be the key
components of… reforms."

"… the need to consider pension
policies in a comprehensive manner using existing EU level policy coordination
frameworks and taking into account the many interlinkages between labour
markets, social protection systems, financial market policies, and other
relevant policies."

"…the urgency for further
implementation of structural reforms, consistent with the Europe 2020 strategy
for jobs and smart, sustainable and inclusive growth, in order to support
fiscal consolidation, improve growth prospects, strengthen work incentives,
ensure flexible labour markets and extend working lives."

To fortify the
holistic approach, the EU level pensions work is led by a Commissioners Group
on pensions set up by President Barroso and chaired by Commissioner Andor.  The
Group's mandate is to develop, outline and communicate an EU approach for
adequate, sustainable and safe European pension systems building on the
political guidelines of the President. The Group met for the first time in June
2010 to finalise the Green Paper. As a follow up to the Green Paper, a White
Paper on pensions was announced in the Commission work programme for 2011[8] in order to take forward the
next stage of the EU level pensions work, guided by the Green Paper
consultation. The work programme stated that "the Commission will
support Member States' action to deliver adequate and sustainable pensions for
citizens through concrete measures to be identified following the consultation
launched in 2010". The annex to the work programme stressed that "if
the EU is to sufficiently support and complement Member State efforts to
deliver adequate and sustainable pensions for citizens, the incomplete and
fragmented European framework of policy coordination and Regulation needs to be
reconsidered holistically".

The formal
consultation initiated by the Green Paper ran for over 4 months and sought
views on 14 specific questions designed to determine what action the EU level
could take to best support Member States and their pension systems.  During the
consultation period, a number of presentations and events were held to maximise
engagement and debate.   The Green Paper consultation itself was very
successful, receiving 1674 formal responses including around 350 from Member State governments, national parliaments, business and trade union organisations,
civil society and representatives of the pension industry.

The European
Parliament, the European Economic and Social Committee (EESC) and the Committee
of the Regions (CoR) also considered the issues raised in the Green Paper and
adopted formal resolutions or opinions on the paper.

In light of the
scope of the demographic challenge and the ground which a coherent set of 
responses to this challenge would have to cover, the Commission announced on 27
October 2010 at the presentation of the Commission Work Programme 2011 that it
would publish a White Paper on Pensions. The Commissioners Group on pensions
met again in February 2011 to discuss the responses to the consultation and an
official summary of the responses[9],
which also took full account of the views of the Parliament and the EESC and
CoR, was published on 7th March 2011 to coincide with a report to
EPSCO Council[10]
by Commissioner Andor. The summary noted that the holistic approach of the
Green Paper was very much welcomed; however there was not a strong support for
a greatly enhanced role of the EU in pension policies. Stakeholders had the
expectation, though, that the Commission would ensure greater consistency and
efficiency in its policy initiatives on pensions in its follow-up work. More
details on the results of the consultation process are presented in Annex 2 to
this document and the full official consultation summary is reproduced at Annex
3.

The debate launched
by the Green Paper was also reinforced by other developments, notably the need
for pension reforms in the context of sustainable public finances. The
Commission delivered strong policy messages in its first Annual Growth Survey[11] (AGS), calling on Member
States to reform pension systems to support fiscal consolidation efforts by:

Increasing the
retirement age and linking it with life expectancy.
Reducing early
retirement schemes and use targeted incentives to employ older workers and
promote lifelong learning.
Supporting the
development of supplementary private savings to enhance retirement
incomes.
Avoid adopting
measures related to their pension systems which undermine the long term
sustainability and adequacy of their public finances.

The Annual
Growth Survey announced that the Commission will review the Directive[12] on occupational pension funds
and present new measures as a follow up to the Green Paper on pensions.

The Euro Plus
Pact[13]
took up parts of the Green Paper debate and the AGS recommendations relating to
a better balance between time in work and time in retirement. The Pact
emphasised the need to raise effective retirement ages and noted the
importance of adequacy. For pensions, reforms to ensure the sustainability and
adequacy of pension systems could include:

aligning the
pension system to the national demographic situation, for example by
aligning the effective retirement age with life expectancy or by
increasing participation rates;
limiting early
retirement schemes and using targeted incentives to employ older workers
(notably in the age tranche above 55).

The European
Semester process culminated in the Country-Specific Recommendations (CSRs)[14] which are based on the
Commission services’ analysis[15]
of the National Reform Programmes and the specific budget, growth and
employment situation of each Member State. Recommendations on pensions were
addressed to a majority of Member States and focused on (number of relevant
Member States in brackets)[16]:

increasing the
pensionable age and linking the to longevity growth (9)
increasing the
effective retirement age and older workers employment (12)
reducing early
retirement (5)
developing
supplementary private savings (2)
balancing
sustainability and adequacy concerns (3)
addressing
adequacy problems (1)[17]

These
developments have raised the profile of pension reforms still further and
highlighted their importance within the context of the Europe 2020 strategy,
albeit so far and because of the financial crisis primarily from a public
finance perspective. A new comprehensive initiative on pensions will thus need
to be designed to support the scope of the Europe 2020 strategy, including,
given the EU’s poverty reduction and employment targets,  greater attention to
the issue of adequacy and notably the capacity of pension systems to reduce
poverty in old age.  In practical terms this means addressing the employment
rate of older workers, i.e. raising the effective retirement age.

Based on the
outcome of the Green Paper consultation and the related developments,
discussions on the possible substance of a White Paper on pensions as well as
its impact have taken place in an Impact Assessment Steering Group[18].  The group included a wide
range of Commission services (EMPL, MARKT, ECFIN, JUST, TAXUD, SANCO, RTD,
ENTR, SG, Legal Service)[19]
with an interest in the issues so that the full range of pension related
interests could be considered in a holistic way. The Steering Group met on 14th
March, 4th May, 21st June and 27th July 2011. 
These discussions together with internal work in the DG's and various bilateral
contacts have helped to develop and assess a range of possible measures to form
a credible holistic package to respond to the needs of EU citizens.

As part of this
policy development work and to continue the holistic approach at the highest
level, the Commissioners Group on pensions met again in June 2011 to consider
the emerging policy responses developed with the input of the IASG and to give
their views and a high level steer on how this work should develop for the
White Paper.  The Group is expected to meet again in the autumn to continue to
shape this work in its final stages.

2.
Problem Definition

Pensions presently
determine the living standards of a significant and growing proportion of European
citizens namely about 24%[20].
They are the main source of income of people in their sixties and above and
ensure, in many countries, that older people are not exposed to a higher risk
of poverty than people of working age. As most pension benefits are delivered
by public schemes, pensions also represent a major share of public spending (around
10% of GDP), and form a core part of the automatic economic stabilisers of
particular relevance in times of recession. Moreover, the design of pension
systems and the incentives they provide to retire at an earlier or later age
has significant impacts on employment and hence economic growth. Where private
pensions are highly developed, pension funds constitute key parts of national
savings and as institutional investors are major actors in financial markets;
this, too, can play an important part in the functioning of the economy and
economic growth.

Various
challenges are looming for pension systems related to the fact that the working
population in the EU is projected to age significantly in the coming decades
while the age-dependency ratio will increase sharply. A broad consensus exists
that in order to address this challenge older people should be encouraged to
remain active by working longer and retiring later. As Annex 4, 5 and Annex 7
illustrate, Member States are introducing pension reforms (see Table 1 in the
Annex 5), but the impact of enacted reforms on longer working may fall behind
what is needed to face the demographic change (Figures 5 and 6). This requires
adequate policy responses as market forces on their own will not always
generate a desirable outcome in an efficient and equitable way.

Thus pension policies
are major determinants of success in key policy areas which will determine Europe’s future economic performance and prosperity. Clearly, successful pension policies
in the Member States matter for the EU as a whole. Therefore, an effective
framework at EU level is necessary to support reforms in Member States, and to
monitor and constantly review the performance of national pension systems. Member
States remain nevertheless responsible for the design and organization of their
pension systems even though some specific aspects, particularly concerning
private pensions and pension entitlements of people who move across border, are
subject to EU legislation. Moreover for the Eurozone countries there is an
increasingly tight surveillance of the public finance implications of pension
systems.

This section
briefly recalls the major challenges that Member States have to tackle[21] and discusses to what extent
pensions have become – or may yet become – a matter of common concern for the
EU as a whole. It argues that the problem the EU faces is that there could be a
growing mismatch between, on the one hand, the fact that successes and failures
of national pension policies  have increasingly strong spill over effect on
other Member States, and, on the other hand, the absence of a consistent and
comprehensive EU-level policy framework that could promote reform efforts in
the Member States in a way that is conducive to the EU’s fundamental policy
objectives as defined in the Treaties and, in more operational terms, in the
Europe 2020 strategy.

The specific
economic and social impacts of the baseline scenario will be discussed in
chapter 5 Assessment of Impacts alongside the economic and social
impacts of other policy options.

2.1. Challenges that Member States face in the delivery of adequate,
sustainable and safe pensions

Present and
future challenges to the pension systems of Member States have been the topic of
more than a decade of analysis and diagnosis by EU institutions and bodies. One
main strand of this work focused on demographic ageing and the risk that rising
pension expenditure could pose to the sustainability of public finances as
addressed in the context of the Stability and Growth Pact. Another strand
focused on the extent to which pension reforms ensured adequate pension
provision, in the sense of poverty prevention and income replacement, and
adapted pension systems to changing labour markets and gender relations. This
latter work has taken place in particular in the context of the Open Method of
Coordination on social protection and social inclusion (the Social OMC)
starting with the definition of common objectives at the Laeken summit in 2001.
The main challenges have been highlighted in the 2009 Ageing Report of the
European Commission - Economic Policy Committee[22] and the 2010 Joint EPC – SPC (Social
Protection Committee) Report on Pensions[23]
where the two separate strands of work were brought together and finally the
Green Paper which by fusing these with the work on the regulation of
occupational pensions with Committee of European Insurance and Occupational
Pensions Supervisors (CEIOPS) and European Financial Reporting Advisory Group (EFRAG)[24] took an integrated approach
across economic, social and financial market policies.

The fundamental
challenge for which Member States have to prepare is population ageing. According
to projections[25],
the EU-27 will face a substantial increase in the demographic dependency ratio
(population 65+ to population 15-64) from 26% in 2010 to 50% in 2050 and 53% in
2060. The
ageing challenge is even better illustrated with its potential impact on the
economic dependency ratios, comparing the number of beneficiaries and
contributors. This ratio depends on two demographic effects: increasing
life expectancy and changing cohort sizes (due to lower birth rates); and also on
the employment situation, i.e. the proportion of the working-age population
which is actually in employment.

Figure 1 Projections of the demographic and economic
dependency ratios in 2010 and 2050, EU-27

Source: AK-Wien,
Dependency Ratio Calculator

The ratio between
beneficiaries and contributors can be changed by legislation which defines who
is obliged to contribute and who is entitled to benefits. Already, pension
systems have to cope with the fact that large cohorts (the ‘baby-boomers’) are
now reaching the retirement age and are being replaced by smaller cohorts as a
result of lower birth rates since the late 1960s. In the long run, rising life
expectancy will continue to strongly affect pension systems. At unchanged
retirement ages, the expected increase in life expectancy of seven to nine
years over the next half century would result in further – and major -
imbalances between time spent working and time spent in retirement, making it
much more costly to provide adequate incomes in retirement.

Already now the average
exit age from the labour market in the majority of Member States is lower than
the legally defined pensionable age. In consequence, in a number of countries
people spend 25 or more years receiving pensions or other benefits.[26]
The impact of demographic ageing on pension systems can be mitigated if Member
States tap the potential of labour markets and increase the employment rates of
the working age population. The example of Austria is here a good illustration:
improving the future employment rate to the level of currently best-performing
Member States would to a large extent help to mitigate the adverse effects of
ageing (see Annex 5 for further details).

Under the
legislation currently in place in the Member States, public pension
expenditure, which currently stands at around 10% of GDP, could rise to 12.5%
by 2060[27].
This EU27 average masks, however, important differences across countries; for
around one third of the Member States the projected increase is five percentage
points of GDP or higher. This represents a major challenge to the
sustainability of public finances which compounds the impact of the financial
and economic crisis on public finances (see Annex 5 on assessment of
sustainability of public finances in the EU Member States). Indeed, the crisis
has been a major setback to one of the possible ways for preparing for the
projected costs of ageing societies, namely to reduce public debt at a fast
pace.

Against this
backdrop, the generosity of public pensions is in most cases expected to
decline. Whilst this helps to tackle sustainability, it puts the adequacy of
pensions at risk unless flanking policies to protect the most vulnerable groups
are implemented. Some Member States are already currently facing an adequacy
challenge, as measured notably by the proportion of older people who are at
risk of poverty. Older women are particularly vulnerable due to their less
favourable employment and earnings histories (in 2007 the at-risk-of-poverty
rate in the EU-27 was at 16% for men and 22% for women aged 65+)[28]. While increasing labour force
participation of women could bring some improvements, other trends, such as the
rising number of single person households and the reduction of survivors’
benefits (widow’s pensions) could worsen the situation[29]. Many of the reforms
implemented over the past two decades have tended to diminish the future
generosity of public pensions[30],
although this is supposed to be at least partially compensated for, in a number
of countries, by a higher contribution to old-age incomes from private pension
savings. The development of private pension savings poses new challenges to the
Member States who have to ensure the safety of these savings and create a
framework that allows such schemes to provide reliable pension benefits at low
costs to scheme members[31].

A second critical
pensions-related challenge that Member State face is the employment rate of
older workers. As figure 2 shows for the EU as a
whole the employment rate of older workers (55-64) increased from 36,9% (2000)
to 46,3% (2010). High employment rates provide a major opportunity for making
pensions both adequate and sustainable. Many Member States have considerable
room for improvement in the age group 55-64 and, in future years beyond the age
of 65, as countries raise the pensionable age and offer more possibilities for
postponing pension take up (often allowing people to earn higher pensions). Of
interest is the difference between the two genders which despite the upward
trend in the employment rate of older female workers remains significant with
the EU employment rate of older female workers equal to 38,6% compared to 54,6%
for males (2010).[32]

Member States must
find ways of translating higher pensionable ages and tighter conditions for
early retirement into higher labour force participation of older workers and
hence higher effective retirement ages. Failing this, other welfare programmes
(unemployment, social assistance) may become more expensive, or people below
the pensionable age who are unable to stay in work will be more at risk of
poverty.

The thrust of
the 2011 Annual Growth Survey’s recommendations on pensions, namely to postpone
retirement and to enhance the role of supplementary savings, addresses the two
main tools through which Member States can ensure the long-term sustainability
of adequate pension provision. Raising the pensionable age has a powerful
impact on financial sustainability, as it reduces the number of beneficiaries
and increases the number of contributors. This depends, however, on whether an
increase in the pensionable age will actually translate into a similar increase
in the effective exit age (the average age at which people leave the labour
market). However, despite the fact the Barcelona Council already in 2002 concluded
that "a progressive increase of about five years in the effective average
exit age at which people stop working in the EU should be sought by 2010"
on balance the increase in the average exit year has been modest[33] rising in the EU27 from 59,9
years (2001) to 61,4 years (2009).   In this regard, the workability and
employability are crucial, and key determinants are the health status of older
workers, their skills and the absence of discrimination (including mandatory
retirement rules) and employment disincentives (in tax and benefit systems).
Calculations done by the EPC have shown that the growth in public expenditure
on pensions may be reduced by about a third for every year people on average
work longer without incurring extra entitlements.

There is strong
indication that (pre)retirement decisions are the outcome of a complex process,
conditioned by individual and household characteristics, as well as macroeconomic
and institutional variables. As an indication about 20% of people aged 50-64
are not in work for health reasons[34].
As much as a third of older workers leaves the labour market prematurely due to
unemployment or early retirement options aimed at alleviating unemployment
among older workers. Postponing (pre)retirement requires a comprehensive
"active ageing" approach covering policies in the fields of the
labour market, lifelong learning, the working environment, health and safety at
work, and social protection reform[35].

Working longer,
if it can be supported through the right policy mix, is a powerful tool for
reducing public spending on pensions, but it also represents an opportunity for
individuals to enhance the adequacy of their pension entitlements in a context
of declining generosity of public pension schemes. Model calculation of pension
benefits relative to pre-retirement earnings show that public pensions will, in
many countries, be significantly lower for cohorts entering the labour market
today than for those who retire today. In some Member States postponing
retirement by two years can compensate the overall projected reduction in
public pension generosity.[36]

Another way of
compensating for less generous public pensions consists in developing
private retirement savings. Except in few countries (notably NL, DK, SE, IE
and UK) they represent only a minor share of current retirement income, but a
number of Member States expects this share to grow significantly, thanks to
mandatory private schemes (as is the case in many Central and Eastern European
Member States), generous incentives and collective bargaining.

Thus, when it
comes to securing adequate, safe and sustainable pensions, the key challenges
for Member States consist in achieving higher effective retirement ages and a
stronger contribution of private supplementary savings to retirement incomes.

However, in many
countries the crisis demonstrated that the ability of pre-funded pension
schemes to mitigate risks and absorb shocks is far from optimal. If the
envisaged contribution to pension adequacy is to be delivered it will be
important to enhance the safety and cost effectiveness of private pensions[37].

Moreover, the
recession and the subsequent deterioration of public budgets revealed some fundamental
weaknesses in the way several Member States had sought to build mandatory
private pension schemes[38].
Most of these Member States have therefore had to scale back their ambitions
and will now have to reconstruct private pensions and adjust the timeframe for
and scale of their contribution to future pension adequacy.

In their need to
achieve a better balance between time in work and retirement Member States must
reach for powerful combinations of pension reform and labour market measures to
prolong working lives. In order to secure future adequacy of pension provision
most Member States will have to enhance the contribution from complementary
retirement savings through the promotion of private schemes and encompassing
measures to increase their safety and raise their cost-effectiveness. This will
increase the complexity of pension delivery and raise the need to find ways to
ensure and coordinate the contributions from employment, financial markets,
public finance and social protection policies to adequate pensions that are
safe and sustainable. Beyond their borders there is a common problem of
mobility, portability and tracking of supplementary pension entitlements.
Member States also have a collective interest in pooling the cost of knowledge
gathering and facilitating the transfer of good practise in relation to pension
and retirement policies

2.2. Increasing interdependence: Pensions as a matter of common concern
for the EU

It has long been
recognised that the financial sustainability of public pension provision is a
common concern. At its meeting in Stockholm in 2001, the European Council
defined a three-pronged strategy for dealing with the long-term sustainability
of public finances consisting of:

-
reducing debt at a fast pace;

-
raising employment rates and productivity;

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

The validity of
this strategy was reiterated recently in Council Conclusions on Adequate,
safe and sustainable pensions for all European citizens adopted on 6
December 2010.

The current debt
crisis that a number of Member States are facing following the recession is a
clear illustration of how unsustainable public finances in one Member State can
affect other Member States, particularly those belonging to the Eurozone where
economic shocks are not only propagated through trade and investment links, but
also through the stability of the common currency. This explains the prominence
of pensions in the Annual Growth Survey, the EuroPlus Pact and the
Country-Specific Recommendations.

Successful
pension reforms in the Member States are also key determinants of the EU’s
ability to achieve two of the five targets of the Europe 2020 strategy, namely
the employment rate target (75% of the 20-64 year-olds to be employed), which
requires in most Member States a much higher participation of older workers,
and the poverty reduction target (at least 20 million fewer people in or at
risk of poverty and social exclusion). Pension systems capable of delivering
adequate benefits can make a huge difference to the numbers of people at risk
of poverty: the proportion of older people at risk of poverty ranges from below
10% in Hungary and the Czech Republic to around 50% in Cyprus and Latvia the EU
average of 19% being somewhat above the level of people at risk of poverty for
the active population (15%).

In future years,
the fact that Europeans move more freely across borders can also result in
greater interdependence. The failure of one country to deliver adequate
pensions may impact other countries if people without adequate pensions choose
to move to countries with better benefits or choose to remain in those
countries, rather than returning to a country of origin which is unable to
provide adequate social protection. [39]
In addition, increased cross-border mobility, in conjunction with a growing
importance of supplementary pensions not covered by regulation 883/2004 (see
below), will make it more important to tackle the issue of protecting such
pension rights when people move.

There is
therefore also increasing social and employment aspects to the common concerns
in pensions which give grounds for moving towards more comprehensive and
effective EU support to the efforts of Member States and other key stakeholders
to achieve adequate and sustainable pension systems.

2.3. The   EU Framework to support  Member States in their efforts to
deliver adequate, safe and sustainable pensions

With national
pension policies becoming increasingly a matter of common concern, it is
necessary to examine whether the current EU framework for pensions is
appropriate and used in the best possible manner to bring about results that
will further the common EU interest.

Member States
are responsible for the design and organization of pension systems. As a
result, pension systems differ widely across the EU. Nevertheless, the EU has
certain specific competences which include:

·
Ensuring that the free movement of persons is
not hampered by a loss of pension entitlements as people move across borders
(Regulation No 883/2004 on
the coordination of social security systems, Directive 98/49/EC
on safeguarding the supplementary pension rights of persons moving within the
Community);

·
Ensuring that non-statutory pension schemes can
benefit from the freedoms of the Internal Market, including the freedom to
provide services and the free movement of capital (Directive 2003/41/EC on
Institutions for Occupational Retirement Provision, IORP) whilst ensuring the
adequate investor protection;

·
Setting minimum standards in the area of labour
law (including the protection of pension rights of workers in the event of
insolvency of their employer – Article 8 of Directive 2008/94/EC, the
employer's insolvency Directive) and health and safety at work;

·
Monitoring the sustainability of public finances
to safeguard the stability of the common currency (Stability and Growth Pact).

·
Enforcing fundamental rights, including the
prohibition of discrimination on the grounds of gender and age (Directive
79/7/EEC, Directive 2000/78/EC Regulations No 883/2004 and No 987/2009).

In addition to
these core competences, the Treaty on the Functioning of the European Union
requires the Union to take into account employment and social protection in all
its policies (article 9) and defines employment, which is a key determinant of
the sustainability of adequate pension provision, as a matter of common concern
(article 146). These objectives are pursued through ‘soft’ governance processes
within the Social OMC, in accordance with article 5 of the Treaty, which allows
the Union to ensure the coordination of Member States’ social policies, and
with the Employment Title (articles 145-150), which is the basis for a
coordinated employment strategy. Articles 151 and 153 are key for social
protection while surveillance of public budgets are covered by Article 126 and
provisions to ensure the functioning of private pension institutions in the
Internal Market are adopted in accordance with Articles 26 and following
(further details in annex 10).

2.4. Subsidiarity

The Treaty, in
its Article 153, clearly recognises the right of Member States to define the
fundamental principles of their social security systems. Moreover, Article 5 of the Treaty on European Union stipulates that the
use of Union competences is governed by the principles of subsidiarity and
proportionality. (…) Under the principle of subsidiarity, in areas which do not
fall within its exclusive competence, the Union shall act only if and in so far
as the objectives of the proposed action cannot be sufficiently achieved by the
Member States, either at central level or at regional and local level, but can
rather, by reason of the scale or effects of the proposed action, be better
achieved at Union level.

Given that
pensions are a competence of the Member States, it follows that the European
Union has only limited possibilities of influencing the major policy
orientations that will determine the success or failure of national pension
policies. However, this does not mean that the EU has no role to play. Sections
2.2 shows that there is a growing common concern, for instance on matters of
the sustainability of public finances and social and employment aspects.
Section 2.3 outlines the competences the EU has in various areas. Thus, although
there is a growing need for a comprehensive EU strategy on pensions, this same
strategy has to recognise that, apart from some specific issues for which EU
competences exist, the effectiveness of pension policy at EU level will depend
on the acceptance of EU policy orientations by national policy makers.

2.5. Weaknesses of the current EU approach to pensions

Beyond the
common objectives for pensions agreed in Laeken in 2001[40], there has been no attempt to
build a comprehensive policy vision and strategy for the future of pensions in
the EU. Instead, a patchwork of legislation and policy coordination processes
exists for which there is no overall mechanism to ensure policy coherence.

For example, a somewhat disjointed approach to the pension
challenges faced by Member States has become apparent in the first European
semester under the Europe 2020 strategy. In line with the concern with public finance
impacts, the Country Specific Recommendations drafted by the European
Commission and adopted by the European Council focused mainly on the financial
sustainability of pension provision. The links between working longer and
pension sustainability and challenge of increasing the currently low employment
rate of older workers in particular, has been rightly raised in the case of
several Member States. However, the commonly agreed objective to provide
adequate pensions received limited attention, including in those cases where
indicators show clear risks for (future) adequacy[41]. Without tackling poverty
among pensioners it will be difficult to achieve the Europe 2020 objective
to reduce poverty and exclusion. In addition the need for complementary private
retirement savings received sparse attention and key safety issues were only
skirted.

Lack of mutual
consideration of adequacy and sustainability issues by the Social Protection
Committee (SPC) and the Economic Policy Committee (EPC) as well as limited
attention for pensions issues in the Employment Committee (EMCO) are other
examples which illustrates the consequences of having a disjointed approach at
the EU level. As raised by Member States themselves, the work of those
committees is not well coordinated which may lead to duplication of work and
inconsistency in results. The concepts and methods used by the SPC (ISG[42]) and EPC (AWG[43])are so different that their
findings are difficult to combine as witnessed by the November 2010 Joint
EPC-SPC Report[44].

Moreover, the
basic purpose of pension systems, namely to deliver adequate retirement
incomes, is the main focus of only one EU policy initiative, the Social OMC.
Other EU policy initiatives are primarily concerned with non-pension
objectives, such as free movement, freedom to provide (financial) services,
sound public finances or employment.

To conclude the
Treaty requires the EU to take into account requirements linked to the
guarantee of adequate social protection in its policies and activities. It can
be argued that the various policy initiatives of the EU that affect pensions in
the Member States in one way or another are in line with this Treaty
requirement. However, as the EU steps up its pressure on Member States to
reform their pension systems, notably by issuing country-specific
recommendations, it does so mainly from the perspective of sustainable public
finances that are needed, especially for the good functioning of the euro area.

Thus, the
problem can be defined as a mismatch between the increasing interdependence of
Member States with regard to their pension systems, on the one hand, and the
weakness of the somewhat ad hoc and fragmented EU policy instruments at the
other which tackle pensions-related challenges in a piecemeal way. As the EU is
increasingly concerned about the risks of insufficient pension policies in the
Member States, it has to develop more effective ways of influencing policy at
the national level, taking into account the limited powers that the Treaty
confers on the EU in this area. A shared vision, between the EU and national
levels, on the future of pensions and an EU framework for pensions that is
comprehensive and integrated are likely to be key for better coordinated
measures and their reflection in national policies.

3.
Objectives

As argued in the
problem definition, whilst drawing on the Green Paper on Pensions and the 2011
country specific recommendations, Member States face the challenge of ensuring
the long-term sustainability of adequate pension provision and to tackle it,
they have to raise effective retirement ages and enhance the contribution of complementary
private retirement provision. If they fail to achieve this, significant
negative spill-overs can be expected to affect other Member States, and general policy goals, including the Europe2020 targets of reducing poverty and
increasing employment are less likely to be achieved. The Member States have an
common interest in developing good EU supports for their efforts to secure
sufficient pension delivery.

For EU support
and guidance to be effective, a consensus should be forged with the Member States and key stakeholders on a long-term strategy for adequate, safe and sustainable
pensions in the EU. Further a set of EU-level tools and measures that can be
deployed to complement and support Member State's pension policies must be
identified.  This way one can achieve the highest possible level of acceptance of
these EU policy initiatives and compliance with policy recommendations, notably
in the context of the Europe2020 strategy.

Thus, the EU's general
objective is to promote more successful pension policies in the Member States
(which have the primary responsibility for pensions). More specifically, policy
guidance needs to be developed with regard to the two most powerful policy avenues
for tackling the challenge Member States face, namely (1) raising the effective
retirement age (or achieving a better balance between time spent working and
time spent in retirement) and (2) enhancing the contribution to adequacy of
private retirement savings. In addition, the EU must (3) strengthen its
monitoring and coordination tools, notably by developing the monitoring of
pensions adequacy alongside the surveillance of financial sustainability of
pension systems. These three constitute the specific objectives which moreover
each can be said to relate to the policy areas emerging from the problem
definition that must be brought together in holistic framework at EU level.

These general
and specific objectives are presented in the table below. Under the specific
objectives one can also find the policy areas they relate to.

Table 1: Objectives and policy area

General Objective || Specific objectives  and policy areas

Provide more effective support to Member States in their endeavours to make adequate pensions provision safe and sustainable in the context of ageing societies and public finance constraints. || 1 – Support Member States in achieving a better balance between time spent in work and in retirement Policy areas: Ø Pension system reform Ø People’s ability to stay longer on the labour market 2 – Support Member States in enhancing the contribution to adequacy from complementary[45] private retirement savings Policy areas: Ø Coverage and cost-effectiveness of complementary private pensions Ø Safety of complementary private pension provision Ø Mobility of supplementary[46] pensions  3 –  Enhance the EU's monitoring and coordination tools in the area of pensions Policy areas: Ø Coordinated monitoring of the adequacy, sustainability and safety of pensions Ø Coherent policy making at EU level

4.
Policy options

The problem
definition highlighted both the wide spectrum of issues that Member States face
in the area of pensions and the complexity of these issues, including the
interlinkages between different policy areas.  In addition, it was demonstrated
that the current EU approach does not adequately respond to these circumstances
which is detrimental to the EU potential of providing effective support to
Member States.

Chapter 2 shows
that stakeholders in their responses to the Green Paper called for a holistic
EU approach on pensions. Holistic means treating pensions in a comprehensive
and integrated cross-policy approach taking into account synergies and
spill-over effects between a variety of policy areas. The overwhelmingly
positive response to the innovative approach of the Green Paper strengthens the
arguments for developing a White Paper that corresponds to this approach.

To do so, the EU
needs to identify and address  those policy areas impacting pensions where it
has competencies and based on a thorough and joint assessment propose measures
to support Member States to achieve adequate, sustainable and safe pensions for
all their citizens. To be comprehensive policy options would need to cover all
types of pensions (i.e. public and private and pay-as-you-go (PAYG) as well as
pre-funded 1st, 2nd and 3rd pillar schemes).
To be integrated they should bring together all policy areas impacting on the
various scheme designs and take in the entire retirement problematique.
Moreover, they would have to combine all three types of EU instruments:
legislation, financial incentives and policy coordination. Finally, they should
differ from the status quo in their focus, scale or scope and their integration
should make their impact larger than their mere sum by building on the possible
synergies between them.

Three policy
options for EU action are presented.  The first option is to maintain the
current approach, which implies that the EU framework has the potential to
incrementally change, but this would not necessarily lead to a comprehensive
and integrated approach to pension policy.

The second policy
option - which is considered in two variants - sees the forthcoming White Paper
as a juncture in EU pension policy building on the responses to the Green Paper
as well as experiences gained from the first European Semester. These options
represent a holistic (i.e. comprehensive and integrated) EU response to the
challenges that Member States face when devising and implementing their pension
systems.

The third policy
option would consist in gradual harmonisation of national pension policies.

4.1.Option I: Status Quo

Option I implies
that present policies are continued, without introducing major new measures.
Consequently pension adequacy will be discussed in the context of the Social
OMC whilst other pension related matters are discussed in separate fora
pertaining to labour markets, financial markets and public finances. Collaboration
between the EPC and the SPC would be strengthened but no real coordination of
the work would be ensured. Partly this lack of coordination and
comprehensiveness is compensated by the governance structure offered in the
Europe 2020 strategy, however, the focus thereof remains mainly on (short-term)
actions aimed at improving the stability of public finances, and growth and
employment.

Under this
option the EU legislative framework for occupational pension schemes is
developed further through the planned revision of the directive on Institutions
for Occupational Retirement Provision and possibly a modified proposal for the
portability directive. At the same time the wider context for private pensions
in the form of well regulated financial markets would be taken forward through
financial sector regulations presently being prepared and treated by the EU
institutions. One could point in this respect at the forthcoming Packaged Retail
Investment Products (PRIPs) initiative which aims at protecting investors and ensuring
that the retail investment market works efficiently.

Under this
option, there would be no integrated EU framework guided by a global EU vision
on the future adequacy and sustainability of pensions. Policy measures at EU
level that relate to or impact on pensions are unlikely to be developed and presented
as part of a holistic approach to secure adequate and safe pensions on a
sustainable basis. Many Member States would continue to implement and adjust
pension systems in response to economic and demographic challenges. But some
would not. Moreover the reform process would be able to draw on a comprehensive
strategy and a fully coherent framework at EU level for guidance and support.

4.2.Option II: Holistic (comprehensive & integrated) approach to
pension policy at the EU level

This policy
option seeks to develop a holistic approach to how the EU can support Member
States addressing their pension related challenges.  This option dwells upon
the challenges identified in chapters 3 and 4 and aims to establish the package
of measures for a comprehensive and integrated EU’s pension policy framework. 
Various possible measures are considered under the policy areas identified in
chapter 4 as corresponding to the specific objectives.  The tables below
present two alternative, comprehensive and integrated packages of these
measures to be discussed.

4.2.1. Sub-Option IIa: Integrated, comprehensive approach

Most measures in sub-option IIa are well within the borders of the
EU's competences and dwell heavily on the Green Paper consultation. This
sub-option consists of different kind of measures, combining for instance
legislative action with recommendations and instruments such as peer reviews. In
addition to this Green Paper consultation based approach and in response to the
European Parliament’s call for more attention to the gender dimension and to
back up the Country Specific Recommendations, sub-option IIa proposes a Commission
recommendation on equality for women and men in pension systems. This
instrument should address gender differences in pension adequacy focusing in
particular on differences in pension and retirement ages, which while adding
substantial extra pension costs also is a contributing factor to the gender gap
in pensions[47].
The proposal in sub-option IIa for a Commission recommendation on abolishing mandatory
retirement ages goes beyond the Green Paper but addresses its key issue of
balancing better time in work and in retirement and is supported by and in line
with the 2011 Country Specific Recommendations to raise pension ages and link
them to longevity growth. It would be highly contradictory to continue
mandatory retirement ages while strongly promoting that people work longer and
retire later to take up a pension. Mandatory retirement ages terminate the
employment of older workers and block their recruitment merely on age grounds
without consideration for whether they are capable of doing the job in
question. This also prevents workers from earning higher pension entitlements
through work after the pension age[48].

The measures
cover various aspects of the pension challenges identified in the problem
definition such as the need to reduce early retirement[49], promote pension reform and
assess the performance of pension and labour market retirement mechanisms
together. They also address the need for promoting healthy work places,
enabling and encouraging older workers to work till higher ages including by
working with the social partners to adapt work place and labour market
practices to longer working lives and opening better opportunities for older
workers also through more end-of-career-jobs.

Further measures
relate to the need to bolster the coverage and cost-effectiveness of
occupational schemes and optimise the effect of public subsidies for
complementary private retirement savings. Four types of measures address the
need to improve the safety of private pension schemes: occupational schemes
will be covered through a review of the IORP directive and initiatives aimed at
more effective enforcement of article 8 of the Insolvency directive; the
quality and consumer protection relating to third pillar pension products will
be addressed through voluntary codes possibly including a scheme of EU
certification; and codes of good practice will also be used to raise the
ability of occupational and mandatory private schemes to mitigate and absorb
risk and optimise their performance. Cross-border mobility and portability
problems of occupational pension rights will be covered through a modified
version of the portability directive and a possible extension of Regulation
(EC) No 883/2004 to occupational schemes for public officials. Promotion of
national pension tracking services as basis for an EU level facility is aimed
at enabling people to keep account of the many different pension entitlements
they may earn over a lifetime (including in its cross-border dimensions) and
the full value of their final pension package.

Commission efforts
to tackle tax obstacles to cross-border mobility and investments of pension
funds form part of the holistic approach. EU pension governance is be
substantially improved through a set of changes and initiatives to secure
better coordinated monitoring of the adequacy, sustainability and safety of
pensions and more coherent policy making at EU level. The background to,
substance of and mutual synergies of all measures in Suboption IIa are further
set out and discussed in Annex 9.

Measures in
sub-option IIa that are similar to the baseline scenario, but now brought under
the comprehensive pension's framework are shaded in grey.

Table 2 Sub-option IIa Integrated, comprehensive approach to pension policy at
the EU level

Specific Objective 1: Support Member States in achieving a better balance between time spent in work and in retirement

Pension system reform || Gender equality in pensions: A Commission recommendation on equality for women and men in pension systems addressing differences in retirement ages as well as the pensions adequacy gap between women and men will be presented by early 2013.

 Reducing early retirement: The Commission will present a recommendation on restricting access to early retirement schemes and other early exit pathways in 2012.

Promoting pension reforms: In the framework of Europe2020 and the European Semester, the Commission will from 2011 intensify its support for pension reforms that improve the adequacy and sustainability of pensions in Member States, in particular by reducing access to early retirement, encouraging later pension take up, connecting entitlements to contributions and linking benefit levels and/or pensionable ages to longevity growth.

Assessing reform needs in pension and retirement policies: Financial support from the PROGRESS programme will from 2012 be provided to Member States who want to review the need for reform of their pension and retirement policies particularly in the light of their country-specific recommendations. This support will allow Member States to access expertise from other countries or international organisations (e.g. OECD led country reviews) and can cover consideration of all aspects including for example how to design, scale and scope the build up of complementary private pensions so as to improve their sustainability and safety as well as their contribution to adequacy.

People’s ability to stay longer on the labour market || Ending mandatory retirement ages: The Commission will present a recommendation on abolishing mandatory retirement ages and addressing other barriers to working longer in early 2013.

Promoting healthy ageing at work: The Commission will in 2012 propose a new strategy for health and safety at work 2013-2020 in which special attention will be paid to healthy ageing at work and invite the European Agency for Safety and Health at Work to focus on issues that prevent older workers from remaining longer on the labour market.

Enabling older workers to stay longer on the labour market:  To open for greater support from the European Social Fund for work place and labour market measures that enable older workers to work longer Commission will facilitate the review of ESF Ops in the current programming period. For the next programming period 2013-2020, the Commission will encourage Member States to use their ESF programmes in line with reform needs identified in Europe2020.

Adapting work places and labour markets to longer working lives:  In the framework of European Social Dialogue the Commission will in 2012 call on the social partners - and request Eurofound to provide advice and expertise - to develop ways of adapting work place and labour market systems for training, remuneration, work organisation and working time, as well as career management notably for workers in strenuous jobs, so as to facilitate working longer and ensure the employability of older workers.

Opportunities for extended working lives and end-of-career jobs: The Commission will from 2012 intensify its support for policy coordination and joint work on enabling and encouraging older workers to stay longer on the labour market in the framework of Europe 2020, European Social Dialogue the European Employment Strategy and the Social OMC. This will include promoting joint work by the SPC/EMCO/EPC on obstacles to, and opportunities for, extended working lives and the development of end-of-career labour markets across the Member States.

Specific Objective 2: Support Member States in enhancing the contribution to adequacy from complementary private retirement savings

Coverage and cost-effectiveness of complementary private pensions || Promoting cost-effective supplementary pension schemes: From 2012 financial support  for Member States and social partners wishing to set up cost-effective supplementary pension schemes will be provided from the PROGRESS programme, so that they can benefit from the good practices and experiences of other countries, notably for collective schemes on an sectoral, intersectoral and/or territorial basis which would also allow to increase the affiliation of workers in SMEs to pension systems.

Optimising the effect of tax expenditure in support of private pension savings: The Commission will intensify work with Member States to optimise the efficiency and effectiveness of tax expenditure in support of private pension provision (via EPC and SPC and TAXUD) including by providing extra tax relief for pension contributions for those who otherwise would not build up an adequate pension.

Safety of complementary private pension provision || Increasing the safety of occupational pension schemes: The Commission will review the IORP directive and present proposals for its amendment with a particular view to the solvency requirements in 2012.

Improved protection in case of insolvency of pension sponsoring employer: The Commission will in 2012 take initiatives to ensure a more effective enforcement of article 8 of the Insolvency directive on the basis of a horizontal assessment of its state of implementation across the EU and in the light of the ECJ jurisprudence.

Raising the quality of third pillar pensions and improving consumer protection : The Commission will by 2013 present an initiative aimed at raising the quality of third-pillar retirement products and improving the protection and information of consumers (including payout phase products and ways to access housing wealth) via voluntary codes and possibly an EU certification scheme for such products.

Improving the design and performance of funded occupational pension schemes: In collaboration working with stakeholders such as the social partners, the pension industry and advisory bodies such as EIOPA and the Pension Forum the Commission will develop a code of good practice for occupational pension schemes (2nd pillar) , thus addressing issues such the payout phase, risk-sharing and mitigation, cost-effectiveness, shock absorption and ways of avoiding pro-cyclicality in investments.

Mobility of supplementary pensions  || Improving cross-border portability of supplementary pension rights: The Commission will table a modified proposal for a portability directive based on setting minimum standards for the acquisition and preservation of supplementary pension rights at the latest by early 2013.

Improving cross-border portability of statutory supplementary pension rights: The Commission will in 2012 explore the possibility for extending Regulation (EC) No 883/2004 on the coordination of social security systems to occupational schemes for public officials and thus remove barriers to cross border mobility for the occupational pension rights of these groups.

Improving people's ability to keep track of their various pension rights: The Commission will promote the development of national pension tracking services as basis for building a European pension tracking service allowing people to keep track of their pension entitlements. First step will be the commissioning of a feasibility study in 2012 .

Removing tax obstacles to cross-border mobility and investments of pension funds and life insurance providers: The Commission will tackle the issues of tax obstacles to cross-border mobility and cross-border investments linked to discriminatory taxation of transfers of occupational pension and life insurance capital and of life insurance contributions paid to providers established elsewhere in the EU, as well as discriminatory taxation of cross-border investments by occupational pension funds and life insurance providers.

Improving cross-border security of occupational pension rights for migrating researchers: The Commission will pursue the on-going work on a pan-European Pension Fund for Researchers.

Specific Objective 3: Enhancing EU's monitoring and coordination tools in the area of pensions

Coordinated monitoring of the adequacy, sustainability and safety of pensions || Coordinating the monitoring of adequacy, sustainability and safety The Commission will promote cooperation between EPC and SPC with the aim of  presenting future adequacy trends/challenges alongside ageing-related public spending trends while covering all pension types and finding ways to connect this also to the monitoring the safety of private pensions. Working with Member States the Commission will in 2012 raise the attention to private pensions in the Ageing report and complement it with a Pension Adequacy Report.  Building on this the Commission will be promoting common methodologies for assessing the present and future adequacy of pension provision, including its gender dimension, via work in the context of the Poverty Platform and the social OMC and developing guidance that makes it possible for Member States to establish criteria for a minimum level of pensions taking into account the specific national circumstances.

Raising the quality of adequacy monitoring: The Commission will promote the use of agreed indicators for benchmarking, review of national policies and outcomes, exchange of best practice focusing on cost-efficient provision of adequate incomes and living conditions of older people, with a special emphasis on the gender dimension and on vulnerable groups, whilst bearing in mind the role of services (housing, health and long-term care) in ensuring decent living conditions in old age.

Coherent policy making at EU level || Strengthening the coherence and integration of EU policies impacting on pensions: The Commission will review the mandate and functioning of the Pensions Forum with the aim of strengthening its contribution to the European pensions debate and broadening its material scope.

Securing full coordination and integration of Commission pension policies: The Commission will continue the Commissioners Group on pensions beyond 2012 and support it by establishing a standing inter-services group on pensions to oversee the implementation of the White Paper measures and consolidate a comprehensive approach to pension challenges across Commission services.

Securing holistic monitoring of progress in pension delivery in the EU: The Commission will publish a report on progress towards 'adequate, sustainable and safe pensions in Europe' in 2014.

4.2.2. Sub-Option IIb: Integrated, comprehensive approach with stronger
instruments

Measures in
Option IIb, whilst addressing the same policy concerns, generally put more
emphasis on legally binding instruments in the combination of measures. As
such, this sub-option is still holistic, but goes further than the Green Paper
responses suggested would be the right course of action. For example, one
measure would propose amending existing EU legislation on gender equality in
social security[50]
to require Member States to guarantee full equal treatment of women and men,
including with regard to the pensionable age. Presently 13 Member States have a
difference in pensionable age for men and women of up to five years. A number
of these Member States are already implementing a gradual gender equalisation
of pensionable ages; by 2020 ten Member States would still have gender
differences in the pensionable age. Five of these would slowly eliminate these
over the decades thereafter, but the other five have so far no plans to
equalise pensionable ages. Among these are two big Member States, Italy and Poland. Furthermore, the issue of mandatory retirement would be tackled by amending the
anti-discrimination directive of 2000[51]
which currently excludes retirement ages from its scope and permits Member
States to set (minimum and) maximum ages of access to employment.  Other
measures in sub-option IIb extend or strengthen some of the measures retained
under sub-option IIa.  For example, measures in sub-option IIb include suggestions
to: amend, rather than improve the enforcement of, article 8 of the insolvency
directive; reintroduce minimum standards also for transferability in the
proposed portability directive[52];
establish a detailed timetable for developing a tracking service instead of
first testing its feasibility; introduce conditionality in the new European
Social Fund rules, requiring notably compliance with country-specific
recommendations on pensions; develop common standards for pensions delivery and
setting national and EU targets; and replacing the Pensions Forum with a new
European platform covering all scheme designs and all issues pertaining to
pensions. Measures in sub-option IIb that differ from sub-option IIa are shaded
in grey.

Table 3 Sub-option IIb Integrated, comprehensive approach with stronger
instruments

Specific Objective 1: Support Member States in achieving a better balance between time spent in work and in retirement

Pension system reform || Gender equality in pensions: The Commission would by 2013 propose gender equalisation of pension ages in public schemes so that women become eligible for pensions at the same age as men by amending Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security. The aim is to improve opportunities for women to build adequate pension entitlements while improving financial sustainability and encouraging women to work longer.

Reducing early retirement: The Commission will present a recommendation on restricting access to early retirement schemes and other early exit pathways in 2012.

Promoting pension reforms: In the framework of Europe2020 and the European Semester, the Commission will intensify its support for pension reforms that improve the adequacy and sustainability of pensions in Member States, in particular by reducing access to early retirement, encouraging later pension take up, connecting entitlements to contributions and linking benefit levels and/or pensionable ages to longevity growth.

Assessing reform needs in pension and retirement policies: Financial support from the PROGRESS programme will from 2012 be provided to Member States who want to review the need for reform of their pension and retirement policies particularly in the light of their country-specific recommendations. This support will allow Member States to access expertise from other countries or international organisations (e.g. OECD led country reviews) and can cover consideration of all aspects including for example how to design, scale and scope the build up of complementary private pensions so as to improve their sustainability and safety as well as their contribution to adequacy.

People’s ability to stay longer on the labour market || Ending mandatory retirement ages: The Commission will by 2013 propose to amend the anti-discrimination Directive (2000/78/EC) with the aim of restricting the use of mandatory retirement ages and enhancing opportunities for men and women to continue working beyond the pensionable age and thus improve their pension entitlements.

Promoting healthy ageing at work: The Commission will in 2012 propose a new strategy for health and safety at work 2013-2020 in which special attention could be paid to healthy ageing at work and also invite the European Agency for Safety and Health at Work to focus on issues that prevent older workers from remaining longer on the labour market.

Enabling older workers to stay longer on the labour market. To open for greater support from the European Social Fund for work place and labour market measures that enable older workers to work longer Commission will facilitate the review of ESF Ops in the current programming period. For the next programming period 2013-2020, the Commission will encourage Member States to use their ESF programmes in line with reform needs identified in Europe2020 but also propose tighter conditionality, for instance in terms of compliance with country-specific recommendations on pensions.

Adapting work places and labour markets to longer working lives:  In the framework of European Social Dialogue will in 2012 call on the social partners - and request Eurofound to provide advice and expertise - to develop ways of adapting work place and labour market systems for training, remuneration, work organisation and working time, as well as career management notably for workers in strenuous jobs, so as to facilitate working longer and ensure the employability of older workers.

 Opportunities for extended working lives and end-of-career jobs: The Commission will from 2012 intensify its support for policy coordination and joint work on enabling and encouraging older workers to stay longer on the labour market in the framework of Europe 2020, European Social Dialogue the European Employment Strategy and the Social OMC. This will include promoting joint work by the SPC/EMCO/EPC on obstacles to, and opportunities for, extended working lives and the development of end-of-career labour markets across the Member States.

Specific Objective 2: Support Member States in enhancing the contribution to adequacy from complementary private retirement savings

Coverage and cost-effectiveness of complementary private pensions || Promoting cost-effective supplementary pension schemes: From 2012 financial support  for Member States and social partners wishing to set up cost-effective supplementary pension schemes will be provided from the PROGRESS programme, so that they can benefit from the good practices and experiences of other countries, notably for collective schemes on an sectoral, intersectoral and/or territorial basis which would also allow to increase the affiliation of workers in SMEs to pension systems.

Optimising the effect of tax expenditure in support of private pension savings: The Commission will intensify work with Member States to optimise the efficiency and effectiveness of tax expenditure in support of private pension provision (via EPC and SPC and TAXUD) including by providing extra tax relief for pension contributions for those who otherwise would not build up an adequate pension.

Safety of complementary private pension provision || Increasing the safety of occupational pension schemes: The Commission will review the IORP directive and present proposals for its amendment with a particular view to the solvency requirements in 2012.

Improved protection in case of insolvency of pension sponsoring employer: The Commission will by 2013 propose an amendment of article 8 of the Insolvency directive to define a high level of protection of occupational pension entitlements of employees in the event of their employer's insolvency.

Raising the quality of third pillar pensions and improving consumer protection : The Commission will by 2013 present an initiative aimed at raising the quality of third-pillar retirement products and improving the protection and information of consumers (including payout phase products and ways to access housing wealth) via binding standards.

Improving the design and performance of funded occupational pension schemes: In collaboration working with stakeholders such as the social partners, the pension industry and advisory bodies such as EIOPA and the Pension Forum the Commission will develop a code of good practice for occupational pension schemes (2nd pillar) , thus addressing issues such the payout phase, risk-sharing and mitigation, cost-effectiveness, shock absorption and ways of avoiding pro-cyclicality in investments.

Mobility of supplementary pensions  || Improving cross-border portability of supplementary pension rights: The Commission will by early 2013 table a modified proposal for a portability directive based on setting minimum standards for transferability as well as acquisition and preservation of supplementary pension rights.

Improving cross-border portability of statutory supplementary pension rights: The Commission will in 2012 explore the possibility for extending Regulation (EC) No 883/2004 on the coordination of social security systems to occupational schemes for public officials and thus remove barriers to cross border mobility for the occupational pension rights of these groups.

Improving people's ability to keep track of their various pension rights: The Commission will from 2013 develop the European pension tracking service through public procurement and regulatory means (reporting and record keeping obligations).

Removing tax obstacles to cross-border mobility and investments of pension funds and life insurance providers: The Commission will tackle the issues of tax obstacles to cross-border mobility and cross-border investments linked to discriminatory taxation of transfers of occupational pension and life insurance capital and of life insurance contributions paid to providers established elsewhere in the EU, as well as discriminatory taxation of cross-border investments by occupational pension funds and life insurance providers.

Improving cross-border security of occupational pension rights for migrating researchers: The Commission will pursue the on-going work on a pan-European Pension Fund for Researchers.

Specific Objective 3: Enhancing EU's monitoring and coordination tools in the area of pensions

Coordinated monitoring of the adequacy, sustainability and safety of pensions || Coordinating the monitoring of adequacy, sustainability and safety: The Commission will promote cooperation between EPC and SPC with the aim of presenting future adequacy trends/challenges alongside ageing-related public spending trends while covering all pension types and finding ways to connect this also to the monitoring of the safety of private pensions. Working with Member States the Commission will in 2012 raise the attention to private pensions in the Ageing report and complement it with a Pension Adequacy Report.  Building on this the Commission will be promoting common methodologies for assessing the present and future adequacy of pension provision, including its gender dimension, via work in the context of the Poverty Platform and the social OMC and developing guidance that makes it possible for Member States to establish criteria for a minimum level of pensions taking into account the specific national circumstances.

Raising the quality of adequacy monitoring: Starting in 2012 the Commission will propose the development of a common definition of pension adequacy and some connected standards of cost-efficiency, sustainability and safety and work towards some target setting at EU and national level, possibly with annual implementation reports.

Coherent policy making at EU level || Strengthening the coherence and integration of EU policies impacting on pensions: The Commission will in 2012 replace the Pensions Forum (currently focusing only on occupational pensions) with a new European platform on pensions with a wider remit covering all types of pension provision and with more resources at its disposal.

Securing full coordination and integration of Commission pension policies: The Commission will continue the Commissioners Group on pensions beyond 2012 and support it by in 2011 establishing an inter-services group on pensions to oversee the implementation of the White Paper measures and consolidate a comprehensive approach to pension challenges across Commission services.

Securing holistic monitoring of progress in pension delivery in the EU: The Commission will from 2014 publish periodical reports on progress towards ‘adequate, sustainable and safe pensions in Europe’.

4.2.3.
Differences between sub-options IIa
and IIb:

The table below
sets out the differences between sub-options IIa and IIb. Together the
variations form the difference between a package that is comprehensive and
integrated and one that seeks to address the policy objectives via a greater
emphasis on legislation and compulsion.

Table 4 Sub-option IIa compared to sub-option IIb

Specific Objective 1: Support Member States in achieving a better balance between time spent in work and in retirement

Pension system reform || Gender equality in pensions:

Issue Commission recommendation on gender equality in pension age and addressing the gender adequacy gap in pensions || Propose amending Directive 79/7/EEC of 19 December 1978 so to ensure that women become eligible for pensions at the same age as men.

People’s ability to stay longer on the labour market || Ending mandatory retirement ages:

Issue a Commission recommendation on abolishing mandatory retirement ages and addressing other barriers to working longer. || Propose amending Directive 2000/78/EC outlawing discrimination in employment to restrict use of mandatory retirement ages

Enabling older workers to stay longer on the labour market.

Encourage Member States to use European Social Fund means for greater support for measures that enable older workers to work longer || Introduce tighter conditionality in ESF if MS do not follow Country Specific Recommendations  on measures to enable older workers to work longer and use ESF for this purpose

Specific Objective 2: Support Member States in enhancing the contribution to adequacy from complementary private retirement savings

Safety of complementary private pension provision || Improved protection in case of insolvency of pension sponsoring employer:

Ensure more effective enforcement of article 8 of the Insolvency directive || Propose amending article 8 of the Insolvency directive to raise protection

Raising the quality of third pillar pensions and improving consumer protection :

Raise quality and consumer protection via voluntary codes possibly including some EU certification of third pillar products. || Raise quality and consumer protection via binding standards and EU certification of third pillar products.

Mobility of supplementary pensions  || Improving cross-border portability of supplementary pension rights:

Table proposal for portability directive with minimum standards for acquisition and preservation of pension rights || Table proposal for portability directive with minimum standards for transferability as well as acquisition and preservation

Improving people's ability to keep track of their various pension rights:

Promote basis for EU level pension tracking services through development of national pension tracking services || Develop a European pension tracking service through public procurement and regulatory means.

Specific Objective 3: Enhancing EU's monitoring and coordination tools in the area of pensions

Coordinated monitoring of the adequacy, sustainability and safety of pensions || Raising the quality of adequacy monitoring:

Use existing processes and indicators to raise quality and scope of adequacy and other pension performance monitoring || Develop common standards for adequacy and other aspects of pension performance to be used in national/EU target setting

Coherent policy making at EU level || Strengthening the coherence and integration of EU policies impacting on pensions:

Strengthen role of the Pensions Forum in coherent EU pension policy. || Replace the Pensions Forum with a new European platform on pensions covering all types of pension provision.

Securing holistic monitoring of progress in pension delivery in the EU:

Publish one report on progress towards adequate, sustainable and safe pensions in 2014. || Publish periodical reports on progress towards adequate, sustainable and safe pensions.

4.3. Option III: Harmonization of national pension policies
(not retained for in-depth analysis)

This option
would seek a much greater role for the EU in shaping pensions policies at the
national level by proposing the harmonization of pension systems in many
important areas such as minimum statutory ages (and linking it with increases
in life expectancy), standards on minimum income for older people, common rules
on early retirement and common quality standards for occupational pension
schemes which would imply that some types such as book reserves schemes would
have to be phased out.

This option has
not been retained for further analysis for three main reasons. First of all,
this option does not respect the subsidiarity principle as it regulates the
areas which directly fall under the national competence. Secondly, there is no
political acceptance for any attempts to harmonize and standardize pension
systems across Europe. Finally, harmonization of national pension schemes may
lead to the opposite than desired effects e.g. setting minimum income standards
could increase sustainability problems in many countries, equalizing minimum
statutory retirement ages at the same high level in all Member States may
result in large inflows of older people into social assistance benefits.

Therefore, it is
considered that this option is not realistic and should be excluded from further
consideration.

Assessment of impacts

In this section,
the ability of the options to achieve the general policy objective of providing
better support to Member States in their endeavours to make adequate pensions
provision safe and sustainable will be discussed. It is not possible to reach
firm conclusions on the ultimate economic and social impacts of such improved
support, as these depend on how Member States respond to the new EU policy
framework. The key question that should therefore determine the choice between
the two policy options and if appropriate sub-option IIa and IIb, is which of
these will optimise the effectiveness of the EU support in helping Member
States with their pensions reforms. Social and economic impacts of the chosen
option will depend on the influence the EU can develop on national policy
making. Indeed, the limited EU competences in this area will not allow the EU
to have a strong direct bearing on the fundamental challenge of securing
adequate and safe pensions in sustainable manner in a context of tight public
budgets and a fast-rising number of older people.

The options are
not expected to have any significant direct environmental impacts or impacts on
third countries. Some legislative measures included in sub-options IIa and IIb
may have impacts on SMEs, but these would have to be examined in specific
impact assessments for these initiatives which could of course be designed in
different ways. Particular attention to impacts on SMEs, competiveness and
administrative burdens will be required for the envisaged revision of the
directive on Institutions for Occupational Retirement Provision and for the
modified proposal for a directive on the portability of occupational pensions.
Any policy initiatives restricting mandatory retirement and early retirement
schemes would also have direct repercussions on companies that would need to be
carefully assessed.

5.1.Option I: Status Quo

Under this
option, the EU would continue taking policy initiatives with implications for
pensions in the Member States, but not as part of a wider strategic framework
aimed at making adequate and safe pension provision sustainable. Given the
increasingly tight budgetary surveillance and policy recommendations on
pensions issued in this context, the EU might not be perceived as respecting
subsidiarity and the responsibility of Member States for the fundamental
principles of their social security systems and their financial equilibrium.
Perceived interference from the EU in national pension policies would increase,
but without a clear signal from the EU that it shares the Member States’
concern about sustainable adequacy of pensions, and that it tries to contribute
to achieving this goal in a holistic and coherent manner.

This would mean
that providing more effective support would become increasingly difficult. EU
policy making with regard to pensions could become less efficient if the EU is
seen as not sufficiently bearing in mind the policy needs of Member States, and
in particular the need to secure adequate and safe pensions to their citizens.
This could result in increasing reluctance of Member States to accept an active
role of the EU in pension matters at a time when national pension policies are
having more and more impacts across borders.

It should also
be added that the credibility of the Commission (and thus the effectiveness of
its approach) in this policy area would suffer from a failure to deliver a
comprehensive policy framework. The holistic approach taken by the Green Paper
has raised expectations to which the Commission responded by announcing a White
Paper on pensions. Without such a White Paper, the Commission would forego a
major opportunity for contributing better to enhancing adequacy, safety and
sustainability future of pensions in the EU. Its approach would remain
piecemeal and would risk being perceived as highly technocratic, due to its
focus on specific issues of EU competence.

5.1.1. Option I: Economic Impacts

The economic
impacts of no-policy change at EU level are very difficult to estimate as they
will depend on how well Member States could address pension challenges without
a better support from the EU. It is reasonable to expect that in the face of
major demographic challenges and growing economic and financial interdependence
(as discussed in problem definition), the need and importance of efficient
support at EU level will increase.

The pressure to
reform pension systems exists, and Member States are aware of this. Reform
processes are, however, often controversial involving a wide range of
stakeholders and political interests. Under option I, the EU would mainly act
by warning about looming public finance crises i.e. due to unsustainable
pension trends. The EU would lose effectiveness on part of the political
spectrum, which would feel that the EU does not share their concerns about
adequacy. This would reduce the likelihood that the EU will have a strong
positive impact on reform processes in the Member States over the longer term,
and the influence of the EU would mainly be felt when an acute budget crisis
has already arisen.

Furthermore,
without the structured framework and a better co-ordinated approach the EU will
not be able to make the best use of available resources. Identified problems
such as unsatisfactory level of coordination will continue to exist,
potentially leading to many inefficiencies (e.g. duplication of work) and
development of sub-optimal policies (e.g. not enough emphasis on adequacy
issues).

The lack of a
comprehensive EU framework for pensions might also make it more difficult to
make progress with some of the planned legislative projects related to private
pensions, notably the revision of the directive on Institutions for
Occupational  Retirement Provision and the directive on the portability of
occupational pension rights. These initiatives, which will be subject to
specific impact assessments, would contribute to making occupational pension
provision more efficient and to facilitating the mobility of workers, thus
contributing to growth and employment. Within a comprehensive framework, these
initiatives could be presented not just as a response to a relatively narrow
problem, but as part of a wider strategy that is needed to achieve adequate and
safe pensions, to which occupational pension schemes will have to make an
increasing contribution in the future.

Finally, the
lack of a joined-up approach will reduce the EU ability to quickly react and
adapt to new challenges that can emerge in the future.

5.1.2.
Option  I: Social Impacts

Option I puts
most of the emphasis of EU policy recommendations on the sustainability of
public finances. Thus, Member States may be pushed towards reforms that pay too
little attention to adequacy and poverty in old age may rise as a result (which
may result later on in political pressure to raise pension spending, thereby
endangering the positive economic impact of the reforms). Moreover, the EU
would offer only limited help to national policy makers in developing policy
synergies between adequacy and sustainability concerns. In particular, calls
for statutory pensionable ages to be raised, as have been addressed to a number
of Member States in the 2011 country-specific recommendations, will produce
better results if there are flanking measures aimed at raising the effective
retirement age, allowing people to acquire full pension rights (better
adequacy) and having to rely less on other benefits (improved sustainability).
Option I could therefore have negative social impacts, if the focus of the EU’s
would be on budgetary policy recommendations instead of taking sufficiently
into consideration the need for higher effective retirement ages from the adequacy
perspective.

Moreover,
without stronger focus on adequacy issues at EU level, the further development
of common indicators is likely to proceed very slowly. This will impede the EU
ability to comprehensively monitor the performance and effectiveness of
national pension systems.

Finally, gender
aspects will continue not to be sufficiently reflected at the European level.
As pointed out by many stakeholders (e.g. European Parliament[53]) the EU does not do enough to
support Member States in addressing gender specific problems such as gender
income gap in retirement.  Without better coordination and a strategic vision
at the EU level it is unlikely that Europe will be able to support Member
States effectively in tackling this important problem[54].

5.2.Option II: Holistic (integrated and comprehensive) approach to
pension policy

Option II which involves moving towards a holistic approach is
considered in two sub-options, IIa and IIb. Both sub-options are a reflection
of a holistic - i.e. comprehensive and integrated - approach to the challenges
Member States face. In the text below the impacts of both sub-options will be
separately assessed. The assessment of sub-option IIb will be based on the
assessment of sub-option IIa, where the sub-options propose the same policy
measures

5.2.1. Sub-option IIa Integrated, comprehensive approach

Developing a
comprehensive approach at EU level would not overcome any conflicting
priorities between the EU and national levels, but it would allow such
conflicts to be discussed and settled on the basis of a shared vision for the
future of pensions. The EU would demonstrate to the public that it cares about
providing adequate and safe pensions to citizens, whilst safeguarding fiscal
sustainability. Sub-option IIa tries to maximise the efficiency of the EU
action  on national policy making through a consensual approach It does not
relinquish any of the initiatives which are necessary to achieve the EU’s
specific policy goals (notably related to the internal market, free movement
and, sound public finances), but links them to the concerns about long-term
adequacy and sustainability of pensions and, in addition, further develops
existing soft policy coordination tools in the area of social protection and
employment so as to provide better guidance for national policy makers on how
to achieve higher effective retirement ages, better supplementary pension
provision and better comparative information on pension adequacy.

Sub-option IIa
would result in policy messages and guidance from the EU that would be
perceived by the public as more balanced and paying proper attention to the
social purpose (and the raison d’être), as well as to the fiscal
sustainability, of pension systems: providing adequate incomes to older people.
The emphasis would be on policy strategies that can contribute to adequacy and
sustainability at the same time, i.e. policies that contribute to a better balance
over the life-cycle between time spent working and time spent in retirement. It
can be expected that this will enhance the effectiveness of the EU’s strong
policy recommendations on financial sustainability, as national policy makers
could no longer dismiss EU policy orientations as being biased towards public
finance concerns and not caring enough about social impacts.

5.2.2.
Sub-option IIa: Economic impacts

If this sub-option succeeds in increasing the acceptance of
EU policy recommendations on fiscal sustainability, notably by getting national
policy makers to focus more on raising effective retirement ages and
restricting access to early retirement, there would be positive economic
impacts in terms of reduced risks to the sustainability of public finances:
fewer older workers would need public support (in the form of pensions or other
benefits) and more people would be in employment and hence pay taxes and
contributions, as well as contributing to GDP growth. These effects can be
quite powerful[55]
[56].

As for EU competitiveness measures included under this
sub-option are likely to have relatively small, but positive impacts[57]. For example,
enhancing worker mobility would contribute to more efficient labour markets and
a better match of supply and demand. Higher tax revenues from more people staying
in work for longer would improve budgetary positions of Member States, thus
helping to ease pressures to increase taxation levels in order to achieve
sustainable public finances. Some positive budgetary impacts are also expected
through optimising the effect of tax expenditures in support of pension savings.
At the micro-level, a higher proportion of older workers in the labour force
could enhance business competitiveness as employers can benefit from an
increased labour supply.

The increased focus on adequacy under this sub-option could
also help avert future sustainability problems: if an unfavourable adequacy
trend is detected early, it can be tackled by measures such as promoting higher
effective retirement ages and supplementary savings. This would reduce the risk
of future political pressures for ad hoc responses to adequacy problems in the
form of spending increases.

Sub-option IIa also foresees support to national policy
makers wishing to design supplementary pension schemes[58]. Depending on the
take-up of this support and the extent to which large-scale occupational
schemes are introduced, there could be a positive effect on the financial
sector, supported also by the revision of the IORP directive. The improvement
of consumer information and protection rules stemming from the application of
common European rules would contribute to enhancing workers’ and investors’
confidence in individual retirement products, which could contribute to the
development of this market[59].Moreover,
by improving the chances of getting support for the portability directive, sub-option IIa could also contribute to
higher labour mobility with its associated efficiency gains.

A Commission recommendation on abolishing compulsory retirement
ages (if implemented by Member States) could lead to some additional costs for
businesses (including SMEs), but this crucially depends on whether and how such
a recommendation is implemented by national authorities. A gradual
implementation would allow businesses to adapt and find other ways of managing
the employment of older workers. Moreover, the direct extra administrative cost
to businesses of familiarising themselves with new legislation in this area can
be made quite limited.[60]

Finally, it is important to note that economic (and social)
impacts will vary between Member States. Given the 'soft' nature of the
proposed measures, the largest effects are to be expected in countries which
have received country-specific recommendations and are ready to comply with
them. Option IIa will make this easier by offering targeted support (studies
etc) for pension reforms, notably from PROGRESS.  Small countries with limited
financial and human resources, which still face major pension sustainability
and adequacy challenges, are likely to benefit most from EU assistance.

5.2.3.
Sub-option IIa: Social impacts

Depending on the take-up of the policy support foreseen
under sub-option IIa by
national policy makers, this option could have a positive social impact (and
the risk of a negative impact is very small). Raising statutory pensionable
ages can have strong negative social impacts for those people who cannot remain
in employment until they reach the pensionable age; they may receive a reduced
pension or may have to rely on other welfare schemes (invalidity, sickness
benefit, unemployment, social assistance)[61].
By contrast, measures which increase the effective retirement ages would allow
people to achieve better incomes, resulting in better pension adequacy and
lower at-risk-of-poverty rates[62].
Moreover, extending working lives can also help to combat issues of social
isolation and exclusion of older people. Studies suggest that on average, older
people who are in work are healthier and happier as a result of this than those
unemployed or retired[63].
As for competition for jobs between young and old, there is no evidence to show
that increases in employment of older workers will impact negatively on the
employment rate of younger workers (Gruber et al., 2009)[64]. Staying
active for longer does not mean that older people are being deprived of their
well-deserved retirement for the benefit of the young, or that older workers
will keep jobs that would otherwise be available to younger workers; indeed, those
Member States with the highest employment rates for older workers also have
some of the lowest youth unemployment rates. Over the longer run, the number of
jobs is not fixed, but depends notably on the supply of qualified workers. The
increased availability of experienced older workers will enhance Europe’s growth potential and thus create more opportunities and better living conditions
for the young and the old. This vision of a society offering better
opportunities for people of all ages will be also at the heart of the European
Year 2012 for Active Ageing and Solidarity between Generations.

The stronger focus on adequacy under sub-option IIa will
also make it possible to pay more attention to gender impacts which are
particularly important in the area of pensions: a majority of older people are
women, and there is a large gap between the pension entitlements of women and
men[65].
Sub-option IIa foresees a better monitoring of adequacy and will help to
highlight gender-specific challenges. This should alert national policy makers
to problems and could, together with the envisaged Commission recommendation on
gender equality, result in better pension outcomes for women.

The envisaged measures related to supplementary private
pensions are also aimed at helping national policy makers and could, again
depending on take-up, result in a bigger contribution of funded pension schemes
to adequate incomes in old age[66].
Again, there would be no risk of negative impacts.

Finally, the proposed initiatives are likely to have a
positive effect on fundamental rights including freedom to choose an occupation
and the right to engage in gainful employment (depending on the implementation
of the Commission initiative on mandatory retirement ages), equality between
men and women (Commission recommendation on equality for women and men in
pensions systems) and, more generally, the rights of the elderly to lead a life
of dignity and independence and to participate in social and cultural life. It
is important to note that impacts of several measures, notably legislative
proposals included in the package will be examined in detail in separate impact
assessments.

5.3.Sub-option IIb: Integrated,
comprehensive approach with stronger instruments

Compared to
sub-option IIa, sub-option IIb has a more interventionist approach,
particularly in the area of legislation, but also in terms of defining and
monitoring adequacy, which might allow the EU to address certain issues in a
more decisive way. Thus, it would use the EU’s legislative possibilities to
contribute to Member States’ efforts to raise statutory and effective
retirement ages by equalising pensionable ages for women and men also in public
pension schemes, and by phasing out mandatory retirement ages. It would also be
more prescriptive by using conditionality in the European Social Fund.
Regarding private pensions, it would seek to clarify the level of protection of
occupational pension rights that must be given to workers in the event of
insolvency of their employer.

Whilst there are
good justifications for such measures, the Green Paper consultation has shown
that key stakeholders would be reluctant to extend EU competences. Stakeholders
generally welcome a more active role based on a holistic approach, but do not
want too much interference in national pension policies. The main risk of
sub-option IIb is that it could push away stakeholders unwilling to accept some
of the initiatives envisaged under this sub-option. This would divert attention
away from those measures that are most important in terms of achieving adequate
and safe pensions on a sustainable basis. Based on the outcomes of the Green
Paper it seems a valid assumption that sub-option IIb could antagonise the
Commission and Member States, reducing the perceived legitimacy of EU policy
initiatives, including those that, in the more consensual approach of
sub-option IIa, would be perfectly acceptable to the Member States.

5.3.1.
Sub-option IIb: Economic impacts

If the addition
of more controversial measures under sub-option IIb does indeed weaken the
legitimacy of the EU’s policy interventions in the area of pensions, and if it
does divert attention away from the most important issues, then its economic
impact would be less favourable than that of sub-option IIa, due to the loss of
influence on national policy making in the key decisions on (statutory and
effective) retirement ages and on supplementary pension schemes. In the absence
of adverse effects on the EU’s influence in these areas, sub-option IIb could
have much stronger economic effects than sub-option IIa in a number of Member
States, where pensionable ages for women and men would be equalised faster[67], and in most Member States if
the phasing out of mandatory retirement and restricting access to early
retirement schemes would result in more older workers staying on the labour
market. It is important to note that these legislative initiatives will be
subject to separate impact assessments where the economic impacts (including
impacts on EU competitiveness and SME-s) will be carefully assessed.

Regarding
private pensions, sub-option IIb could also have a slightly stronger positive
economic impact in terms of labour market efficiency by including the option of
transferring pension rights from one occupational scheme to another in the
portability directive, but the impact on businesses in terms of administrative
burdens could be significant and would have to be carefully assessed[68].

Furthermore,
defining a high level of protection under the insolvency directive could raise
the cost of insuring occupational pension promises. This may cause employers to
offer less occupational pension provision or switch to schemes that are less
risky for employers, but more so for employees (defined-contribution instead of
defined-benefit). Again, this would have to be assessed in depth.

5.3.2.
Sub-option IIb: Social impacts

For social
impacts, too, the  key question is how the more interventionist stance of the
EU in this sub-option compared to sub-option IIa would affect the willingness
of Member States to accept EU policy recommendations on those areas of reform
that have the biggest impact on adequacy and sustainability. If negative
reactions to a more interventionist EU approach can be avoided, then the social
impacts could be better than under sub-option IIa. A clearer definition of
adequacy could help in setting benchmarks against which national policy makers
could measure the performance of their pension systems. Equalising pensionable
ages for women and men would allow women to accumulate higher pension rights,
particularly under defined-contribution and private schemes.

Abolishing
mandatory retirement ages could allow some workers to prolong their careers to
ensure that they have adequate savings and pension entitlements for their
retirement. It would also send a strong signal to stakeholders in the labour
market that age management practices need to change in order to enable and
encourage people to continue working for some more years, including beyond the (increasing)
statutory pensionable age. Presently, it seems that only the UK has decided to adopt legislation which does away with mandatory retirement on grounds of age.
Similar changes to the status quo have, however, been discussed in a number of
Member States. Amending EU legislation in this area would thus help improve
labour market opportunities for older workers in almost all Member States,
which as shown by the consultation would be very much welcomed by key
stakeholders such as AGE, the European Platform of older people’s organisations.

The possibility
of transferring their occupational pension rights to a new pension scheme
(rather than preserving them in the previous scheme) could bring a small
positive social impact for workers changing employers[69]. Workers whose employer has
become insolvent would also have more clarity about their pension rights thanks
to an amendment of the insolvency directive. However, they may find employers
reducing their pension promises or switching to less favourable
defined-contribution plans. How strong these social impacts are depends on the
precise design of these two initiatives. Therefore these would be guided by
specific impact assessments.

Reducing early
retirement possibilities could have some negative social impacts especially on
older workers who will not be able to remain in employment until reaching
statutory retirement ages. Again, this issue will have to be carefully examined
in detail in a separate Impact Assessment.

Due to the
greater emphasis on legislation under sub-option IIb, the impacts on
fundamental rights can be expected to be stronger than under policy sub-option
IIa as there would be no guarantee that a recommendation on abolishing
mandatory retirement ages will be implemented by Member States, whereas
including such a requirement in a directive would oblige Member States to
implement it.

Table 5 Summary of main social and economic impacts

Policy option || Social Impacts || Economic Impacts

Option I || Too little attention paid to adequacy and poverty issues in old age Focusing on raising statutory retirement ages without measures to support longer working lives could lead to negative social impacts (more older workers flowing into social assistance benefits) Gender specific problems will continue to receive too little attention Slow progress in developing new indicators could impede EU's ability to comprehensively monitor the performance of pension systems || The EU will not make the best use of available resources (duplication of work, weak coordination between different structures) The lack of coordinated approach can lead to development of sub-optimal and fragmented policies which may fail to maximize positive economic impacts and mitigate negative economic effects Little progress in removing barriers to worker mobility Reduced ability of the EU to quickly react and adapt to socio-economic and financial challenges that may emerge in the future

Option II || Sub-option IIa || Measures to increase effective retirement ages will have positive employment effects. This can enhance retirement incomes of older people, combat issues of social isolation and exclusion More attention will be paid to gender issues Better monitoring of adequacy of pensions Positive impacts on fundamental rights || Removing barriers to worker mobility would contribute to more efficient labour markets especially in view of expected labour market bottlenecks for certain professions Measures to increase effective retirement ages can have positive impacts on public finances (higher revenues and lower social assistance expenditures), EU competitiveness ( increased labour supply) and GDP growth Better use of resources at EU level Some positive impacts on the financial sector Small transition costs on business and SMEs of adapting to new legislation Increased safety of supplementary private pensions Optimising the effect of tax expenditure in support of private pension savings

Sub-option IIb || If negative reactions of Member States to more interventionist EU approach can be avoided  the overall social impacts could be more positive than under IIa Possibility to transfer occupational pension rights to a new pension schemes can have additional positive social impacts Greater positive impacts on fundamental rights compared to IIa || Stronger positive economic impacts compared to IIa if proposed measures are successfully and timely implemented However there is a risk that Member States will resist to proposed solutions which will weaken the overall effectiveness of the package and the positive economic impacts Increased protection under the insolvency directive and transferability of pension rights can lead to more significant costs on business and SMEs

Comparison of options

This chapter compares
first whether moving from the status quo to a more holistic approach is
justified. It does this on the basis of the criteria
"effectiveness", "coherence" and "efficiency".
The chapter will first establish that a holistic approach is the best way to
help Member States in their endeavours to provide their citizens with adequate,
sustainable and safe pensions. On the basis of the aforementioned criteria,
this chapter will then conclude that sub-option IIa is the optimum way to do
so.

6.1. Effectiveness

The effectiveness of each option is assessed by determining the
likelihood of achieving the defined objectives, focusing in particular on the
specific objectives.

6.1.1.
Option I (Status Quo)

The baseline scenario does not fully meet the strategic and specific
objectives. As discussed in the problem definition, it is very unlikely that,
without a holistic approach and better joined-up efforts, Europe will be able
to provide more comprehensive and effective support to Member States.

Failure to develop a holistic EU approach and a shared vision for
pensions would mean that the EU would play a weaker role as a catalyst for
change. There is a considerable risk that the status quo approach would result
in the EU losing credibility on pension matters and the trust not only of
Member States, but also of citizens and key stakeholders. The piecemeal policy
developments that are taking place under the status quo option will not give
pensions policy at the EU level the strength and the effectiveness that are
needed to help those Member States  that could benefit from EU-level support in
reforming their pension systems. Option I would also fall short of the
expectations expressed in the consultation responses to the Green Paper on
pensions.

6.1.2.
Option II (holistic approach)

This option meets the general and specific objectives. It presents
an integrated and comprehensive, holistic approach, which will allow the EU to
provide consistent and more effective support to Member States in their efforts
to ensure adequate, sustainable and safe pensions.

Sub-option IIa (Integrated, comprehensive approach)

The set of measures included in the option does not propose radical
changes to the European policy interventions in the area of pensions, but it presents
a coherent vision of how to make a better use of available resources, and how
to improve the coordination and consistency of EU action. It meets largely the
expectations expressed by stakeholders in the consultation responses to the
Green Paper (see Annex 2 for details on the Green Paper consultation process
and Annex 3 for the summary of responses)[70]
and therefore has a high chance of support from stakeholders.  Given the 'soft'
non-legislative nature of most of the measures, such support will be necessary
to ensure the package is effective.

The main downside risk relates to the 'soft' nature of many measures
envisaged by the option. If Member States and important stakeholders, such as the
social partners and private pension industry, would prove to be reluctant to
engage and cooperate at the European level, this may result in limited
effectiveness of the EU efforts to support pension reforms in Europe.

Sub-option IIb (Integrated,
comprehensive approach with stronger instruments)

The overall effectiveness of this option depends on two key elements. 
First, how difficult it will be to reach agreement to legislative changes with
Member States and Parliament, given the anticipated level of opposition as
expressed in the Green Paper consultation and how long all this may take before
it makes any difference on the ground.  And second,  the degree to which this
approach might make constructive cooperation between the EU and Member States
and other key stakeholders more difficult could jeapordise the wider adoption
of the 'softer' non-legislative measures. Assuming legislation can be agreed,
in the absence of legitimacy problems and a possibly antagonising effect
discussed above, sub-option IIb would be somewhat more effective than
sub-option IIa, notably because it would force policy changes in two areas that
are relevant for the objective of ensuring a better balance between time spent
in work and in retirement. Member States would be obliged to equalise the
pensionable age between genders, restrict access to early retirement schemes
and to phase out mandatory retirement. However, revisions of Directive 79/7/EEC
on equal treatment for men and women in matters of social security and the
anti-discrimination Directive (2000/78/EC) would require unanimity in Council. This
would require more lengthy negotiations and possibly compromise solutions which
could undermine the effectiveness of these initiatives.

Annexes 2 and 3
give more details on the outcome of the Green Paper consultation, but a clear
theme coming from nearly all stakeholders was that Member States have different
situations, so whilst co-ordination and interaction at the EU level is thought
necessary, subsidiarity should be respected.  For example, the European
Parliament "points out that traditions, economic and demographic
situations and specific labour market features differ from Member State to
Member State and that the principles of subsidiarity and solidarity, under
which Member States retain full responsibility for the organisational set-up of
their pension systems, have to be respected".

The achievement of the objective of enhancing the contribution to
adequacy from supplementary private retirement savings would not differ much under
sub-options IIa and IIb. A better protection of supplementary occupational
pension entitlements in case of insolvency of the employer could have the
unintended consequence that employers reduce their pension promises or replace
defined-benefit schemes with defined-contribution schemes. The transferability
of supplementary pension rights in the modified proposal for the portability
directive would be a useful option for mobile workers, but it would also make
negotiations more complicated and could delay progress on a dossier where
agreement has already proved elusive over a six year period.

6.2. Efficiency

The assessment of the efficiency of the options considers the
relationship between inputs, in

terms of resources, and the desired impacts. It also considers the
Commission’s and Member States' ability to deliver, in terms of internal
processes to handle the implementation of each option and of political support.

6.2.1. Option I (Status Quo)

"Status quo" would mean that identified inefficiencies in
the current EU approach to pensions will continue to exist. Without new concerted
actions, progress in improving cooperation at the European level would be slower
and unlikely to produce the comprehensive and integrated policy framework for
pensions needed and welcomed in the consultation. Given the lack of a strategic
view and structured framework, an effective attainment of the strategic and
specific objectives will be rather difficult if not unlikely.

6.2.2. Option II (holistic approach)

This option gathers
a wide range of existing measures in a comprehensive approach and proposes various
improvements in the use of existing structures and processes.

Sub-option IIa (Integrated, comprehensive approach)

The
administrative burden and additional financial costs of sub-option IIa are low
as the main changes compared to the status quo option consist in bringing a
comprehensive selection of existing instruments and processes together so
secure their integration and coherence while adjusting their focus and to some
extent their scale and scope. The development of a holistic strategy for
adequate, sustainable and safe pension and the comprehensive approach including
some adaptations to existing processes will make EU support more relevant for
the reform efforts of Member States. Thus, sub-option IIa can be accommodated
within existing budgetary and human resources and does not impose new burdens
on Member States. By achieving a better cooperation between different national
and European structures and across the latter, sub-option IIa can be expected
to eliminate some inefficiencies and duplication of work.

The financial
help offered to Member States willing to review their pension system in the
light of their country specific recommendations will be covered by PROGRESS or the
ESF and does not require increases in these budgets.

The proposed measures are broadly politically acceptable,
and as the consultation responses to the Green Paper on pensions indicate (see Annexes
2 and 3), are likely to be welcomed by most stakeholders as a proportionate and
helpful response. Energy and political capital will therefore not be wasted
pursuing measures which have little real chance of being accepted.

Sub-option IIb (Integrated,
comprehensive approach with stronger instruments)

Sub-option IIb would
lead to more significant demands in terms of human and administrative resources
than sub-option IIa or Option I. It would require launching additional legislative
processes with complicated and lengthy negotiations, involving the Council and
the European Parliament. Implementation of measures would require Member States
to amend their legislation, which would create some additional administrative
burden. Some measures (e.g. mandatory retirement age, insolvency directive,
transfer option in the portability directive) would also impose additional
costs on businesses.

Option IIb 
would imply that Europe took on a markedly larger role in the setting of some
key parameters of pension systems and retirement practices in Member States.
While this would appear quite rational in substance and well in line with the
larger role for Europe, it is, however, still likely to be contentious –- as
indicated by the responses of Member States to the Green Paper (see Annexes 2
and 3) where the vast majority of stakeholders insisted on the need to respect
subsidiarity and stressed the dangers of imposing universal solutions to
different national situations.

6.3.Coherence

The coherence of the options is assessed in relation to the
objectives of EU policy, in particular the overarching goals of the Europe 2020
strategy and the Stability and Growth Pact.

6.3.1. Option I (Status Quo)

The status quo option falls somewhat short of achieving some key EU
policy objectives, particularly with regard to the Europe 2020 poverty
reduction and employment targets. The important role of pension systems and
reforms in achieving these targets would not be fully acknowledged.

The status quo option would also mean that the EU will fail to
respond to calls for a more holistic approach which emerged from the
consultation responses to the Green Paper. This could undermine confidence of
EU citizens and stakeholders in pension policy at the European level and weaken
the role of the EU in promoting the pension reform agenda in the Member States.

6.3.2. Option II (holistic approach)

The proposed
measures in both sub-options are compliant with the role and strategic
objectives of the EU and ensure appropriate respect for subsidiarity and
proportionality.

Sub-option IIa (Integrated, comprehensive approach)

Option IIa contains initiatives that address the pensions challenge
in a comprehensive way, bringing together a number of initiatives planned under
the status quo option and complementing them with some missing elements,
notably a stronger concern with adequacy. These objectives are fully consistent
with, and in support of, other EU policies and strategies, and in particular
with the Europe 2020 Strategy and the Stability and Growth Pact. Measures
proposed under this option would notably help Member States achieve the Europe2020
targets of increasing workforce participation to 75% and reducing the number of
people in or at risk of poverty by at least 20 million.  The consultation
responses highlighted the holistic approach as something to be particularly
welcomed.  For example, the European Economic and Social Committee said in
their official report "…attempts to ensure adequacy and sustainability of
these systems [pensions] must take a holistic approach."

Sub-option IIb (Integrated,
comprehensive approach with stronger instruments)

As said, also the proposed measures in sub-option IIb are compliant with the role and
strategic objectives of the EU; they respect subsidiarity, but proportionality could
be regarded as somewhat problematic. The legislative approach will be costly in
terms of resources and possibly also in terms of less constructive
collaboration on pension between the Commission, on one hand, and the Member States and other stakeholders, on the other.

Equalisation of pensionable age between genders, phasing
out mandatory retirement, tackling early exit paths from the labour market, strong
protection of supplementary occupational pension entitlements, and
transferability of supplementary pension rights are
coherent with the Europe 2020 Strategy and its targets of higher employment,
and lower risk of poverty and exclusion. Under Option II B, the Commission
would claim a stronger leadership in line with the agreed policy objectives of
the EU, but it is far from certain that all Member States and other key
stakeholders would want to follow this lead[71].

6.4.The
choice of the preferred option

Based on the
analysis developed in the previous chapters and the sections in this chapter,
the following conclusions can be drawn with regard to the two options:

It is questionable
whether improvements envisaged under Option I will be sufficient to meet the
defined objectives and effectively tackle the problems identified in the problem
definition. ‘Business as usual’ would also entail the risk that these problems
get worse in the medium or long-term, requiring a more powerful policy response
at the EU level. At the same time the Commission could be perceived to care primarily
about its narrow competence areas when it comes to pensions, rather than the
fundamental purpose of pension systems, namely to provide adequate and safe incomes
in old age on a sustainable basis. Furthermore, while respecting the
subsidiarity and proportionality principles, this option would not give optimal
support to key EU policies such as Europe 2020 and the Stability and Growth
Pact. Finally, maintaining the "status quo" would mean that the EU
will not be able to respond to the expectations raised in consultation
responses to the Green Paper.

The holistic
approach of option II can meet the general and specific objectives. Overall,
measures envisaged under the options are expected to have real positive
economic and social impacts.

In principle
both sub-options IIa and IIb respect the principle of subsidiarity and are
consistent with other EU policies. However, there is some risk that sub-option
IIb may be challenged by some Member States on the grounds of the
proportionality of the EU intervention. The European Parliament and the vast
majority of stakeholders, including BusinessEurope and the ETUC, have also
raised to a greater or lesser extent the subsidiarity issue and the need to
acknowledge national differences when considering what action to take. As a
consequence proposing the measures in sub-option IIb now could weaken stakeholders
support for a more holistic and comprehensive approach as argued for. Also, preparation
and implementation of legislative proposals envisaged under sub-option IIb is
likely to be a very lengthy and difficult process which would require much more
resources at EU and national level. Finally, some of the measures in sub-option
IIb are not likely to be more effective in comparison to those under sub-option
IIa .

Thus, sub-option IIa is proposed as the preferred
option since it is the one most likely to be effective, proportionate and
supported by stakeholders.  The collection of specific measures that constitute
the comprehensive package was analysed in the Impact Assessment Steering Group
and also discussed in the Commissioners’ Group on Pensions.  At all these
occasions, it was recognised that this is a critical juncture to launch a new
and innovative approach to pensions in the EU.  To reap the benefits of this
juncture, stakeholders must be positively engaged and this is fully recognised
in the choice of measures proposed under sub-option IIa. Moreover the measures here
are broadly in line both with the thrust of the 2011 country specific
recommendations in Europe 2020 and with the outcomes of the Green Paper
consultation which showed strong support for a holistic approach to pensions at
the EU level, but without calling for strong policy interventions from the EU. 
Whilst the measures in sub-option IIa do not substantially extend the range of
EU initiatives compared to the status quo, they make better use of existing
instruments by adjusting their focus and to some degree their scale or scope
while importantly also enhancing their combined ability to help Member States
address the challenges of securing adequate and safe pensions on a sustainable
basis for their citizens through the synergies between the different measures
as part of an encompassing strategy.

To conclude and
compared to the measures in sub-option IIb the measures in sub-option IIa build
on the acquis that are widely accepted by stakeholders. They also add
some elements that support the emphasis in the 2011 Country Specific
Recommendations on raising the pensionable age and linking it to longevity
growth. These characteristics of the measures in sub-option IIa correspond best
to the general objective.

Table 6 Comparison of options against baseline

Criteria || Option I: Status quo || Option II: holistic approach

Effectiveness || 0 || sub-option IIa || sub-option IIb

++ || +++ or + (if negative reaction to interventionist stance)

Coherence || 0 || ++ || ++

Efficiency || 0 || ++ || -

Table 7  Definition of values

Symbol || Description

0 || Baseline or equivalent to baseline

+ / ++ / +++ || Minor to major improvements compared to baseline

- / - - /- - - || Minor to major worsening compared to baseline

Monitoring and evaluation

The first test for the success of the White Paper on Pensions will
be the reactions of key stakeholders and in particular the Member States, the Social
Partners at the European and national levels, civil society and the European
Parliament. Strong support will establish a legitimate role for the Commission
and a clear mandate to go ahead with the implementation of specific measures
indicated in the White Paper.

The extent to which the EU will gain more influence on national
pension policies as a result of this policy initiative will not be measurable
as the counterfactual (what would have happened in the absence of the White
Paper) cannot be established. Monitoring and evaluation efforts should
therefore not narrowly focus on the specific impact of the White Paper itself,
but on progress in the Member States along the policy orientations defined in
the White Paper.

While reforms
can be decided relatively fast factual delivery on the ground is the real test.
However the impacts of reforms  in terms of adequacy and financial
sustainability may take decades to materialise. Therefore it is crucial to
closely  monitor both reform measures and policy outcomes . This can be done
with the instruments developed for the Open Method of Coordination and the
surveillance instruments developed under the EU 2020 strategy and the Stability
and Growth Pact. These include not only reporting on reforms, but also outcome
indicators and projections (of future spending and future replacement rates, in
particular) and effective surveillance mechanism to prevent and correct macro
economic imbalances with potential spill over risks.  It is envisaged that the
SPC will adopt a Pension Adequacy Report in 2012, in parallel to the 2012
Ageing Report which will be prepared by the EPC. Subsequently, adequacy reports
could be published periodically, possibly in parallel with the EPC Ageing
Reports.

The main
indicators to monitor the performance of national pension systems are presented
in the table below. These are well-established indicators which have been
developed together with Member States.

Table 8Common
indicators to monitor and assess the performance of national pension systems

Indicators

Effective labour market exit age (average exit age from the labour force)

Employment rate of older workers

Pension system dependency ratio

Gender differences in the at-risk-of-poverty rate of elderly people

Gender differences in the aggregate replacement ratio

Benefit ratio

At-risk-of-poverty rate of elderly people, (65+)

Median relative income ratio of elderly people, (65+)

Aggregate replacement ratio (excluding other social benefits)

Theoretical prospective replacement rates: base case and variant cases

Share of occupational and statutory funded pensions in total gross replacement rates

Complementary pension coverage (to be developed)

With the adoption of a White Paper, such monitoring would become
more important and more comprehensive, and would be pursued through the
existing policy coordination processes (OMC, Stability and Growth Pact, Europe 2020
Strategy). In addition, the holistic approach at the EU level requires stronger
cooperation and coordination across different policy domains. The main
mechanisms for monitoring the implementation of the comprehensive EU approach
on pensions will be the Commissioners Group on Pensions and the Inter-service
Group on Pensions. These two bodies would focus on achieving a better
consistency of EU actions and stronger synergies between the different
instruments. The Commissioners Group would meet at least twice a year and the
Inter-Services Group could have quarterly meetings.

An important milestone in monitoring and evaluating the White Paper implementation
will be in a progress report which will be published in 2014, before the end of
the current Commission mandate. Some of the issues which will be discussed in
the report will include:  implementation of Commission recommendations and
voluntary codes, take-up of Progress/ESF funds by Member States to reform
national pension systems, progress toward removing discriminatory taxation in
the pension area and improvements in cooperation between various committees EPC/SPC/EMCO
at the EU level and services across the Commission.

[1] Green Paper
"towards adequate, sustainable and safe European pension systems"
SEC(2010)830 of 7.7.2010  COM(2010)365 final available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[2] "COMMISSION STAFF WORKING DOCUMENT EU
LEGISLATION, COVERAGE AND RELATED INITIATIVES Accompanying document to the
GREEN PAPER towards adequate, sustainable and safe European pension
systems" of 7.7.2010 SEC(2010) 830 final available at: http://ec.europa.eu/social/main.jsp?langId=en&catId=752&newsId=839&furtherNews=yes

[3] As of 1 January 2011, the European Insurance and
Occupational Pensions Authority (EIOPA) has replaced CEIOPS.

[4] The Interim Joint Report of the EPC and SPC was noted
by the 7-8 June 2010 Council (ECOFIN and EPSCO) Report available at
http://europa.eu/epc/publications/index\_en.htm, see Council Conclusions

http://www.consilium.europa.eu/uedocs/cms\_data/docs/pressdata/en/ecofin/114988.pdf
.

[5] Joint Report on Pensions: Progress and key
challenges in the delivery of adequate and sustainable pensions in Europe

Oct. 2010
available at: http://www.bmask.gv.at/cms/site/attachments/2/3/9/CH0982/CMS1304403432073/joint\_report\_on\_pensions.pdf

[6] Full text available at http://register.consilium.europa.eu/pdf/en/10/st15/st15885.en10.pdf

[7] See also the
executive summary of the Joint Report in annex 5.

[8] Commission
Work Programme 2011COM(2010) 623 final, 27.10.2010 available at: http://ec.europa.eu/atwork/programmes/docs/cwp2011\_annex\_en.pdf

[9] Summary Of Consultation Responses to the Green Paper
"Towards Adequate, Sustainable And Safe European Pension Systems" of
7th March Available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yeshttp://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[10] Report on the consultation on the Green Paper:
“Towards adequate sustainable and safe European pension systems” Presentation
by the Commission of 7th March 2011 available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[11] COM(2011) 11 final,
12.1.2011

[12] DIRECTIVE
2003/41/EC Of The European Parliament And Of The Council of 3 June 2003 on the
activities and supervision of institutions for occupational retirement
provision available at; http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:235:0010:0021:EN:PDF

[13] EUROPEAN COUNCIL
CONCLUSIONS 24/25 MARCH 2011, Annex I, EUCO 10/1/11 REV 1[13]
Reference as agreed/adopted at 11March extraordinary European Council

[14] As adopted by
European Council 24-25 June 2011: http://www.consilium.europa.eu/uedocs/cms\_Data/docs/pressdata/en/ecofin/123611.pdf

[15] http://ec.europa.eu/europe2020/tools/monitoring/recommendations\_2011/index\_en.htm

[16] Figures in brackets
relate to how many Member States had such a recommendation; Member States may
have received recommendations relating to more than one of the above topics.

[17] See annex 6 for
more details about how adequacy and sustainability requirements have been
addressed in the Country-Specific Recommendations.

[18] The setting up of
the IASG was agreed with DG ECFIN and DG MARKT at the meeting on the 21st
of February 2011.

[19] Invitation to
participate in the IASG was also sent to DG BUDG and EUROSTAT which decided not
to attend the meetings of the group.

[20] According to the
2009 Ageing Report there were about 119 million pensioners (social
security) in the EU-27 in 2010. The number includes recipients of old-age,
early retirement, disability, and survivors pensions (also those aged less than
65).

[21] For further details
see Annexes 4 and 5.

[22]European Commission - Economic Policy
Committee, 2009 Ageing Report – Economic and Budgetary Projections for
the EU-27 Member States (2008-2060), available at http://ec.europa.eu/economy\_finance/publications/publication14992\_en.pdf

[23] 2010 EPC-SPC Joint
Report on Pensions: "Progress and key challenges in the delivery of
adequate and sustainable pensions in Europe" available at: http://ec.europa.eu/economy\_finance/publications/occasional\_paper/2010/op71\_en.htm

[24] 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.

[25] Europop 2008 population projections.

[26] See annex 5.

[27] 2009 Ageing Report

[28] EPC-SPC Joint
Report on Pensions: "Progress and key challenges in the delivery of
adequate and sustainable pensions in Europe", 2010, available at: http://ec.europa.eu/economy\_finance/publications/occasional\_paper/2010/op71\_en.htm

[29] Average family and household size has been declining since the 1960s.
Despite the slight increase in fertility rates in the early years of the 21st
century, the decline in household size continued between 2005 and 2009 in all
EU-27 Member States, except Austria, Belgium, Germany, Hungary, Romania and the United Kingdom, where it remained stable. For EU-27, average household size
fell from 2.5 members to 2.4, with the largest reduction recorded in Lithuania (-0.5) and Slovakia (-0.3). Source: Demography report 2010. Older, more numerous and
diverse Europeans, European Commission, March 2011, p.72:

[30] For more detailed information on future generosity of public
pension schemes see annex 5.

[31] The new risk incurred are discussed in the EPC-SPC Joint Report on
Pensions (see annex 4) and in the Green Paper.

[32] See annex 5.

[33] See annex 5.

[34] See Annex 5 p.57 for further details.

[35] Employment and
Social Protection Committee (2007).

[36] As illustrated in
the annex 5, the net replacement rates for hypothetical workers retiring at 65
are projected to drop in 15 Member States between 2008 and 2048 (range of
reduction varies from 2% to around 30%). Working until 67 instead of 65 can
help build additional pension rights and increase the net replacement rate
(e.g. in PT the increase in the net replacement rate can be as high as 22%, in
LT 17%, and in DE 9%).

[37] For more
information on the impacts of the financial and economic crisis on funded
pension schemes see Annex 5 page 56  and Memo/09/99 "The economic crisis
and pensions in the EU" available at: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/99

[38] Financing these by
simply shifting part of the social security taxes needed for current pensions
into individualised accounts in private pension funds eroded the deficit and
debt position of these countries and as economic growth slowed this practise
became unsustainable. As social taxes forgone were not explicitly replaced by
other taxes or gradually increased private pension contributions the double
payment problem was primarily tackled by taking on more public debt.

[39] See Annex 5 section on increased cross border mobility

[40] These objectives were updated and confirmed in 2006: Commission
Communication "Working together, working better: A new framework for the
open coordination of social protection and inclusion policies in the European
Union", http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52005dc0706:EN:NOT

[41] For an overview of CSRs on pensions please see annex 7.

[42] Indicator Sub Group is a working group of SPC

[43] Ageing Working Group is a working group of EPC

[44] Cf. the EPC-SPC Joint Report on Pensions and ECOFIN & EPSCO
Council conclusions of Nov-Dec 2010 – as partly reprinted in Annex 4.

[45] The term word
'complementary private retirement savings' refers to both 2nd and 3rd
pillar pensions, i.e. both occupational schemes and individual pension and
retirement savings contracts.

[46] Supplementary
pensions are the established EU term for occupational pensions.

[47] For further details please see Annex 8 p. 76.

[48] For further details please see Annex 8 p. 81.

[49] For further details please see Annex 8 p. 79.

[50] Council Directive
79/7/EEC of 19 December 1978 on the progressive implementation of the principle
of equal treatment for men and women in matters of social security.

[51] Council Directive
2000/78/EC of 27 November 2000 Establishing a general framework for equal
treatment in employment and occupation.

[52] Standards for
transferability had been included in the original proposal from the Commission
presented in 2005 and were dropped when a modified proposal was tabled in 2007.

[53] European Parliament
resolution of 16 February 2011 on ‘Towards adequate, sustainable and safe
European pension systems’ (2010/2239(INI)) available at: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0058+0+DOC+XML+V0//EN

[54] The impacts of the
legislative proposals envisaged under this option on the fundamental rights
will be assessed in separate Impact Assessments. If successfully implemented
these proposals are likely to have a positive effect on fundamental rights e.g.
freedom to choose an occupation. All other measures under this option are not
expected to have any significant impacts on fundamental rights.

[55] Barrel R., Kirby
S., Orazgani A. (2011) Macroeconomic impacts from extending working lives, DWP
Working Paper No. 95.

[56] The cost of early
retirement has been estimated to consume as much as 9.1% of output. Orszag J.
M. (2003): The Early retirement Burden. Assessing the costs of continued
prevalence of Early Retirement in OECD countries, Watson Wyatt.

[57] It is very
difficult to estimate the exact impacts on the EU competitiveness due to the
'soft' nature of most of the measures envisaged under this option.

[58] The role of
supplementary funded pensions is projected to increase in the future in a dozen
of Member States (see annex 5).

[59] The impact would be
particularly felt in Member States with strong occupational provision (e.g. IE,
UK, NL), or those where mandatory funded pensions have been introduced in the
last decade (e.g. the EE, LV, LT, or PL).

[60] BIS January 2011, Phasing out the Default Retirement
Age: Government Response to Consultation: Impact Assessment, p.21.

[61] Please see annex 5
for more detailed information on the impact of career breaks (including due to
unemployment) on the theoretical replacement rates.

[62] Calculations
of the future net theoretical replacement rates show that retiring at 67
instead of 65 would result in considerably higher pension benefits (see annex
5).

[63] See for example
Esteban G., "Does Working Longer Make People Healthier and Happier?",
February2006, Centre for retirement research at Boston College;

[64] Gruber J., Milligan
K., Wise D. (2009) Social Security Programs and Retirement Around the World:
The Relationship to Youth Employment, Introduction and Summary, National Bureau
of Economic Research Working Paper No. 14647.

[65] In 2009 older women
(aged 65 and more) were more exposed at risk of poverty than older men in 25
out of 27 EU Member States (see the annex 5).

[66] For the evidence of
growing share of funded pensions in total pension income please refer to the
annex 5.

[67] The impact would be
important in Member States that do not intend to equalise the retirement age
between men and women (e.g. BG, IT, PL, RO, and SI).

[68] Businesses in
Member States with considerable share of occupational pension provision would
be affected (e.g. DK, IE, NL, SE UK).

[69] This could have a
positive impact on workers from Member States with high rate of temporary
out-migration.

[70] These responses
show that the vast majority of stakeholders see clear limits to EU action.  For
instance, ETUC stresses that "…the EU has no competence to intervene in
the organisation, structure and financing of the legal pension systems". 
BusinessEurope writes that due to national differences "…it is difficult
to regulate pension schemes at EU level.  The EU's role should be to make the
principles and objectives of the OMC more visible and better use them to
challenge Member States to further reform their pensions system." 
Finally, the comprehensiveness of the option is likely to maximise
complementarity and synergies between different measures. Such a holistic
approach is strongly supported by stakeholders.  For
example, AGE Platform Europe writes "The proposed holistic approach to
pension reforms, looking across all components of pension architecture, is the
right approach if we want to develop solutions which are financially and
socially sustainable on the long-term.".  The European Parliament also
"Welcomes the holistic approach adopted by the Green Paper".

[71] At the EPSCO Council meeting on 7th
March 2011, Commissioner Andor gave a report on the outcome of Green Paper
consultation (a full official summary was published on the same day and is
attached as Annex 3). Reacting to this, as recorded in the official EPSCO Press
Release, "[a]ll ministers stressed that it was important that any
improvements to the existing EU pension framework should avoid taking a
one-size-fits-all approach and should fully respect the subsidiarity principle
in view of the variety of the national social protection systems stemming from
different economic performances and demographic trends."  From this and
the official consultation responses of the Member States, it is evident that
Member States see clear limits on the EU role and primarily support an approach
based on better utilisation of existing EU level mechanisms.

EN

|| EUROPEAN COMMISSION ||

Brussels, 16.2.2012

SWD(2012) 7 final

II

COMMISSION STAFF
WORKING DOCUMENT

ANNEXES TO THE IMPACT
ASSESSEMENT

Accompanying the
document

WHITE PAPER

An Agenda for
Adequate, Safe and Sustainable Pensions

{COM(2012) 55 final}
{SWD(2012) 8 final}

COMMISSION STAFF WORKING DOCUMENT

ANNEXES TO THE IMPACT ASSESSEMENT

Accompanying the document

WHITE PAPER

An Agenda for Adequate, Safe and
Sustainable Pensions

Disclaimer
This Impact Assessment report commits only the Commission’s services involved
in its preparation and the text is prepared as a basis for comment and does not
prejudge the final form of any decision to be taken by the Commission.

Annex 1: Glossary.. 6

Annex 2:  The Green Paper Consultation.. 9

Annex 3:  Official summary of the Green Paper
consultation.. 14

Annex 4:  Executive summary from EPC-SPC Joint Report on
Pensions.. 38

A -
Challenges and achievements. 38

B -
Remaining risks aggravated by the economic crisis. 39

C -
Aggravated challenges and prospects. 40

D
–Policy implications. 41

Updated European Agenda for adequate and fiscally
sustainable pensions. 42

Annex 5:  Challenges to pension systems in the Member States.. 45

Demographic changes. 45

Increased weight of pension expenditures in public
finances. 46

Overview of pension reforms in Member States. 48

Economic vs Demographic dependency Ratios. 50

Adequacy challenges. 52

Employment rates of older workers. 55

Effects of early retirement & career interruptions
on pension adequacy.. 56

Premature retirement related to Health and Safety at
Work.. 59

Changes in pension systems: greater role for
pre-funding.. 61

Effects of the crisis: all types of pension schemes
have been impacted.. 62

Impact of crisis on prefunded
pensions. 64

Increased cross-border mobility.. 69

Diversity in situations across Member
States. 69

Annex 6:  Recent pension reforms in EU Member States.. 70

Annex 7:  The Commission's Country Specific
Recommendations (2011) on reforms of pension systems   75

ANNNEX 8: Argumentaire for the three Commission
Recommendations in option IIa.. 77

Gender equality in pensions: 77

The issue and present practices. 77

Growing disparities between historical legacies and
modern needs. 77

Different EU gender equality rules for social security
and occupational pensions. 78

The negative impacts of lower pension ages for women on
public budget and economic growth. 78

The disadvantages for women of lower pension ages. 78

Commission initiative to help rise gender equality in
employment rates, effective retirement ages and pension adequacy  79

Reducing early retirement: 80

Ending mandatory retirement ages: 82

ANNEX 9:
Background, substance and mutual synergies of measures.. 84

2 Supporting Member States in achieving a better balance
between time spent in work and in retirement   84

2.1 Pension system reform.. 84

Gender equality in pensions: 84

Reducing early retirement: 85

Backing pension reform by recommendations and
dissemination of best practise. 85

Promoting pension reforms: 85

Assessing reform needs in pension and retirement
policies: 86

2.2 Work place and Labour market measures promoting people’s
ability to stay longer on the labour market 86

Ending mandatory retirement ages: 86

Promoting healthy ageing at work: 87

Enabling older workers to stay longer on the labour
market: 87

Adapting work places and labour markets to longer working
careers: 88

Opportunities for extended working lives and
end-of-career jobs: 88

3. Supporting Member States in enhancing the contribution
to adequacy from complementary retirement savings  89

3.1 Promoting coverage and cost-effectiveness of
complementary private pensions. 90

Promoting cost-effective supplementary pension schemes: 90

Optimising the effect of tax expenditure in support of
private pension savings: 91

3.2 Enhancing the safety of complementary private pension
provision. 91

Increasing the safety of occupational pension schemes: 92

Raising the quality of third pillar pensions and
improving consumer protection: 93

Improving the design and performance of funded
occupational pension schemes: 94

3.3 Raising the Mobility of supplementary pensions. 94

Improving cross-border portability of supplementary
pension rights: 94

Improving people's ability to keep track of their various
pension rights: 96

Removing tax obstacles to cross-border mobility and investments
of pension funds and life insurance providers: 97

Improving cross-border security of occupational pension
rights for migrating researchers: 97

4. Enhancing the EU's monitoring and coordination tools
on pensions. 98

4.1 Coordinated monitoring of the adequacy,
sustainability and safety of pensions. 98

Coordinating the monitoring of adequacy, sustainability
and safety: 98

Raising the quality of adequacy monitoring: 99

4.2 Coherent policy making at EU level 99

Strengthening the coherence and integration of EU
policies impacting on pensions: 99

Securing full coordination and integration of Commission
pension policies: 99

Securing holistic monitoring of progress in pension
delivery in the EU: 100

Annex 10:  EU Treaty articles of relevance for pensions.. 101

Annex 11:  Bibliography.. 102

Annex 1:
Glossary

Accumulation phase – Period during which
contributions are made and invested in a defined

contribution scheme. (See also: Defined contribution (DC) schemes).

Annuity – A financial contract, sold by
a life insurance company for example, that guarantees m 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).

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 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).

Economic dependency ratio – the non- and
the unemployed population as a percentage of the employed
and self-employed population. Contrary to the old-age dependency rate which
looks at the population 65+ as a percentage of the population of working age
(15-64) this rate reflects the relation between those that de facto are
economically active contributors by being employed or self-employed and those
that are non- or unemployed. Raising the employment rate of people of working
age and above retirement age may substantially mitigate the economic impact of declining
old-age dependency rates.

Effective retirement age – Age at which
an individual actually retires from formal economic activity. Not necessarily
the same as the labour market exit age or the pensionable age. (See also:
Labour market exit age, and Pensionable age).

Funded scheme – Sometimes also referred
to as pre-funded: 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.

Holistic approach - looks at the whole
picture (i.e. is comprehensive) and the interaction between its parts (i.e. at
their integration). Since the totality of something is greater than the
sum of its component parts it cannot be understood by the isolated examination
of these parts. In EU pension policy this would for example entail looking to
all forms and types of pensions as constituent parts of the overall pension
package and to all policy areas that impact on the goal of delivering adequate
pensions in a sustainable and safe way.

Labour market exit age – The 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 take up a pension while others continue working after they
begin to receive a pension. (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).

Mandatory retirement age – refers to the
age stipulated in law or in national collective agreement at which people's
employment cease as a function of chronological age. Often this corresponds to
the pensionable age in the main statutory, public pension pillar but this is
not necessarily so. Council Directive 2000/78/EC of 27 November 2000
Establishing a general framework for equal treatment in employment and
occupation’ in its preamble and article 6 on ‘Justification of differences of
treatment on grounds of age’ permits Member States to set (minimum and) maximum
ages of access to employment and thus to set or accept ages at which workers
can be fired and denied recruitment or access to employment measures on no
other grounds than their chronological age.

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. The
qualification as a occupational scheme within this meaning is without prejudice
for the question of whether they are to be considered as
"legislation" within the meaning of Article 1(l) of Regulation (EC)
No 883/2004 and thus fall within the scope of application of that regulation on
the coordination of social security systems.

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).

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).

Pensionable age – The age at which one
can take up a pension in the main statutory public pension scheme and that
constitutes the reference pension age sometimes also called the standard or
normal pension age. The pensionable age is to be distinguished from the Retirement
age which refers to withdrawal from activity in the labour market or as
self-employed. The pensionable age may be different for men and women as
presently is the case in 13 Member States.

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.

Retirement age – the age at which people
stop formal paid work, i.e. leave their employment or cease their
self-employment, to go into retirement. To be distinguished from the
Pensionable age, the Labour Market Exit age, the Mandatory Retirement age

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. The qualification as a statutory scheme
within this meaning is without prejudice for the question of whether they are
to be considered as "legislation" within the meaning of Article 1(l)
of Regulation (EC) No 883/2004 and thus fall within the scope of application of
that regulation on the coordination of social security systems.

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

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.

Annex 2:  The
Green Paper Consultation

The Green Paper
on pensions[1]
published on 7th July 2010 began a long formal consultation which
ran for over four months until 15th November.  The consultation
sought views on 14 specific questions, designed to determine how the EU level
could best support the efforts of Member States to ensure adequate, sustainable
and safe pension systems for their citizens both now and in the future.  It was
supported by a Memo[2]
and a Commission Staff Working Document[3].

The
Commissioners Group on Pensions, chaired by Commissioner Andor and including
both of his co-authors on the Green Paper, Commissioners Barnier and Rehn, met
on 17th June to finalise the Green Paper launch and help set the
tone for the debate.  On the day the Green Paper was published Commissioner
Andor held a well attended press conference which was followed by technical
briefings to maximise publicity and interest in the paper and encourage
engagement in the consultation.

To further
maximise engagement, a large number of presentations were given at a range of
events during the consultation period, including to the Pension Forum[4] meeting on 24th
September 2010.  The centrepiece of this work was a conference hosted by
Commissioner Andor held on 29th October.  This included speeches,
workshops and debates and attracted participants including Government
Ministers, senior national policy makers, trade union and business
representatives, leading academics, social organisations, figures from the
pension and insurance industry and Commission representatives including Commissioners
and Director Generals.  In all, over 350 people attended this conference which
was also available online as a webcast to ensure that anyone who wanted could
have the opportunity to follow the proceedings.

The European
Parliament, the European Economic and Social Committee and the Committee of the
Regions also formally considered the issues raised in the Green Paper.  The
Commission fully engaged with the relevant Committees, attending numerous
Committee hearings and giving presentations and input to facilitate their
deliberations on the issues raised in the Green Paper.

The European
Economic and Social Committee (EESC) gave their formal opinion[5] on the Green Paper on 20th
January 2011.  In this opinion, they stressed that Member
States are fully responsible for defining their social security systems whilst
noting that a coordinated EU-level approach to pensions can contribute to
coherence and ensure that national pension systems are in line with the social
and employment pillars of the Europe 2020 strategy. Reforms should focus on
increasing the effective retirement age using initiatives to foster extended
working life, flanked by effective growth and employment policies and a real
"active ageing" policy.  Lastly the EESC urged the Member States and the Commission to make gender equality a reality including reviewing
different retirement ages for women and men.

The Committee of
the Regions (CoR) delivered its opinion[6]
on 4th February 2011.  The CoR also welcomed the Green Paper and the
broad consultation it brought.  It invited the Commission to develop the Open
Method of Co-ordination and links to the Europe 2020 agenda.  Other points
included the importance of gender aspects and adequacy, the need to clarify
boundaries between different pension pillars and to consider developing
benchmarks and codes of good practice to help improve pension systems whilst
balancing adequacy and sustainability.

On 16th
February 2011 the European Parliament adopted a resolution[7] on the Green Paper following
intensive work from their Committees on Employment and Social Affairs, Economic
and Monetary Affairs, Internal Market and Consumer Protection and Women's
Rights and Gender Equality.

In this
resolution, the Parliament welcomed the holistic approach adopted by the Green
Paper, pointed out the different situations in Member States and noted the need
to respect subsidiarity. It went on to flag up enormous challenges Member
States face in ensuring that citizens' expectations for adequate and
sustainable pensions are met.

Specific points
included that gender issues needed more attention, that pension adequacy levels
would need to be set nationally rather than at EU level and that it is
necessary for more people to participate in the labour market and to do so for
longer.  The Parliament also welcomed the links to the Europe 2020 strategy and
wished for these to be strengthened and felt the impact of pension reforms on
vulnerable groups should be closely monitored.  On pension portability,
Parliament felt the focus of EU activity should be on developing minimum
standards for the acquisition and preservation of pension rights and on
facilitating the establishment of national tracing systems for those rights. 
Social dialogue on pensions should also be encouraged in particular around
establishing and managing occupational pension systems.  The need to carefully
assess the impacts of changes to solvency standards for occupational pensions
was stressed. Parliament felt the Commission should also take action where
necessary to ensure Member States protected occupational pension in accordance
with the Insolvency Directive and better information on pensions in general was
needed for citizens.  A European pension's platform should be established and
the Commission should consider setting up a special task force on pensions,
involving all relevant DGs with competences relating to pensions issues.

The Green Paper consultation
itself was very successful, receiving almost 1700 formal responses including
around 350 from Member State governments, national parliaments, business and
trade union organisations, civil society and representatives of the pension
industry.  All responses were published online verbatim in December 2010.[8]

A full official
summary[9]
of these responses was published in March 2011 and this is reproduced in full
at Annex 3. Whilst there was, naturally, a range of opinions on the issues
raised in the Green Paper, the paper was broadly welcomed. The holistic
approach which considered both economic and social aspects of pension reform
together and highlighted adequacy and sustainability along with safety issues came
in for particular praise. Other areas of convergence included the need for
pension reforms to support both the sustainability of public finances and the
adequacy of pensions and that higher effective retirement ages are necessary.
There was also recognition of an important role for the EU in the coordination
of pension policies. Other points included that developing
pension tracking services should be supported and EU regulations on
occupational pensions should be reviewed.

But practically all the respondents agreed that Member States have
different situations and priorities regarding pension systems so the issues
must remain in the hands of Member States, although some coordination at EU
level and some interaction with the EU was perceived as essential.  Many other
points with varying levels of support came out of the consultation.  For
instance, the majority felt that the implementation of the Europe 2020 strategy
on the reduction of poverty provides the policy framework for Member States to
assess the role of their own national minimum pensions.  The ongoing debate
about public and private pension provision had a variety of views with the development
of private pension systems ranked fairly low among the priorities of some
Member States and other respondents whilst many others see it as a given that Member
States will need to boost 2nd and 3rd pillar private schemes in order to
alleviate some of the burden of ageing on public budgets. These respondents,
including BusinessEurope,orking livesd to secure
pension systems.iety of viewst also called on the Commission not to
undermine incentives for employers to continue to provide supplementary pension
schemes.

Some
respondents, such as the ETUC, questioned the demographic situation and noted
the change in the economic dependency ratio was less dramatic than simple age
based ratios would suggest and that demographic changes could be well
anticipated.  Issues of fairness and ability to work longer related to arduous
jobs, length of working life and different life expectancies were also raised
in the context of longer working lives.  A focus on quality of employment and
wages was felt to be the major response needed to secure pension systems by
ETUC and some other respondents. Some highlighted that Member States and the
social partners should take the necessary measures to credit and guarantee
pension rights for periods of involuntary absence from the labour market.

Some respondents,
in the context of the widely accepted need to raise effective retirement ages, remarked
that companies should offer more support for older workers, affording them real
opportunities to continue working until the pensionable age. Age Platform
Europe for instance highlighted the importance of developing comprehensive
company and national level age management strategies.  While focusing on active
ageing, some key stakeholders also underlined the difficulties that young
people have in breaking into the world of work due to the extensive use by
companies of short-term contracts and part-time employment. Intergenerational
solidarity was a theme in a number of contributions.

Many responses emphasised
that it would be too difficult to regulate pension schemes at EU level, and the
EU’s role therefore should be limited to setting the principles and objectives
to which the Member States should refer when reforming their pension systems,
and to encouraging Member States to ensure that citizens have access to
adequate information about their pensions. A number of responses underlined
that it would be very helpful if a common terminology and common criteria for
classifying Member States’ pension systems could be established.

On solvency
rules for supplementary pension funds, many responses including those of
BusinessEurope and the ETUC, cautioned against increasing the costs here and
the need to ensure any rules reflect the specifics of such pension funds.  On
regulation in general, some respondents highlighted that while cross-border
schemes are important, EU regulation to facilitate these should not put extra
burdens on the domestic schemes, which involve a far greater number of members.

Many
respondents, including a number of Member States, believed it would be
appropriate to update current minimum requirements for disclosure of
information on any pension product, and that this must be accompanied by
promoting financial education. At the same time, others suggested that it would
be useful to provide a default option for people who do not have the knowledge
or confidence to make their own investment choice.

There were of
course many other points made and shades of opinion from the large number of
responses to the many questions raised in the Green Paper and the full official
summary reproduced at Annex 3 gives more details.

On 7th
March 2011 Commissioner Andor gave a report to the EPSCO Council[10] on the messages from the
consultation process and the Parliaments Resolution and the EESC and CoR
opinions. To coincide with this, a full formal summary was published online the
same day[11]
and this is reproduced in full in Annex 3. On publishing
the Summary, Commissioner Andor stressed: "If pension reforms are to be
politically acceptable and economically effective in consolidating budgets and
ensuring adequate pensions for the future, they have to take the social and
labour market dimensions fully into account".[12]

The initial
reactions of Ministers at EPSCO[13]
to the report on the consultation given by Commissioner Andor included noting
the importance of avoiding taking a one-size-fits-all approach and the need to
fully respect the subsidiarity principle given the different situations in
between Member States.  The aim should be to achieve the right balance between
work and retirement and facilitating a longer working life. Whilst a higher
effective retirement age was widely recognised as necessary, Ministers felt it
should be determined by national policies with the involvement of the social
partners.

Some ministers
expressed the view that the retirement age should evolve in line with
life-expectancy while several others considered that pension reforms should be
coupled with active labour market policies, lifelong learning opportunities,
effective social security and healthcare systems and improvement of working
conditions.

A number of
ministers stressed the importance of EU policy coordination of pension policies
by facilitation of observation, coordination and mutual learning between the
Member States. In particular, the social Open Method of Coordination was seen
as the right instrument to support Member States' efforts to improve the
adequacy of pensions.

The overall
theme to emerge from the consultation process and the debate it launched could
perhaps be best summed up as strong support for the holistic approach of
considering all the different interests and aspects of pension systems together
and an emphasis on the EU level maximising its contribution via existing instruments
in the first instance.

The
Commissioners Group on Pensions met on 9th February to discuss the
emerging outcomes of the consultation and next steps.  It met again on 15th
June to consider the development of the White Paper and discuss the shape and
possible content of the paper.  Discussions have also taken place at Cabinet
level as a complement to this.

Annex 3:  Official summary of the
Green Paper consultation

|| EUROPEAN COMMISSION Employment, Social Affairs and Inclusion DG Internal Market and Services DG Economic and Financial Affairs DG

Brussels, 7.3.2011

SUMMARY OF CONSULTATION RESPONSES
to the
Green Paper
"TOWARDS ADEQUATE, SUSTAINABLE AND
SAFE EUROPEAN PENSION SYSTEMS"

Introduction

On 7 July 2010,
the European Commission published a Green Paper "Towards adequate,
sustainable and safe European pension systems" (COM(2010)365 Final).

The purpose of
the Green Paper was to initiate a European debate on the key challenges
concerning pensions, and how the EU can best support the efforts of Member
States to ensure adequate, sustainable and safe pensions for their citizens
both now and in the future.

The Green Paper
accordingly launched an open consultation setting out 14 questions and asking
any interested parties to respond by 15 November 2010.

The consultation
was extremely successful, receiving almost 1700 responses from across the EU
including around 350 from Member State governments, national parliaments,
business and trade union organisations, civil society and representatives of
the pension industry.

In addition, a
resolution was adopted by the European Parliament on the Green Paper following
intensive work from their Committees on Employment and Social Affairs, Economic
and Monetary Affairs, Internal Market and Consumer Protection and Women's
Rights and Gender Equality. The European Economic and Social Committee (EESC)
and the Committee of the Regions (CoR) also delivered opinions on the Green
Paper.

The following
text provides a summary of the responses, including the views expressed by the
European Parliament, the EESC and the CoR, to the 14 questions, as well as the
general comments from respondents.  The text attempts to cover the full range
of views expressed and aims to reflect the diversity of responses representing
everything from a single individual's view to those of the European Parliament.
The summary seeks to be a fair reflection of what the consultation has brought
as a whole. The full text of all of the responses received was published on the
website of the Directorate-General for Employment, Social Affairs and Inclusion
in December 2010[14].

General Comments

General comments
of the respondents to the Green Paper on Pensions were largely positive and
welcomed its holistic approach and the commitment of the European Union to
support Member States in their efforts to make pension systems adequate and
sustainable and to promote a sustainable economic growth in the longer term.

Practically all
the respondents agreed that Member States have different situations and
priorities in relation to key issues such as the increasing of retirement age,
the reform of labour markets and their pension systems. Hence pension issues
must remain in the hands of Member States, although some coordination at EU level
and some interaction with the EU is perceived as essential. Whilst highlighting
common challenges, Member States responses and the European Parliament tended
to underline the need to respect the principle of subsidiarity.

Many respondents
welcomed that the Commission will continue to build on the "open method of
coordination" (OMC) in order to share best practices on important issues
such as the sustainability and adequacy of pension systems. Several respondents
furthermore indicated that they think that the introduction of reinforced EU
policy coordination on public finances can help boost long-term fiscal
discipline and support the sustainability of national pension systems. In view
of the interdependence of economies, the European Parliament called on Member
States to coordinate their pension policies. Given that systemic pension
reforms entail transformation costs, the European Parliament believes that
these should be taken into account when assessing sustainability. Likewise, it
requested that the full scale of unfunded direct public sector liabilities be
explicitly disclosed.

The
implementation of the Europe 2020 strategy on the reduction of poverty provides
the policy framework for Member States to assess the role of their own national
minimum pensions.

Regarding the
public/private mix in pension provision, a number of Member States affirmed
that they will continue to base their systems primarily on a statutory public
pension scheme and highlighted that the development of private pension systems
ranked fairly low among their priorities. Many others see it as a given that
Member States will need to adapt pension systems to demographic ageing by
lowering the role of the public tiers while boosting 2nd and 3rd pillar private
schemes in order to alleviate some of the burden of ageing on public budgets.
These respondents also called on the Commission not to undermine incentives for
employers to continue to provide supplementary pension schemes. Moreover, the
European Parliament wished to increase the supplementary pension coverage of
workers in SMEs. Some respondents emphasised that while demographic ageing is a
reality, its impact should not be overdramatized as it can be both assessed and
anticipated.

Some respondents
remarked that companies should offer more support for older workers, affording
them real opportunities to continue working until the pensionable age. While
focusing on active ageing, some key stakeholders also underlined the
difficulties that young people have in breaking into the world of work due to
the extensive use by companies of short-term contracts and part-time
employment. Intergenerational solidarity was a theme in a number of
contributions, including the ones from the European Parliament, the CoR and the
EESC.

A number of
respondents point to the necessity of ensuring the quality of jobs and wages in
order to achieve adequate, sustainable and safe pensions for future generations
and highlight that Member States and the social partners should take the
necessary measures to credit and guarantee pension rights for periods of
involuntary absence from the labour market. The European Parliament found that
more attention to gender issues would have been helpful and called on the
Commission and Member States to continue their efforts to ensure equal
treatment of women and men in pensions.

Many emphasised
that it would be too difficult to regulate pension schemes at EU level, and the
EU’s role therefore should be limited to setting the principles and objectives
to which the Member States should refer when reforming their pension systems,
and to encouraging Member States to ensure that citizens have access to
adequate information about their pensions. A number of responses underlined
that it would be very helpful if a common terminology and common criteria for
classifying Member States’ pension systems could be established. The European
Parliament in particular called on the Commission to develop a comparative
typology of Member State schemes.

The Green Paper
on Pensions has furthered the debate about how pension funds should be
regulated, including the solvency rules, and which role insurance companies
should have in private retirement provision. Most conclude that insurance
companies and pension funds offer different pension products and therefore they
need different rules. Many respondents underscored that changes to the rules
for funded pension schemes should not raise the costs of operating such
schemes.

Some
stakeholders support the idea in the Green Paper to restrict the pensions label
to products with predefined characteristics, and a clear distinction between
pensions and other financial products should be drawn in any current and future
legislative initiatives.

Many
respondents, including a number of Member States, believed it would be appropriate
to update current minimum requirements for disclosure of information on any
pension product, and that this must be accompanied by promoting financial
education. At the same time, others suggested that it would be useful to
provide a default option for people who do not have the knowledge or confidence
to make their own investment choice.

Finally, some
respondents highlighted that while cross-border schemes are important, EU
regulation to facilitate these should not put extra burdens on the domestic schemes,
which involve a far greater number of members.

Question 1. 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?

Most respondents
acknowledged that the best way the EU can support Member States' efforts to
strengthen the adequacy of pension systems is by continuing the social Open
Method of Coordination (OMC), where the EU has a very useful role in monitoring
developments, fostering effective exchange of information and mutual learning.
This implies in particular continuing the work of developing and improving
indicators, modelling tools and statistical data that allow the measurement of
adequacy and the comparability of adequacy developments between Member States.

Some of the
answers elaborated on how these analytical tools could be improved by refining
assumptions and definitions and also, for example, by including non-financial
factors that influence living standards of pensioners. Specific proposals
included the idea of exploring the possibilities of building a European model
for using administrative data on pension systems to analyse the impact of
pension reforms (e.g. through micro-simulation models) and the development of
statistical estimates to evaluate the adequacy of pensions in the light of
their ability to prevent poverty in old age.

Many respondents
mentioned the interlinkages between adequacy and sustainability and argued that
they should be looked at together, both from an analytical and a
policy-oriented point of view. Along these lines, improved cooperation between
the different policy areas linked to pensions (i.e. the economic and social
dimension) is often called for. The monitoring of the balance between sustainability
and adequacy, the improvement of the coherence of indicators used by both sides
and the need to report jointly about the two objectives are mentioned by some
respondents. Also many respondents saw that the best way to answer the adequacy
concerns was, just as for ensuring sustainability, promoting employment of all
persons of working age (with particular attention to vulnerable groups). It was
widely believed that to support both adequacy and sustainability the EU had to
promote employment, longer working lives, economic growth and should implement
reforms aimed at achieving the targets of the Europe 2020 strategy.

The majority of
respondents argued that the EU must not seek to define what adequate retirement
income is. They often mentioned that the issue of adequacy of pensions is a
national prerogative, based on political choice of Member States, and thus it
is a matter for the individual Member States to decide upon. Others mentioned
that the concept of adequate retirement income was country-specific, as it is
very closely related to the economic, financial and social situation of each
country and therefore no common meaningful definition could be found.
Furthermore, social security and pension systems were too disparate across
Member States to seek a uniform definition of adequacy. Some others pointed to
the technical difficulties of translating any possible common definition of
adequacy into standardised indicators (i.e. the aggregation of many diverse
factors into a meaningful indicator that could also reflect economic changes in
different countries seemed unfeasible).

For some
respondents, however, the EU should help Member States to guarantee that their
pension systems deliver benefits that avoid the risk of poverty in old age and
ensure a decent standard of living for everybody. Thus they argued for a
stronger focus on minimum income for older people at EU level. For these
respondents the issue of adequacy had been understood as closely linked to the
definition of minimum standards that would prevent pensioners from falling
below the poverty line.

Along the lines
above, the European Parliament also "does not consider it possible for
the EU to set adequate pension levels, because the amount required is very
dependent on specific circumstances in the Member States; calls however on the
Commission to come up with guidance that makes it possible for Member States to
establish criteria for a minimum level of pensions; considers that Member
States should define adequacy as the condition required for older people to
live a decent life". Only a minority of responses claim that the EU
should actually define (and in some cases enforce) what an adequate retirement
income is.

Moreover, the
European Parliament "stresses that, within the range of pension systems,
diversification of pension income from a mix of public (first pillar) and
work-related (in most cases second pillar) schemes, can provide a guarantee of
adequate pension provision".

Many other
respondents also highlighted that a diversified, multi-pillar approach in
pension provision can play an important role in guaranteeing adequate
retirement incomes in the future. Adequacy should not only rely on the public
pension schemes, even if it is often claimed that these should remain the most
important ones. While the fundamental role of pay-as-you-go systems in ensuring
a decent standard of living for everybody and solidarity between and within
generations is often appreciated, the supplementary role of funded forms of
pension provision (eg occupational pensions) is also stressed by some.

Given the likely
future pressures on public finances some respondents found a strong case for
promoting the culture of pension savings and private pension provision and for
improving understanding among the public of how private pensions can contribute
to an adequate retirement income. On the other hand, other respondents argue
that private pensions are not the panacea for the challenges faced by pension
systems regarding adequacy. They ought to be reliable and stable to really
contribute their part to adequate benefits for future pensioners and above all,
workers should not be exposed to new risks when complementing their retirement
provision by funded pension instruments. For that, EESC among others, call for
a limitation of the financial risks by appropriate revision of the existing
regulatory framework.

It should be
noted that around 1000 of the submissions to the consultation are from
individuals responding only to Question 1. The respondents are UK state pensioners typically living in Canada and complaining as part of a campaign about one
specific issue (ie the lack of uprating of their UK state pension and its
impact on pension adequacy), calling into question EU guidelines and
legislation on pension rights[15].

Question 2. Is the existing pension
framework at the EU level sufficient for ensuring sustainable public finances?

There is very
wide recognition of the necessity of ensuring sustainable public finances in
the EU in general and in the Eurozone in particular. A large number of
respondents consider that, among others, a key policy field for ensuring this
vital objective is pension policy. It has long-term repercussions for
individuals as well as for the economies and the societies of the EU.

There is strong
support for the integrated approach to pension policy adopted in the Green
Paper. Many respondents stress that diversified pensions systems stand the best
chance of providing sustainable, adequate and safe pensions. Moreover, pension
policy issues are interlinked with other policy areas relevant for jobs and
growth, which underlines the importance of an integrated approach. In this
context, respondents generally pointed to the relevance of the Europe 2020
strategy for smart, sustainable and inclusive growth.

Most respondents
perceive the Stability and Growth Pact as the major EU framework to this
effect. Many also highlight the usefulness of the Open Method of Coordination when
reviewing pension policy issues.

There are a
large number of stakeholders that consider the current framework at EU level as
largely appropriate for assessing the sustainability of public finances and for
discussion and best practise exchange on pension policy issues. However, a widely-held
consideration is that improvements within the existing framework would be
beneficial for ensuring the sustainability of public finances, given that the
fiscal positions crucially need to be strengthened in the aftermath of the
crisis, and that the EU level has an important role in monitoring the situation
and providing suggestions for action, including monitoring and reporting on
implicit pension liabilities.

The European
Parliament believes that account should be taken of public pension liabilities when
assessing sustainability. It underlines that the sustainability of public
finances requires the inclusion of total public and private debt in the
assessment and points out that pension savings constitute something more than
merely savings earmarked as pension.

As regards the
Stability and Growth Pact (SGP), there is wide support of the Commission's
initiative for reform of the Pact, as well as for the wider governance
structure of policy coordination in the EU, as provided for by the legislative
package proposed by the Commission on 29 September 2010.

A great many
respondents welcome the Commission's initiative to improve the functioning of
the SGP. It is seen as necessary both on account of the significant pressure on
public finances brought about by the crisis and the longer term economic and
budgetary trends. There is support for the Pact being a key component of the EU
level framework insofar as it imposes restrictions on the conduct of fiscal
policies and allows for regular reviews and policy adjustments where needed. At
the same time, respondents support that pension policy continues to be
determined at national level, as countries have different traditions and
characteristics. One European respondent called for attention being paid to the
social dimension and the local and regional dimension to the macro economic
surveillance.

As regards the
current review of the Pact, some respondents consider that sufficient account
needs to be taken of impact of 'systemic' pension reforms on the budgetary
position of the general government, and sustainability-enhancing reforms should
not be discouraged. They consider this as an important contribution to
encourage reforms of pension systems that go in the direction of developing a
multi-pillar approach with prefunded elements with a view to improving
long-term fiscal sustainability while at the same time ensuring that the
restrictions on fiscal policy conduct imposed by the Pact are respected. The
European Parliament considers it regrettable that certain Member States
reversed such pension reforms implemented in recent years.

As already
underlined, some respondents stress that pension systems are matters that come
within the exclusive competence, responsibility and decision making power of
the Member States. They also recognise nevertheless that Member States'
economies are interdependent and therefore call on the EU level to provide
further input within existing EU level processes on pension policy issues. This
includes a common set of definitions and a harmonised measures of pension
indicators so as to pave the way for an informed and frank discussion of
relevant pension policy issues and challenges at the EU level. Many underline
that such additions should be developed within existing frameworks, which, in
general, are deemed to be appropriate.

In terms of
responses from individual EU citizens, a wide range of views emerges. Responses
range from strong support of further policy coordination, including for pension
policies and enforcement at EU level of stability-oriented macro and fiscal
policy frameworks so as to ensure fiscal sustainability to calls for ensuring
complete autonomy of pension policies, for less binding EU level rules for
fiscal policy and more broadly of economic and social policies in general.

Question 3. 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?

Pensionable
age and effective retirement

In line with the
majority of respondents, the European Parliament agrees that demographic ageing
calls for longer working lives. The Parliament also recommends that priority
should be given to ensuring that employees work until the statutory retirement
age.

The majority of
respondents agree that the effective retirement age should be increased so that
the balance between working life and life spent in retirement is maintained. But
all changes in pensionable ages need to be determined at the national level
with involvement of the social partners, as the appropriate measures might
depend on the national context.

Some respondents
stress that increases in the pensionable age should be applied to both
statutory and supplementary pension schemes. Others underline the signalling
role of changes in the state pension age, and therefore expect such changes to
lead to increases in the pensionable age of occupational schemes.

A few
respondents maintain that longer working should be first pursued on a voluntary
basis. Some suggest that the pension age should take into account life and
healthy life expectancies of different professional groups. They argue that
those who entered the labour market at an early age and those in arduous
occupations should continue to be offered special treatment. Some respondents
add that the number of professional groups that are entitled to a lower
pensionable age should be significantly reduced, and periodic reviews of early
exit entitlements should be carried out (e.g. for disability pensions).

According to the
European Parliament and a number of respondents higher pensionable age and
higher effective retirement age are two distinct issues. But there is a
widespread recognition of a high degree of interdependence between the
effective retirement age and the functioning of labour markets. Currently, a
high proportion of the workforce retires early, due to lack of employment
opportunities and inappropriate age management practices in labour markets and
work places. This needs to be changed and Member States should encourage
reforms in their labour markets and their systems in place to support the
workforce. Thus, numerous respondents underline that pension reforms should be
coupled with active labour market policies, flexicurity, lifelong learning
opportunities, effective social security and health care systems, and
improvement of working conditions. Several Member States or national
parliaments mention the importance of the European Year 2012 for Active Ageing
in this context.

Moreover, the
European Parliament stresses that the EU should promote better employment
opportunities for older workers and an age-friendly labour market. Increases in
the statutory pension age should be contingent on the availability of work for
older workers, as otherwise they would simply entail shifting public
expenditure from old-age pensions to unemployment benefits. Some add that
public awareness campaigns should be considered as one way of improving the image
of older workers among employers. Business organisation underline that an
appropriate wage policy is needed where wages are linked to productivity so
that older workers are not pushed out of the labour market.

A few
respondents maintain that gradual retirement schemes are good but should be
complemented by the removal of incentives to retire early and by the provision
of incentives for employers to create an inclusive labour market. Flexible work
arrangements and part-time work are also proposed as solutions. Respondents had
different views on whether flexibility in retirement age should be allowed only
on an actuarially adjusted basis (with financial disincentive to retire
earlier).

One European
organisation suggested the EU should:

–
support the development of new forms of
work-life provisions adapted to the specific needs of the 50+ workers, mainly
women, who care for dependent relatives i.e. a European Directive on carer’s
leave;

–
and strengthen the EU anti-discrimination
legislation to combat age and gender discrimination in and outside employment.

Several
respondents, including trade unions, highlighted the importance of enabling the
young generations to enter the labour market earlier. Low employment rates
among the young are not only the result of longer schooling, but results also from
the lack of opportunities for stable employment. Some other respondents add
that encouraging longer working and tackling youth unemployment must be pursued
in tandem.

Automatic
adjustments

Automatic
adjustment mechanisms are presented as a possible approach by a number of
respondents, but there is a predominant opinion that they should be designed at
national level.

Linking
increases in the pensionable age to increases in life expectancy is a natural
option for some respondents, while others prefer the healthy life expectancy
indicator, or entirely reject the idea. Proponents of the mechanisms underline
their positive effects, as the automatic link creates predictable situation and
helps people to plan their retirement. By contrast, frequent ad hoc reforms
introduced under pressure of circumstances might lead people to retire at the
first possible occasion as they are afraid of losing their rights. Opponents
emphasise that automatic mechanisms can come under strong pressure in time of
adversity. Moreover, they might not be effective and could create uncertainty.

According to a
number of respondents, automatic adjustment is a positive solution but their
entering into force should not be scheduled too much into the future, as this
only creates an illusion of reform. A few others claim that while announcing automatic
adjustments well in advance may help to raise the retirement age, politicians
should be given an opportunity to fine-tune the extent and timing of adjustments
in the light of evolving circumstances.

Some of the
respondents, including a number of Member States, mention not only automatic
adjustment to the retirement age but also to pension levels (e.g.
sustainability factors that balance the value of contributions and benefits in
the system), as both can have a similar effect provided people decide to stay
longer in the labour market.

Role for the
EU

There is a
general agreement between respondents that the EU should offer advice and help
to exchange best practices between Member States, and recognition that pension
policy remains a national competence. Some respondents suggest that the profile
of the OMC objectives should be raised but their scope is sufficient. Some
respondents propose that the EU could monitor developments in sustainability
and e.g. implementation of automatic adjustment mechanisms in times of crisis.

Question 4. 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?

Member State respondents stress their commitment
to the existing Europe 2020 strategy. Other respondents (national parliaments,
social partners, civil society, other organisations and individuals) stress the
opportunities the strategy offers. Europe 2020 and its flagship initiatives
provide a suitable framework to boost growth and employment. The respondents
see links between the Green Paper on Pensions and the Europe 2020 strategy. It
was clear to respondents that the strategy on growth and employment depends to
a large extent on pensions policies, which have an impact on poverty rates, can
encourage or discourage employment and have a direct influence on the state of
government budgets. Equally, policies in the spirit of Europe 2020 are relevant
for pensions: for example, increased labour market participation rates will
benefit the sustainability of both PAYG and funded pensions.

In their replies
to question 4, respondents also highlight the different aspects of the Europe
2020 strategy and their link to pensions and ageing policies in more detail. On
raising labour market participation rates respondents note that although this
is not an easy task, it is needed. Some see raising pensionable ages in itself
as a stimulant, others prefer to consider flexible and gradual retirement. The
need to consider ways of increasing the motivation of employees and employers to
make longer working lives a reality is also raised. The equal and
non-discriminating treatment of older workers should continue to be legally
guaranteed. But beyond this, respondents saw the need to not only raise the
quantity of the labour force in order to advance economic growth and pension
sustainability, but also pay attention to the quality of work, as this is key for
the success of efforts to extend working lives.

Stimulating life-long
learning and the recognition and promotion of the skills and experience of
older workers can be highly beneficial. Individual employer responses mentioned
the responsibility that employers have in this regard. It would be helpful if
Member States provided a more suitable incentive structure. This also links
closely to the modernisation of the labour markets under the Europe 2020
strategy and is explicitly mentioned in the responses. Some respondents
highlight here the opportunities presented by flexicurity, but also the
potential positive impact that higher mobility of workers between companies,
sectors, and countries can bring. Finally, some respondents welcome the role of
the European Year for Active Ageing for promoting this agenda.

Member States and also other respondents note
that there is no one-size-fits-all approach and see the implementation of the
strategy as their own responsibility. Nevertheless they find that the European
level will be beneficial to them in their endeavours. Some respondents point
here also to the role the social partners have to play in this. The European level
offers the opportunity to exchange best practices. The European Commission
could be helpful by e.g. expanding the open method of coordination, undertaking
more peer reviews and actively comparing Member States. The European Commission
should also continuously monitor the achievements of the strategy and encourage
exchanges of best practice; better information sharing and clear identification
of what could be the best way forward for both the economy and pensions in the
context of an ageing population by continuing on the holistic process of the
Green Paper.

Like some
respondents, the European Parliament stresses the contribution the Europe 2020
strategy can make in ensuring adequate and sustainable pensions. However, it
regrets that there is no explicit mentioning of decent, sustainable and
adequate pension systems. It therefore suggests incorporating the holistic
objectives of the Green Paper into the Europe 2020 Strategy.

Question 5. In which way should the IORP Directive
be amended to improve the conditions for cross-border activity?

A large group of
respondents mentioned that a revision of the IORP Directive is necessary to
clarify legal uncertainties related to several concepts. Many respondents, as
well as the European Parliament, stated that any revision of the Directive
would need to be accompanied by a thorough impact assessment, in particular to
quantify costs and the administrative burden. The European Parliament also
mentioned the important role the European Insurance and Occupational Pensions
Authority (EIOPA) should play in the preparatory process of reviewing the IORP
Directive. However, a number of respondents suggested that revising the
Directive may lead to legal uncertainty and is not necessary because of its
recent implementation and the limited evidence of its full impact in practice,
especially relating to cross-border activity.

The following
suggestions for amending the IORP Directive were given.

1.
A more consistent approach is necessary for
IORPs which wish to operate across borders since the Member States have
different legal interpretations of that very concept.

2.
It may be necessary to remove the possibility
for Member States to impose additional requirements for cross-border activity
of IORPs. Reference was made in particular to the full-funding provision
(Article 15), investment rules (Article 18) and information requirements
(Article 20). The same regulatory oversight should apply to IORPs which operate
domestically or across borders. This would avoid regulatory arbitrage between
the IORPs, regardless of how they operate.

3.
There is no clear definition of the scope of social
and labour legislation and its interaction with prudential regulation as well
as general-good rules.

4.
Another group of respondents stated that the
different fiscal regimes at the national level are a constraint for
cross-border activity. Respondents acknowledged in this respect that the issues
of social and labour law and fiscal matters fall in the remit of Member States'
competences.

5.
Some respondents mentioned that the application
of the Directive would need to be extended to financial institutions other than
those institutions which are currently within the scope of the Directive.

6.
It was also stated that the Directive does not
address the issue of secondary establishment in another Member State, as compared to the situation of insurers which are covered by the consolidated Life
Assurance Directive. The establishment of a level-playing field would also be
welcomed by several respondents, which could give EU citizens more choice of
and lower prices for pension products.

Issues outside
of the remit of the IORP Directive were mentioned by some respondent such as
the introduction of a 28th regime, which could be a useful alternative
for cross-border schemes. Others expressed the opinion that a parallel regime
would be of little benefit for two reasons. It would only lead to confusion and
undermine the existing national regimes; moreover, the differences in social
and labour law at the national level could be an obstacle to develop such a
regime. In addition, the role of venture capital markets should be clarified,
including an assessment of the prudential aspects and the investment funds'
strategies regarding high-risk financial instruments.

Finally, the
creation of pan-European individual pension accounts, functioning alongside the
current pension systems, is presented by some respondents as potentially
beneficial for cross-border workers.

Question 6. What should be the scope of
schemes covered by EU level action on removing obstacles to mobility?

As the Green
Paper explained, policies and regulation need to facilitate the free movement
of production factors, notably labour and capital, in the EU. In the context of
pensions, the paper highlighted three EU level initiatives: first, the IORP
Directive, which covers certain funded occupational pension schemes and is
designed to facilitate cross border activity; second regulations 883/2004 and
987/2009, which are designed to co-ordinate social security (including pensions);
and third, the proposal for a portability directive, which seeks to remove
obstacles to the free movement of people that can be caused by the rules of
some supplementary pension schemes. The Green Paper also spoke about the
fragmented and incomplete natures of the EU level regulatory framework and how
this, combined with developments in pension systems, raised issues about
consistency and boundaries between different EU level instruments. Responses to
this specific question on scope therefore covered a range of issues and EU
level instruments.

Most responses
focussed on the scope of the co-ordination of social security pensions and the portability
initiative for supplementary pensions or related issues. , Some related it to
both of these, others to the IORP Directive, while some replied without
referring to specific instruments.

The European Parliament
stressed that labour market mobility in the EU will be crucial for job creation
and economic growth and went on to note the positive impact a more dynamic
labour market could have on pension systems. Many respondents also stressed the
importance of labour market mobility for the single market, jobs and growth. 
Some also went further to note the importance of international mobility beyond
EU borders.  However, views on what this should mean in terms of the scope of
EU level action varied considerably. A number of respondents noted that many
barriers, such as tax and social and labour law differences between Member
States, were real could not be dealt with at the EU level.

In general, most
respondents who mentioned it felt that the co-ordination of social security
pensions under Regulation 883 worked well and that there was no need either to
change this regulation or to expand its scope. Some noted that, in any case,
social security was a Member State competence. Others stressed that this
co-ordination approach was indeed the right way to go for social security
pensions (rather than, say, a harmonisation approach); one response suggested. One
Member State suggested that co-ordination regulations could be developed to ensure
that statutory funded pension schemes have a freer hand on issues such as
gender and the approach investment. Another view was that regulation 883 may
need adjusting to cope with highly mobile workers.

The portability
initiative aimed at supplementary pensions was mentioned less often, but of
those who did refer to it, nearly all supported such an initiative, though
there was little explicit comment on the scope.  Specifics were mostly left to
the responses under question 7, but a regulation 883-type co-ordination
approach was felt to be unsuitable for supplementary pension schemes, and the
acquisition and preservation approach was felt to be best. One notable
response, however, thought the application of a co-ordination approach adapted
to all supplementary – occupational and individual – funded pension schemes
could be worth some investigation. Sharing of information and best practice was
also mentioned by a couple of respondents as a good way forward. A few
respondents mentioned pan-European pension schemes (a "28th
regime"-type approach). But whilst some felt this may offer a way forward
(and one felt it should be part of the Europe 2020 strategy given the importance
of job mobility), others opposed it due to varying tax regimes and subsidiarity
concerns. One response noted that defined-contribution (DC) pensions in any
case represented much less of an issue, so there was no real need for action
for these types of pensions.

Those
respondents who mentioned or focussed on the IORP Directive felt the scope was
fine as it was and one Member State response specifically referred to the need
to continue to exclude book reserve schemes from the IORP Directive.

So, overall,
although the answers varied in what they focussed on – IORP Directive,
Regulation 883, supplementary pension rules – the message was consistently that
there should be no change of scope, particularly as regards regulation 883.

Question 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?

Reaching
agreement on how to tackle obstacles to the free movement of workers that can
be caused by supplementary pension rules has proved extremely difficult. The
Green Paper sought to put new impetus into this long-standing work.

The vast
majority of responses strongly supported the principles of free movement and
felt it was important to avoid anything which could inhibit this. Some noted
that reforms of pension systems and changes in labour markets meant that action
was more necessary than ever. The European Parliament, as noted in the summary
of question 6, stressed that labour market mobility in the EU will be crucial
for job creation and economic growth and went on to say it considered that
citizens' confidence will be improved when obstacles to internal and
cross-border mobility are removed. Beyond this wide agreement on the principle,
views differed on the scale of the problem caused by supplementary pension
rules, what the solutions might be and who should be responsible for taking any
action.

The first part
of the Green Paper question concerned transfers. Transfers were included in the
original proposal for a portability directive of 2005. It was subsequently
dropped in the revised proposal of 2007 due to insufficient political
acceptance. As the Green Paper was taking a fundamental look at how to make
progress, it made sense to raise the issue again. However, perhaps not
surprisingly, consultation responses showed that the positions have moved very little
since this was last considered.

The majority of
respondents felt transfers were not a viable option and strongly opposed them. Some
responses noted that, at first sight, transfers appeared to be an
intellectually neat solution as it meant that when a person moved jobs their
pension went with them and their former employer and pension scheme would be
free of any further responsibility and administrative burden. But they went on
to note that on closer inspection and in particular in practical terms, transfers
were too difficult to be a serious option. Major technical difficulties in
terms of providing fair transfer values, associated administrative and cost
burdens, the impact of different rules, social and labour law and tax treatment
and the inherent risk of abuse of pension systems all weighed heavily on the
majority of respondents who opposed transfers.

Other concerns
included the possible impact of transfers on pension schemes, as significant
withdrawals could put at risk the scale necessary to provide good value
pensions. One or two felt that, regardless of other considerations, the
political realities meant transfers was a dead end so other more hopeful
options should be the focus and transfers should not be pursued. Nonetheless a
minority of respondents did support looking again at transfers, perhaps using
best practice exchange to try to overcome the formidable technical challenges.
One response supported transfers subject to some specific conditions and felt
such transfers could be promoted via the OMC and non-binding guidance and start
via small-scale agreements between certain sectors and Member States, with
researchers considered a good sector to start with.

The European
Parliament noted the trend towards more defined-contribution pension schemes
and fewer defined-benefit schemes, which has the effect of putting more of the
investment risk onto pension savers. It also noted the diversity and complexity
of the various capital based occupational pension systems and expressed the
view that any transfers ought only to be permitted into another pension fund.
Furthermore, the European Parliament called for an in-depth study on tax issues
related to the capital-based occupational pension systems and life insurance
capital systems.

Minimum
standards of acquisition and preservation became the main focus of the revised
proposal for a portability directive in 2007. On these issues, too, the views
expressed were not unexpected. The majority of respondents supported this
approach. Notably the European Parliament stated that in regard to cross border
issues, the clear focus of EU level activity should be on developing minimum
standards for the acquisition and preservation of pension rights and on
facilitating the establishing of national tracing systems for those rights. The
strength of support elsewhere varied, however. Some supported this approach
very strongly, others were more cautious noting the importance of having
reasonable time to adjust systems and ensuring that minimum standards were only
introduced gradually.

A couple of
responses, whilst supporting an approach based on acquisition and preservation,
were against action on this at EU level, preferring this to be taken forward
solely at national level (in one case citing the need for social partners to
have the freedom to negotiate pension scheme rules). Only a few respondents
expressed outright opposition to the acquisition and preservation approach. One
issue cited was that some companies used pensions to reward staff loyalty and
that minimum standards on acquisition would interfere with this and could discourage
some employers from providing pensions in the first place. Another issue raised
was that the large variety of supplementary pensions in Europe and their
varying importance within national systems meant that minimum standards were
not appropriate and could lead to higher costs and hence to pension scheme
closures.

The issue of a
tracking service, by contrast, was a new element in the long-running
portability debate. This suggestion was widely supported, although there were
different views in terms of how far this should go and how fast it should be
done. The European Parliament welcomed this proposal and called for the
Commission to submit proposals for a European tracing system, although it also
supported facilitating tracing systems at national level. A few other
respondents also felt that the EU should look to set up and regulate such a
service, though some others cautioned that any move to an EU level or
integrated system should respect existing national systems. Others cited costs
and data protection issues. A more typical response was that an EU level
tracking service was a very ambitious objective and it would be best to start
with encouraging national level systems and sharing best practice on these,
perhaps later considering how these could be linked. Some were still more
cautious and though they supported efforts to encourage tracking services, they
felt national level systems should be the limit.

Some respondents
felt that efforts should be on both transfers and acquisition/preservation, as
in the original proposal for a directive of 2005. Some clearly felt that action
on all fronts was necessary, whilst others thought that such a broad approach
was best from a pragmatic viewpoint in case some elements could not in the end
be implemented. One respondent felt that whilst transfers may not be practical
or desirable in all cases, they should be used wherever possible, while
acquisition and preservation should be used where transfers are not possible.

A handful of
responses preferred neither a transfers nor an acquisition/preservation
approach even at national level. One or two of these responses questioned how
significant pension rules were in terms on inhibiting mobility and therefore
whether action here was really proportionate or necessary. One response
considered that the existing Directive 98/49/EC is sufficient and that efforts
should be directed instead at strengthening pension systems in general. Another
response argued that when transfers are not feasible, mutual recognition of
employment periods for vesting purposes (along the lines of the social security
co-ordination approach under regulation 883) could be a solution. The
possibility of using reinforced co-ordination to promote free movement was
mentioned by one respondent. A couple of respondents that felt more discussion
was needed at national and EU level before taking decisions.

The idea of the 28th
regime (ie establishing supra-national pan-European pension funds as an alternate
way of tackling mobility problems) was also mentioned. In one case, the ongoing
work on the viability of setting up a pan-European pension scheme for
researchers was cited as a possible pathfinder for this approach. However, a
number of other respondents also mentioned the 28th regime only to
dismiss it as inadequate as a solution, stressing that it is complex, costly, and
has the potential to undermine existing regimes.

Other points
mentioned included the importance of transparency and good information for
individuals, and some touched on the need for continued efforts to challenge
discriminatory tax treatment.

Thus, overall,
the responses strongly support action to remove obstacles to mobility related
to supplementary pension schemes. The majority, including the European
Parliament as far as cross-border cases are concerned, favour an approach based
on minimum standards of acquisition and preservation combined with work on the
development of tracking services, perhaps beginning at the national level.

Question 8. 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?

The European
Parliament, around 150 organisations and a few individuals replied to this
question. A number of respondents that did not reply stressed that in fact
funded pension schemes should not be promoted in the EU. According to those
respondents, the recent economic and financial crisis has demonstrated that
pay-as-you-go schemes are more resilient to shocks.

Among those that
responded, there was a slight majority that suggested that current EU
legislation would benefit from a review to ensure a consistent regulation and
supervision of funded pension schemes and products. The European Parliament
observes that EU law on pensions is very fragmented and calls on the Commission
to investigate whether it would be appropriate to rationalise this regulatory
framework as part of better regulation. By contrast, employers and pension
funds tended to suggest that there is no need to review EU legislation, and the
most recurrent reasons cited were the following: (1) pensions are different
from other insurance and savings products; (2) retirement provision itself
encompasses a very wide spectrum; (3) occupational pension schemes are set up
by national social and labour law and not accessible to consumers in a general
way; and (4) there are too many national differences so that consistency would
be too difficult to achieve. According to those respondents the EU is right to
gear its regulation and supervision to the pension providers and define
different rules; there is no need to take any further initiative at the EU
level.

As regards the
slight majority of the respondents suggesting that current EU legislation would
benefit from a review to ensure a consistent regulation and supervision of
funded pension schemes and products, most of the support came from respondents
representing members/beneficiaries (employees, pensioners, women and youth), insurance
undertakings and individuals. Although the reasons were not always the same,
respondents mentioned that the following main elements could be reviewed (in no
order of preference):

Consistency
across the overall pension system

–
The EU could develop a common terminology and
clear definitions of different pension schemes. This would be useful prior to
considering an enhancement of the consistency of EU legislation. The pension
schemes in all 27 Member States should be adequately reflected, and this might
require the development of a new classification. In particular, the boundaries
of social security schemes and private schemes should be clearly defined so
that every scheme falls within a specific category.

–
There might also be a need to make a clearer
distinction between savings (accumulation of individual assets) and pensions.
As regards pensions, some respondents suggested that it could be useful to
agree on a common definition. Some suggested that the label "pension"
should be restricted to a scheme or product that offers one or a combination of
several features, including: (1) protection against biometric risks (e.g.
longevity, invalidity or survivor) by providing an old-age income through a
regular stream of payments; (2) high security standards; (3) entail
risk-sharing and solidarity elements; (4) accessible to a large part of the
population through mandatory participation or auto-enrolment. At the same time,
some respondents suggested that the EU should develop a horizontal approach for
all the long-term savings products (including pensions) as opposed to insurance
and other financial products.

–
As regards pension arrangements that are not
subject to EU prudential legislation, respondents referred in particular to
some of the individual funded pension schemes that, while being part of the
statutory system, are managed by private financial institutions. It was pointed
out that in many cases these private financial institutions are supervised by
the same national authorities that are already members of the European
Insurance and Occupational Pensions Authority (EIOPA). The European Parliament "stresses
that in cases where Member States have mandatory pension funds managed by
private institutions, such schemes should also be assessed from the point of
view of compliance with European conditions and criteria as regards security,
investment and asset classification".

–
Some respondents felt that current EU
legislation focuses primarily on occupational pension schemes and not
sufficiently on individual pension plans. A number of respondents pointed out
that the recommendations, principles and guidelines of the OECD (Organisation
for Economic Cooperation and Development) and IOPS (International Organisation
of Pension Supervisors) apply to private pensions, including both occupational
and personal schemes.

Consistency
across financial institutions

–
A number of respondents recalled that currently
EU legislation for pensions adopts the approach of "one provider – one
directive". There are, however, a series of elements such as governance
and risk management, safekeeping of assets, investment rules and disclosures
that should apply to all providers of pension schemes and products. Some
respondents therefore called for a revision of the IORP Directive.

–
A number of respondents suggested that there
should be a particular focus on the consistency with the legislation applicable
to insurance undertakings. Those suggestions were made by four Member States,
representatives from the insurance sector and retail investors. The European
Parliament "believes that, in order to achieve consistency of
prudential regimes among different financial services providers, the ‘same
risks – same rules – same capital’ principle must apply, taking into account
the characteristics of each pension product or scheme."

–
As regards investment, respondents pointed out
that pension funds are major financial institutions which have an important
influence on the stability of financial systems. Some respondents also
suggested that the Statement of Investment Principles should disclose how
sustainable development criteria (economic, social and environmental) are
internalised in the investment policies of pension funds. It was pointed out
that several Member States have already taken action in this area.

–
Scheme members/beneficiaries and consumers
should have access to the right information. There must be transparency and
comparable information between different pension, insurance and savings
arrangements. Disclosure of costs in different pension schemes could have an
important effect in increasing the efficiency of the administration and of
asset management.

–
Some respondents mentioned that equivalent and
consistent solvency requirements should apply to all providers of capital
guarantees. Guarantees might otherwise have different values depending on the
type of provider. It was recalled that life insurance companies are required to
reserve own funds depending on risk, while IORPs can continue to reserve
regulatory own funds on a flat-rate basis, and asset managers offering
investments in accumulation units with a view to forming retirement capital are
not subject to any capital requirement. Some respondents also stated that
difficulties may also occur if national legislation allows pension schemes to
make bold promises.

Consistency
across types of pension schemes

–
EU prudential rules could be improved to better
account for the specificities of DC schemes. An insurance-based mindset should
be avoided because the accumulation phase of a pure DC scheme is basically an
investment arrangement similar in nature to UCITS and MiFID. Some respondents
considered that the IORP Directive needs to be reviewed to better cater for the
needs of risk-based supervision of DC schemes. Especially relevant for DC schemes
are rules concerning governance, risk management, investment, safekeeping of
assets and information disclosures.

–
A number of respondents suggested that a new EU
framework on the accumulation phase in DC schemes could be considered to
address issues such as (1) plan design to mitigate short-term volatility in
returns and (2) investment choice and default investment options. The EESC
urges consideration of the possibility that EU rules cover the accumulation and
payout phases of funded pension schemes in order to regulate investment,
solvency and other supervisory aspects, as well as information disclosure,
costs, guarantees, gender aspects, and non-discrimination issues. Although it
was often pointed out that the regulation of the pay-out phase is heavily
dependant on the national social security legislation, some respondents
mentioned that countries where assets accumulated in DC pensions are the main
source of retirement income should make sure that retirees allocate part of
their assets to buy a life annuity that protects them from the longevity risk
and provide enough retirement income in old age.

–
A number of respondents suggested that the EU
should not adjust its rules to the trend towards pure DC schemes (without any
guarantees) but rather seek to counter this trend. It was, for example,
suggested that the EU adopt legislation requiring minimum guarantees for total
contributions or real investment returns in DC schemes.

Question 9. 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?

Respondents
generally agreed that there is a trade-off between risk, security and
affordability. Pure DC schemes are clearly affordable, but they shift the
entire risk and insecurity relating to investment, inflation and longevity to
the members, who frequently do not have the ability to monitor and manage those
risks. Many respondents, including individuals, therefore suggested that the
main focus of regulation should be on a high degree of security. Although pension
schemes and products with a capital or minimum return guarantee are more
desirable for pension savers, the cost of the guarantee will have to borne by
someone. If pension liabilities are not fully funded (or in case the pension
provider becomes insolvent), the cost will be borne either by the employer in
the form of additional contributions, or by the members if it is possible to
reduce accrued pension rights in a going concern. Where the employer becomes
insolvent the cost might be spread across the economy if there is a national
pension guarantee scheme. In the absence of such a scheme, the costs of the
promise will be socialized and transferred to the tax payers in the event of a
bail-out. Then the burden would be imposed on future generations of employees,
who will carry the main responsibility of demographic change.

Respondents had
different views as to who should seek to strike the right balance between risk,
security and affordability. Some respondents mentioned that decisions about the
trade-offs are most effectively made at the level of the individual pension
scheme. Regulators should leave enough flexibility to employers and other
pension providers, or the social partners. Others suggested that market forces
would result in a reasonable balance, and that the role for the regulator is to
ensure a competitive environment, for example through rules on information
disclosure. Most respondents suggested, however, that the right balance should
be struck by the Member States at the national level. Member States should
share best practice in the context of the Open Method of Coordination. At the
same time, many respondents suggested that the best practices could be compiled
into a code of good practice i.e. in a non-binding EU document.

As regards the
subject of the best practices for achieving a better balance between risks,
security and affordability, respondents made the following main suggestions:

Enhance the comparability of information disclosures regarding, for
example, the funding level, the nature of the guarantee and costs. This was
mentioned by a vast number of respondents.

The EU might seek to promote the diversification of sources of
retirement income. This would enhance the shared responsibility for retirement
provision and spread the risks across government, employers and individuals.

Actively encourage Member States to review existing legislation that
removes flexibility from employers in how they wish to promote pension benefits
to their employees and how costs and risks are shared.

A common language might be helpful by making the trade-offs
associated with different pension arrangements more transparent.

Promote pension scheme designs that:

–
are based on solidarity and risk-sharing and
agreed on by the social partners in collective agreements, rather than on the
performances of the financial markets.

–
Mitigate the risks for individuals during the
accumulation phase. This could entail, for example, that the necessary framework
conditions are in place that allow for the development of hybrid schemes such
as DC schemes with minimum guarantees, mixed DB/DC schemes, or de-risking of
pure DC schemes through appropriate life-styling arrangements and good default
investment options.

–
deliver an annuity rather than a lump sum.

A more coordinated approach for the protection against voluntary
discontinuance by a sponsor whilst the scheme is underfunded.

Address issues around governance, in particular the representation
of the social partners.

While most
respondents mentioned that the EU should avoid binding regulation that lays
down strict obligations regarding the design of pension schemes, some, in
particular the EESC and many individuals, suggested that it would be useful to
develop principles-based regulation with checks and balances to ensure
effective compliance. Moreover, several respondents mentioned that a balance
between risk, security and affordability requires a transparent and mandatory
risk disclosure statement to be provided to pension savers.

Question 10. What should an equivalent
solvency regime for pension funds look like?

The European
Parliament, around 140 organisations and a few individuals replied to this
question. The organisations most concerned with this question were employers,
pension funds and service providers. Relatively few responses came from the
organisations representing members/beneficiaries (trade unions, pensioners,
women and youth). More than half of the replies came from two Member States (DE
and UK) and EU-wide organisations, and a fair number of replies came from a
further five Member States (DK, FR, IT, NL, SE).

A number of
respondents, mostly among the employers, suggested that, at least for the time
being, a review of the current rules is not necessary or that a single approach
is not possible. At the same time, the European Parliament "stresses
that financial markets can function efficiently only when there is confidence
and trust and considers that confidence and trust require solid prudential
rules for financial institutions, and that IORPs should be no exception to
this". The large majority of the respondents provided suggestions as
to what equivalent solvency rules for pension funds could look like. The
following main elements and principles were described:

1.         Many respondents were supportive of
risk-based supervision for pension funds. In many cases this support was
explicitly stated, notably in the responses from insurance companies and
members/beneficiaries. Some respondents mentioned that the current solvency
margin system is known to define capital requirements in a fairly rudimentary
way, without taking account of the effective risk profiles of the pension fund,
as they tend to concentrate solely on aspects of size. Risk-based supervision
would also enable pension schemes to take into account diversification.

2.         At the same time, there was strong concern
that risk-based supervision is taken too closely as a synonym for the Solvency
II regime for insurance companies. On the one hand, insurance companies, a
number of Member States and members/beneficiaries were in favour of using
Solvency II as a starting point to develop an equivalent solvency regime for
pension funds. These respondents generally underlined the need to maintain a
level playing field across financial sectors. Similar risks should be subject
to consistent regulatory and capital requirements. This will be the case in a
number of Member States as from January 2013 when Solvency II enters into
force. On the other hand, the vast majority of the responses from employers,
pension funds and service providers strongly questioned that Solvency II is the
adequate starting point. These respondents generally claim that (1) insurance
companies and pension funds do not compete in the same market: occupational
pensions are accessed via the labour market, not in the financial product
market; (2) occupational pensions operate on a not-for-profit basis; and (3)
Solvency II has been developed for the requirements of insurance supervision
and that pension fund specificities are not taken into account.

3.         The strongest concern relates to the
quantitative requirements in the first pillar of Solvency II. Many respondents
recalled that the issue about own fund requirements only arises for IORPs that
are themselves (rather than the sponsoring undertaking) underwriting the
liability to cover against biometric risk, or that guarantee a given investment
performance or a given level of benefits (as specified in Article 17 of the
IORP Directive). For those IORPs, respondents consider that the own fund
requirements of Solvency II are inadequate and too strict. This is because
pension schemes, as opposed to insurance contracts, have access to additional
risk-mitigating security mechanisms. The liabilities side has some "loss
absorption" features such the flexibility to reduce or suppress pension
indexation, to reduce the pension benefit in a going concern or to call on
additional contributions. On the assets side, pension schemes have recourse to
a sponsor covenant, to contingent assets outside the IORP, or, in some Member
States, to reinsurance from a pension guarantee scheme. The respondents
generally argue that pension fund supervision should be based on rules that
favour substance over form. It is therefore important to take account of the
precise nature and duration of the pension liability. The European Parliament considers
that a solvency regime for IORPs must recognise the specificities of pensions,
in particular as regards the conditionality of pension rights, the duration of
pension portfolios and the fact that IORPs are special-purpose vehicles
operating a homogenous product portfolio.

4.         In a few cases, respondents explicitly
suggested that technical provisions should be harmonised in order to enable comparison
and facilitate cross-border activity. A few respondents also mentioned that the
IORP Directive should develop common rules to create comparable supervisory
balance sheets for pension funds. At the same time, some respondents were
concerned about a supervisory regime based on market-consistent valuation of
assets and liabilities. The reason stated is that this would foster
pro-cyclical investment behaviour and this would be incongruent with the
long-term nature of pension liabilities.

5.         Many respondents considered that pillars 2
and 3 of Solvency II may offer some useful principles that could be explored at
EU level in areas around governance, risk management and information
disclosure. While the degree of explicit support varied by type of organisation,
there was no response suggesting that the qualitative requirements of Solvency
II would be unsuitable for pension funds.

6.         Many respondents underlined the large
diversity in occupational pension schemes across Europe. Occupational pension
schemes are delivered using different vehicles, notably insurance undertakings,
remote pension funds and sponsor-backed pension funds. If it was considered to
align the solvency rules for all three types of vehicles – rather than only
across the first two types – a number of respondents suggested that
harmonisation could only be possible on the basis of high-level principles.
Several respondents referred to the principles proposed by the European
Actuarial Consultative Group: balanced, forward-looking, risk-based, transparent,
proportionate, countercyclical and practical. As regards counter-cyclicality,
some respondents advised that the rules should encourage deficit reduction
contributions and appropriate build-up of surplus when the scheme sponsor's
finances are strong. A number of respondents have also suggested that the
length of the recovery period needs to be taken into account.

7.         While some of the principles of Solvency
II are expected to be of benefit for pension fund supervision, some respondents
suggested that the principles have to be implemented with greater flexibility
than for insurance because of the higher diversity. While the very first single
market rules for insurance undertakings were adopted in the 1970s already,
those for IORPs were adopted some thirty years later in 2003. Moreover, the
solvency regime for pension funds may need to be recalibrated (e.g. at a Value
at Risk with a confidence level below 99.5% or over a time period of more than
one year), allow for proportionality and adequate transitional periods to avoid
market disruptions.

8.         The majority of the respondents, including
the European Parliament, invited the Commission to prepare a rigorous impact
assessment study before making a proposal to change the IORP Directive. While
the main aim of supervision is to protect members/beneficiaries, in the case of
voluntary pension funds it is also important to take into account the
competitiveness of EU businesses and the impact on the supply and cost of
occupational retirement provision in the EU. A few respondents underlined that
the rigorous impact assessment should not just assess the direct costs, such as
higher contributions from the sponsoring employer; it should also assess
indirect effects, such as the impact of higher funding requirements on the
employer’s willingness to keep the scheme open to future accrual, as well as
the impact on financial stability. Scale and risk-sharing mechanisms tend to
make occupational pension schemes cost-efficient and this is supportive of
pension adequacy.

Question 11. Should the protection
provided by EU legislation in the case of the insolvency of pension sponsoring
employers be enhanced and if so how?

The European
Parliament underlines in its report the need to ensure proper implementation of
the existing Directive 2008/94/EC on the protection of employees in the event
of insolvency of their employer and called for strengthened legislation when needed.
The European Commission should follow the implementation of the current
Directive closely and take action against Member States where justified. The
report also calls for the Commission to examine whether the use of pension insurance
associations which exist in some Member States to protect book reserve schemes
could be recommended to other Member States.

The EESC
considers that the EU should require Member States to regulate the setting-up
of guarantee mechanisms (in the form of special funds) to protect future
retirement income.

Member States'
governments agreed with the Commission that the risk of insolvency of the
employer for the supplementary occupational pensions is a matter of concern.
However, while some are open to an enhancement of the protection provided by EU
legislation (introduction of guarantee schemes; externalisation of internal
funds), most of them consider that no further legislation at EU level is
needed. A more detailed analysis is required of the problems and shortcomings,
if any, in the current protection as well as good practices. This analysis
should take into account the complexity of the matter due to the structural
differences between the different systems in the Member States.

Among
non-government members of the Pensions Forum[16],
there is a broad consensus that no further legislative action is necessary for
the time being; the EU should instead better clarify the existing rules and
make sure that they are properly applied by the Member States in the light of
the ECJ case law. Some respondents have suggested to use the open method of
co-ordination to this end and/or to issue a communication clarifying the
requirements of EU legislation for the protection against the insolvency of the
employer. One respondent, on the contrary,
considered that the protection provided by EU legislation should be enhanced
within the framework of the discussion on the solvency regime for IORPs. For
this respondent, guarantee funds should be established and all forms of supplementary
pensions should be covered (book reserves, external pensions funds or insurance
schemes). Some respondents see many difficulties as
to how a European-level guarantee fund or even
a uniform system could be designed and funded in such a way as to take into
account the complexity of pension provision across the EU.

The majority of other
respondents (businesses, social partners at sectoral or national level, NGOs,
individuals) consider that a uniform EU-wide insolvency regime would not be
appropriate, taking into account the diversity of occupational pension regimes
in the Member States. No further EU legislation is required in this field: the
preferred course of action is an exchange of best practices and the use of the
open method of co-ordination as well as the clarification of the scope of the
EU legislation. Although a few of them suggested that guarantee funds should be
created at national or European level, most underlined the impracticability of
setting up a European one. Some respondents warned against the increase in
costs that further protection would entail and about the risks of moral hazard
in setting up guarantee schemes. Some respondents suggested that the funds for
pension provision should be kept separate from the employer or at least
externally insured. A few respondents suggested that unpaid premiums be given
priority ranking in liquidation proceedings. The vast majority of individuals
who responded to this question agreed that the protection should be enhanced;
however, only a few gave any suggestion as to how.

In summary,
respondents acknowledge the need for protection of pension scheme members
against insolvency of sponsoring employers and the vast majority tend to
consider the EU legislative framework for this as adequate. Directive
2008/94/EC on the protection of employees in the event of insolvency of their
employer does not specify how Member States should ensure that occupational
pension rights are protected, and Member States have developed different
solutions which are adapted to the specificity of their occupational pension
schemes. Some respondents show openness to consider strengthening the EU
legislative framework, but most are very clear that new measures are not
necessary. In any case, it seems appropriate to analyse carefully the results
of a review of national measures and their effectiveness before envisaging
changes to the EU legislative framework. Another key question is whether any
weaknesses in the protection against insolvency are the result of insufficient
standards in EU legislation or poor implementation of this legislation.

Question 12. Is there a case to modernise
the current minimum information disclosure requirements for pension products
(e.g. in terms of comparability, standardisation and clarity)?

Generally,
respondents stressed the importance of consumers receiving clear, succinct and
well-presented information upon joining a pension scheme, whatever its nature,
and thereafter, including at retirement. Life events that may affect accrued
pension entitlements such as divorce or marriage should be included. It was
stated as well that the different notions of pension products should be
explained. The legislation differs depending on the nature of the pension
product involved. Some mentioned that EU common rules should be developed to
ensure that Member States provide the citizens with regular reliable updates
about items such as future individual pension rights, general standardised
information on the potential risks of a reduction of accrued rights, fees,
payout options, internal and cross-border portability restrictions and default
options, among others, of the various schemes and products which are available
to them. The European Parliament stated that citizens must be promptly and
fully informed of the long-term consequences of any reform of pension
provision. Other respondents emphasised that any possible revision of the IORP
Directive should not mention explicitly which organisation is authorised to
disseminate the information to (prospective) scheme members. Another group of
respondents stressed the importance of the involvement of the social partners
in the information provision.

A group of
respondents mentioned that current arrangements provide the citizens with much
information of an often technical nature, which makes them difficult to
understand. In their view, modernising information disclosure must have regard
both to the amount and the type of information provided and the way it is
presented. Many also stressed that common disclosure rules for pension
providers could improve member understanding and comparability across products
and providers, while others said that flexibility should be allowed at the
national level to comply with such common principles.

Respondents
frequently mentioned that one area where basic standards would be welcome is
the design of the annual pension statement. At the very least, supervisors
should provide a common measure of cost that facilitates comparability.
Inspiration could be found in the key investor information document as
stipulated in Article 78 of Directive 2009/65/EC (UCITS IV) or the EU
initiative on Packaged Retail Investment Products (PRIPs). Another respondent
stated that performance reporting should also be standardised by using an
international standard such as Global Investment Performance Standards (GIPS),
and ensure that a sufficiently long historical record is reported whenever
short-term performance data is presented. Some respondents also emphasised that
any new regulation regarding the information disclosure must be carefully
considered through an impact assessment, careful use of evidence and consumer
testing to ensure that citizens' understanding is guaranteed and any additional
costs for pension providers are minimised.

However, others
stressed that due to the great variety of pension schemes and systems,
including defined benefit (DB) and defined contribution (DC), within the EU, a
standardised and harmonised approach would not be appropriate and might even
harm the relatively high communication standards that currently apply in some
Member States. They mentioned in this context that much more emphasis should be
put on information provision and financial education programmes at the national
level instead of further regulating at the EU level. It was also stated that
the current disclosure requirements are derived from Member States' social and
labour laws. A new approach to regulation aimed at improving comparability by
standardisation would, moreover, risk leading to excessively detailed
regulation. A good solution might be the exchange of best practices in this
regard. Some also stated that the current trend toward DC schemes would render
information provision even more difficult because very limited information is
available on the impact that various factors can have on the pension outcome by
the time of retirement of the citizen.

Finally, some
respondents pointed to information disclosure services, for example on the
internet, which have started in some Member States with the aim of providing a
comprehensive picture nationally, and which should be encouraged in all Member
States. The European Parliament also mentioned the importance of the launch of
campaigns at the national level to make citizens aware of their pension
decisions and ensure the adequacy of their pensions.

Question 13. Should the EU develop a
common approach for default options about participation and investment choice?

Many respondents
agreed that it is necessary to make it easier for (prospective) scheme members
to take a rational decision in the cases of mandatory and voluntary pension
schemes, giving the main priority to good outcomes for members. In their view,
a set of EU principles or common guidelines for default options could be
helpful in this regard.

A group of
respondents argued that automatic enrolment with a possibility for opting out
by the employees might be beneficial because it reduces the risks associated
with postponing the decision to join due to their inertia. In this respect, it
was stated that the low levels of pension awareness and the complexity of
pension products, including its definition, are problematic and need to be
addressed through better information provision and increased financial
literacy. Others mentioned that individuals should only have a limited choice
of investment strategies involving different risks so that they could choose
the risk return profile that best meets their needs. One respondent stated that
the overall functioning of an occupational pension system depends on its
collective nature in terms of access, acquisition of rights and investment
strategies, which could be hampered by a wide individualisation of investment
choices.

Some respondents
mentioned that the introduction of an investment choice linked to the lifecycle
could be a useful tool in this respect. An automatic transfer of the portfolio
to low-risk investments when approaching the retirement age may be a basic protection
mechanism for the majority of persons who do not have sufficient financial
knowledge and cannot evaluate the risk levels they might face. Some respondents
stated that the protection of the insured persons from excessive risks is an
important target, and therefore the development of default options may be
useful.

However, others
stated that a uniform solution at the EU level would be difficult to achieve,
as it needs to reflect the country’s overall pension system design, social
security framework and the tax system, among others. Moreover, some mentioned
that there is no one-size-fits all approach to default funds and investment
choices as the level of risk appetite of members and/or policyholders differs
and as there needs to be flexibility to allow a free choice of members to
balance the risks and rewards within pension schemes. Others stated that the EU
could play a role in exchanging best practices in this area.

Finally, it was
stated that a common EU approach for default options concerning the investment
choice could have negative unintended effects, since this would restrict market
creativity and innovation, which would ultimately harm the pension scheme
members' interests.

Question 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?

Respondents
recognize a very important role for the EU level in terms of policy
coordination of pension policies by facilitating surveillance, coordination and
mutual learning between the Member States.

While all EU
Member States face major challenges in the pension field, notably due to population
ageing, respondents generally expressed the view that there is no 'one-size-fits-all'
solution for pension policies and pension scheme design, given the
heterogeneity of the EU economies and diversity in this policy field in the EU.
Notwithstanding this, because of the different circumstances Member States find
themselves in, the sharing of best practices, peer reviews, collection of
statistics and the identification of indicators at the EU level are widely
supported.

Some view
favourably a deepening of policy coordination and implementation at EU level
and the creation of a new platform, a European Pension Platform, which would
monitor all aspects of pension policy in an integrated manner, in line with the
approach adopted by the Commission in the Green Paper. The European Parliament
and other respondents share the opinion that such a platform should consider
all the aspects of pensions and convey information from the public authorities,
social partners, civil society and the pension sector with the aim of
highlighting the best practices and comparing the situations of Member States
and the living standards of retired people using a raft of indicators. This
should, however, be achieved in compliance with the subsidiary principle and,
to avoid overlap, taking into account the existing advisory committee on
supplementary pensions (the Pension Forum).

However, a more
common view is that the competence on pension policy should remain at the Member State level and that existing coordination frameworks, notably the Open Method of
Coordination, but also the Pension Forum and more broadly the Stability and
Growth Pact and the Europe 2020 strategy, are satisfactory at the EU level.
Nevertheless, a large proportion of respondents felt that there was room for
improvement within the existing coordination structures.

Many respondents
pointed to the scope for enhanced cooperation to create and enhance synergies
within existing frameworks such as the useful joint report on pensions in 2010
by the Economic Policy Committee (EPC) and the Ageing Working Group (AWG),
under the ECOFIN Council, and the Social Protection Committee (SPC) and the
Indicators Sub-Group (ISG), under the EPSCO Council. A view that emerges is
that further coordination could be envisaged so as to improve and further
develop statistical information, methodologies and relevant indicators, which
would benefit from the multilateral context that the EU level provides.

In terms of responses from individual EU citizens, a wide range of
views emerge. Responses range from strong support for further policy
coordination under a platform for all aspects of pension policy to calls for
ensuring complete autonomy of pension policies and, more generally, for less
binding EU level rules for economic and social policies.

Annex 4:  Executive
summary from EPC-SPC Joint Report on Pensions

Executive
Summary

Ensuring that public
policies cater for sustainable, accessible and adequate retirement incomes now
and in the future remains a priority for the EU. While Member States share
similar fundamental challenges there are considerable differences in the timing
of demographic ageing, the design of pension arrangements, the growth potential
and in constraints on account of the fiscal situation and external
competitiveness. The projected increase in public spending due to population
ageing poses an important challenge to EU Member States. Policy action to
improve the long term sustainability of public finances while ensuring adequacy
of pensions is crucial.

A
- Challenges and achievements

(1) People today
are healthier and live longer than ever in history. At the same time they have
fewer children than they used to.

Over the last decades, life expectancy has steadily been rising,
with an increase of up to two and a half years per decade. If reduction of
mortality continues at this pace, most people in the EU will live very long
lives. This would mean life expectancy at birth for men would increase by 8.5
years and by 6.9 years for women over the next fifty years. Fertility rates
have decreased in almost all Member States and in some they have remained very
low. The combination of rising longevity and lower fertility will lead to a
steep aggravation of the old age dependency ratio. The size of the working-age
population is projected to shrink and this will reduce potential labour supply
and economic growth. This will have far-reaching consequences for economic,
budgetary and social developments.

(2) Faced by a
strong increase in the old age dependency ratio, most Member States have over
the last decade reformed their pension systems to retain sustainability as well
as adequacy and to ensure fairness between and within generations and between
men and women. Reforms have brought important progress, notably in
sustainability for public pension schemes, and to varying degrees also in some
aspects of adequacy and minimum income provisions for older people in
particular.

The adopted reforms considerably limit the growth in projected
public pension expenditure over the long-term, as appears from the 2009 Ageing
Report. Thereby reforms may greatly improve the ability of public schemes to
continue to provide adequate pension benefits in a sustainable manner.
Nonetheless, public pension expenditure in the EU as a whole is projected to
rise by 2 ½ p.p. of GDP by 2060, which equals an increase of 23% on average of
public pension expenditure, and in some Member States substantially more.

Improvements in sustainability largely result from closer links
between contributions and benefit accruals, actuarial adjustment mechanisms and
changes to valorisation and indexation rules, which as shown by the December
2009 ISG-SPC report[17] tend to reduce the earnings-related replacement rates for people
retiring at the same age as today.

With many reforms the challenge in public pension delivery
increasingly turns to achieving adequate replacement levels while ensuring
sustainability. Reforms of public schemes usually contain measures to raise replacement
rates through extension of working life and in several Member States new or
expanded supplementary pension schemes have opened additional possibilities for
many people to compensate for limitations in public provision through greater
savings and the build-up of additional entitlements.

Many reforms have resulted in wider coverage (e.g. inclusion of
farmers, self employed, women with low entitlements etc.) and better fit with
gender roles (e.g. crediting of caring years) and changing labour markets,
though some problems still needs to be addressed (e.g. atypical careers and
short term contracts).
The shift from best years towards career average as
calculation base for earnings-related pension schemes in many Member States has
enhanced their intra-generational fairness and sustainability.

Changes adopted have also pertained to pensions currently in
payment. Several reforms have led to increases in minimum pensions and
supplementary allowances.

Underpinned by restrictions on early retirement and stronger work
incentives, periods of high labour demand and changes in the characteristics of
the 55-59 year olds have resulted in higher employment rates of older workers
thus reversing long standing trends towards earlier retirement.

(3) Recognizing
the progress, the challenge of adapting the pension systems in some of the EU
Member States to expected demographic changes is still very real. Additional
reforms of pension policy will be needed in several countries. Furthermore,
there are signs that ongoing reforms might bear considerable risks in terms of
both adequacy and sustainability. As changes in pension systems will tend to
make benefits more contingent on developments in labour and financial markets, important
risks relate to employment rates not increasing enough or capital markets not
delivering as expected. Budgetary consolidation, which is more urgent after the
economic crisis, is essential in order to reduce public debt and to contribute
to financing the future increase in public pension expenditure.

In many Member States reforms are changing pension systems from
largely single tier to truly multi-tier systems. In most Member States, the
bulk of pension income will continue to be provided by public pay-as-you-go
schemes.
As the role of funded and defined-contribution pensions
grows and public pensions increasingly become based on life-time
earnings-related contributions, future pension adequacy will increasingly rest
on good economic performance, the ability of labour markets to provide
opportunities for longer and less interrupted contributory careers, a
strengthened relationship between contributions and benefits in pension
systems, and a combination of safe and appropriate returns from financial
markets.

Moreover, there are considerable risks remaining. In some Member
States additional reforms of pension policy will be needed in view of the scale
of demographic changes ahead. For several countries where the pension reform
process has not been set sufficiently in motion, there is an urgent need to review
the 'pension promise' in view of what the rest of the economy can be expected
to support. For some other countries, additional measures might be needed to
ensure the lasting success of reforms already implemented.

B
- Remaining risks aggravated by the
economic crisis

(4) Sustainability
and adequacy concerns for all types of pension schemes have been aggravated by
the crisis. Lower growth prospects and increasing deficit and debt affect
sustainability. Regarding adequacy, today’s pensioners have generally been
well-protected against the crisis, but pensions may be affected by unemployment
periods and lower contributions and poorer returns in financial markets. The
crisis has an impact on the currently active population, and thus on the
accumulation of pension rights, notably for younger generations.

With secure incomes from public pensions, which have been allowed to
perform their role as automatic stabilisers, current pensioners have so far
been among the population groups least affected by the crisis. Exceptions
apart, benefits from funded schemes still play only a marginal role in the
pensions of retired Europeans and just a few Member States with very acute
public budget problems have had to adjust public pensions in payment. In
several Member States, funded schemes will be much more important for benefit
delivery in the future.

The crisis has strongly reduced the market value of pension fund
assets and it has led to a sharp deterioration in public finances, which to
varying degrees is putting stress on public spending for pension provision.
After the steep tumble in financial markets prices in 2008, many pension funds
have been able to recoup some of their losses in 2009[18] and
early 2010. This should be seen against the background of the scale of fiscal
deterioration as a result of the crisis which, expressed in terms of debt,
represents nearly 20% of GDP, which will severely constrain public pension
provision. This, in combination with pre-existing weaknesses and imbalances
implies that there will be an unprecedented need for coordinated fiscal
consolidation.

(5) The crisis has
highlighted the need to review the degree of financial market exposure and the
design of risk sharing in funded pensions.

The trend observed in some Member States towards more private sector
funded pension provision can help reduce explicit public finance liabilities,
but it also creates new challenges and forms of risks. Variations in the
ability of funded schemes to weather the present crisis show that differences
in design, regulation and investment strategy matter. Achieving a better
balance for pension savers and pension providers between risks, security and
returns will be key to enhance public confidence in funded pensions and ensure
their contribution to adequacy of retirement incomes.

C
- Aggravated challenges and prospects

(6) Adequacy and
sustainability are two faces of the same coin. In general, people need to work
more and longer to ensure both.[19] There is no
one-size-fits-all solution to pension delivery: all systems have pros and cons
and all need to adapt to long-term demographic and economic trends. The
challenge for policy makers is to aim for a good balance between sustainability
and adequacy. The crisis and possible lower economic growth will make this
harder and more urgent. It is therefore vital to strengthen awareness of
available routes to adequate income in retirement. Transparency and information
are essential to gain public trust and guide behaviour. To fully ascertain the
balance between adequacy and sustainability in pension systems, better
coordinated work at EU level on measurements and data will be needed.

The overall framework agreed by the Stockholm European Council – the
tree-pronged strategy of: (i) reducing debt at a fast pace; (ii) raising employment
rates and productivity; and, (iii) reforming pension, health care and long-term
care systems – for coping with the challenge posed by ageing populations
remains valid and progress on each of the three pillars will be indispensible.
Nevertheless, in some countries the crisis has increased the urgency to
modernise pension policies using a holistic approach. Budgetary consolidation
and attaining the medium-term budgetary objectives is essential in order to
reduce public debt and to contribute to financing the future increase in public
pension expenditure.

The crisis will affect all pension designs. It has revealed some
weaknesses in certain aspects of reformed systems that will need to be
addressed, in particular, the role of funded schemes and the interaction
between public and private pillars.

The crisis has also highlighted that economic growth, employment,
good regulation of financial markets solidarity and fairness between and within
generations are interlinked key components of pension policy. Macroeconomic
stability and well-functioning labour and financial markets are needed for
pension systems to work well. Reducing structural unemployment would bring
major benefits.

Without working longer, the adequacy-sustainability balance will be
difficult to reach. Many pension reforms on their own
would reduce annual replacement rates unless people
work more and longer. People need to be made aware of possibilities for raising
their level of retirement income through the build up of supplementary pensions
and extra entitlements, while having access to appropriate information on the
various related risks. The crisis adds to the need for policy-makers to provide
stability by being transparent on pension policy, on the routes that are and
will be available to retirement incomes in the future and to provide guidance, so as to enable people to change their behaviour.

(7) Employment rate improvements over the last decade may come under
threat and there is still considerable need for progress. Growth prospects, appropriate
work incentives, open labour markets and increasing effective retirement ages
are needed to enable more people working more and longer.

Only around 40% of people are still in employment at the age of 60
and female employment rates are still substantially below those of men. This
represents a huge untapped potential and raising the overall employment rates
for all, in particular of older workers and women, and thereby increasing
effective retirement ages will be a key policy objective for EU Member States.
The positive aspects of migration should be fully exploited.

Achieving the necessary extension in working lives in view of
continuous gains in life expectancy will prove challenging as adjustments will
also be needed in age management in work places and labour markets and in the
expectations and behaviour of workers.

Tax/benefit and wage systems could provide financial incentives for
people to remain economically active and building their own human capital. Policies
to tackle age-discrimination and to promote life-long learning, flexible
retirement pathways and healthy job opportunities for older workers would also
be needed.

Besides measures concerning the pension systems, governments need to
promote opportunities for people to work more and longer and for further
developing additional sources of income. Having access
to pension schemes which are simple to understand, of low cost and suited to
the modern workplace is essential to address the ageing transition. Involving
all stakeholders (e.g. the social partners) to achieve this will be important.

D
–Policy implications

(8) Pension
systems and pension policy differ considerably across EU Member States. All systems
entail risks and need to adapt to long-term demographic and economic trends.
The challenge for policy makers is to pay attention to the different associated
risks and aim for a good balance between sustainability and adequacy concerns. It
is of utmost importance that pension systems are designed such that long-term
fiscal sustainability is not put at risk, while providing adequate benefits.

Many Member States have taken important steps in this direction, but
additional efforts are needed in some cases. Moreover, the crisis has led to
deterioration in the fiscal positions in EU Member States, thus significantly
aggravating the fiscal challenge posed by population ageing and in particular
by  financing public pensions and subsidies for supplementary private pensions.
Therefore, for several Member States fiscal consolidation is a necessary precondition
to the response to the pensions challenge.

Looking forward, policymakers need to ensure pension systems change
more proactively to reflect demographic and economic developments. In
particular, in order to help address intergenerational equity and financial
stability, system parameters, e.g. pensionable ages and/or pension benefits,
should take into consideration changes in longevity.

(9) Pension policy
needs to ensure that retirement incomes are adequate now and in the future.
Measures need to be put in place to ensure that pensions together with other
sources of income and taking account of the country-specific situation, replace
a reasonable part of pre-retirement income and avoid poverty in old age.

This entails: (i) making pension and employment policies mutually
supportive; reflecting earnings and contributory records in benefits;
establishing mechanisms that reward working longer and reduce benefits in case
of early pension take up; achieving and maintaining an appropriate balance between
years spent in work and in retirement.

(ii) making sure that public and private pension provision
complement each other in an optimal way, while taking due account of the
country-specific situation; recognising the role of appropriately financed
public pensions as an economic stabilizer; encouraging the build-up of supplementary
entitlements through occupational and personal schemes; improving minimum
income provisions for older people where needed; exploring options for
improving risk sharing and shock absorption in order to enhance the stability
of pension schemes and the safety of retirement incomes.

(10) To facilitate
progress towards adequate and fiscally sustainable pensions the European level provides value added. Several procedures contributing
to this end have been put into place, including the Europe 2020 strategy, the
Open Method of Coordination on Social Protection and Social Inclusion, and the
Stability and Growth Pact.

In their methodological work on the basis of their specific mandates
and agreed procedures the SPC (ISG) and the EPC (AWG) should aim at enhancing
consistency in concepts and methods used when addressing adequacy and
sustainability.

Updated
European Agenda for adequate and fiscally sustainable pensions

Many Member States have already made good progress in adapting
their pension systems to better withstand ongoing demographic changes that
will intensify in the next decades. Yet there remains a need for further
progress with pension reforms in several Member States, or other measures
adapted to country-specific circumstances.

Many recent pension reforms have made benefits more contingent
on the ability of labour markets to provide opportunities for longer and
less interrupted contributory careers, and on positive returns from
financial markets. In light of significant increases in longevity,
measures to extend working lives and increase the effective retirement age
will continue to be the key components of such reforms. Accompanying
labour market measures may also be needed to ensure the absorption of more
people working longer into the labour force.

Fiscal consolidation remains a key priority in the short and
medium-term so as to restore sound public finances as the basis for
funding adequate public pension provision.

Older workers, immigrants and women in particular represent a
huge untapped resource that needs to be better activated including through
appropriate changes to gender and age management in work places and labour
markets. Measures which raise employment also strengthen the fiscal
sustainability of pension systems by delaying the onset of expenditure
increases and through higher contributions and GDP growth;

Extending working lives by reducing early retirement and
raising the effective retirement age, would improve both sustainability
(by improving labour force participation and delaying pension takeup) and
adequacy (through  the accumulation of greater pension entitlements).

The role, design and performance of private pension pillars
should be further reviewed. Some changes may be required in the way these
schemes operate, in order to improve the safety and efficiency of benefit
accruals through better risk mitigation, enhanced capacity for shock
absorption, clearer information about risks and returns of different
investment options and more efficient administration.

Given present and longer-term potential risks to benefit
adequacy for vulnerable groups it is important to continue to monitor
their situation and the performance of minimum income provisions, and address
poverty challenges as they arise.  More broadly, it will be important to
ensure that people have access to build pension entitlements in
well-designed public, occupational and/ or personal schemes, including by
working longer, so as allow them to maintain their living standards after
retirement to a reasonable degree.

There is a need to consider pension policies in a comprehensive
manner using existing EU level policy coordination frameworks and taking
into account the many interlinkages between labour markets, social
protection systems, financial market policies, and other relevant
policies.

To ensure the provision of adequate and fiscally sustainable
pensions in the future, it is necessary to stress the urgency for further
implementation of structural reforms, consistent with the Europe 2020
strategy for jobs and smart, sustainable and inclusive growth, in order to
support fiscal consolidation, improve growth prospects, strengthen work
incentives, flexible labour markets and extend working lives, and to ask
the Commission to closely monitor the progress in cooperation with EPC and
SPC, notably for enhancing consistency in concepts and methods used when
addressing adequacy and sustainability.

Annex 5:  Challenges to pension
systems in the Member States

Demographic changes

Population ageing
is the main source of pressures for pension systems. Life expectancy in the EU
has reached its highest level on record for both men and women, and is expected
to continue to increase. The latest Eurostat population projections[20] assume that, for the EU as a
whole, life expectancy will increase by 8.5 years for men and by 6.9 years for
women by 2060. Combined with low fertility rates this will mean that,
according to projections, the EU-27 will face a substantial increase in the demographic
dependency ratio (population 65+ to population 15-64) from 26% in 2010 to 50%
in 2050 and 53% in 2060.

.Figure 1 Population
Ageing in EU countries, 2008
(green bars) – 2060 (blue bars), as given by the old-age dependency ratio (number of 65+/number of
15-64)

Source: Eurostat

However, pension
systems, whether they are funded or pay-as-you-go, transfer resources from the
active to the retired population, and age is not the only determinant of who is
active and who depends on benefits.  A more relevant ratio is therefore the economic
dependency ratio which can be broadly defined as the non- and the unemployed
population expressed as a percentage of the employed population. Assuming that
the employment rate of population 15-64 reaches 70% in 2050, the ratio is
projected to grow from 64% in 2010 to 87% in 2050[21]. This increase is far less
marked than for the demographic ratio.

The impact of
demographic ageing on pension systems can be mitigated if Member States tap the
potential of labour markets and increase the employment rates of the working
age population. Different labour market scenarios have thus an impact on the
evolution of the economic dependency ratios in the context of demographic
change (see Figure 7.

Figure 2 Old–age
dependency ratio

Source:
Eurostat (variables proj\_10c2150p) Note : ratio of 65+ aged persons to
15-64 years aged persons.

Increased weight of pension expenditures in public finances

Due to the
demographic pressures, the latest projections show that public pension
expenditures are projected to rise in the EU-27 from 10.1% of GDP in 2007 to
12.5% in 2060. The scale of the increase varies between the Member States –
some, including CY, LU, RO and GR, are projected to face much larger increases
in pension related expenditure than the average (see the graph below). It is
also worth noting that, according to the 2009 Ageing Report projections, Member
States will reach the peak in public pension expenditure at different points in
time: thus, DK, EE, PL and SE will reach the peak before 2030; FR, IT, LV, AT,
FI between 2030 and 2050 and the rest of countries between 2050 and 2060.

Figure 3 Total public pension expenditure in % GDP in 2007 and
change 2007-2060

Source: 2009 Ageing Report.

It is important
to note that the calculations of the future evolution of public pension
expenditures are based on the positive assumption that employment rates of
population aged 15-64 will increase from 65.5% in 2007 to 69.9% in 2060. If
employment rates remain at the current level this will accelerate future
increases in public pension expenditure, making the real effects worse than the
ones found in the graph.

The increase in
public pension expenditure, together with expenditure on other age-related
social protection items, has an important impact on future sustainability of
public finances. The sustainability indicators provide a basis to classify the
long-term risks to the sustainability of the public finances in EU Member
States (see Figure 4). They
show the size of permanent budgetary adjustment required to ensure that the
public budget constraint is met, taking account of the cost of ageing.[22] The S1 indicator shows the
adjustment to the current structural primary balance required to reach a target
government gross debt of 60% of GDP in 2060. The S2 indicator shows the
adjustment to the current structural primary balance required to fulfil the
infinite horizon intertemporal budget constraint.

The assessment
of public finance sustainability is not restricted to pensions. It looks at the
challenge of ageing to the entire general government sector, so for example
health care expenditure is included.

To make an
overall assessment on the sustainability of public finances, other additional
relevant risk factors are taken into account for a qualitative assessment: high
initial level of public debt (as indebted countries are more sensitive to
economic shocks and interest rate changes), deterioration in primary budget
balance (as it results in rising debt burden), high current tax ratio (as it
limits room of manoeuvre for using tax increases), and a projected drop in the
pension benefit ratio (as it increases the risk of political pressure for
increasing pension benefits).

Figure 4 Overall risk classification and the
sustainability gaps (S2 and S1 in the baseline scenario)

Source: Commission services

Hungary reformed its pension system in 2009. 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. The revised
projection is not included in this graph (see note to Figure 8). Greece: see note to Figure 8.

Overview of pension reforms in Member States

Faced with the
imminent population ageing and its impact on sustainability of pension
provision, Member States have considerably reformed their pension systems.
Tightening the link between contributions paid into the system and benefits
paid out has been a key feature of reform efforts. This usually took form of
moving from final pay or best years to lifetime earnings as the basis for
benefit calculation and by insisting on a number of contribution years instead
of solely on reaching a pensionable age, increasing the number of years
required to receive a full pension, increasing the pensionable age for both genders
or equalising it. Yet in most of these countries the higher eligibility ages
for a statutory pension are phased in over long periods (see Table 1).

Table 1 –
Overview of the status of pension system reforms in the context of demographic
ageing and retirement behaviour

Member State || Average exit age from the labour force in 2001 || Average exit age from the labour force in 2009 || 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 || Life expectancy at 65 in 2008 (unweighted average for two genders) || Projected increase in life expectancy at 65 between 2008 and 2060 (unweighted average for two genders)

Belgium || 56,8 || 61,6\*\* || 65/65 || 65/65 || || 18,3 || 5,1

Bulgaria || 58,4 || 64,1\*\*\* || 63/60 || 63/60 || 65/63 || 14,6 || 6,9

Czech Republic || 58,9 || 60,5 || 62/60y8m || 63y8m/63y4m || 65/65 || 16,4 || 6,0

Denmark || 61,6 || 62,3 || 65/65 || 65/65 || 67+/67+\*\*\*\* || 17,5 || 5,5

Germany || 60,6 || 62,2 || 65/65 || 65y9m/65y9m || 67/67 || 18,5 || 5,1

Estonia || 61,1 || 62,6 || 63/61 || 64/64 || 65/65 || 15,6 || 6,5

Ireland || 63,2 || 64,1\*\*\* || 65/65 || 65/65 (66/66) || (68/68) || 18,2 || 5,6

Greece || 61,3° || 61,5 || 65/60 || 65/60 || 65/65 || 18,4 || 4,9

Spain || 60,3 || 62,3 || 65/65 || 65/65 || || 19,0 || 4,8

France || 58,1 || 60 || 60-65/60-65 || 62-67/62-67 || || 19,9 || 4,5

Italy || 59,8 || 60,1 || 65/60 || 66y7m/61y7m\*\*\*\*\* || \*\*\*\* || 19,5 || 4,7

Cyprus || 62,3 || 62,8\* || 65/65 || 65/65 || || 18,0 || 5,2

Latvia || 62,4 || 62,7\* || 62/62 || 62/62 || (65/65) || 14,9 || 7,1

Lithuania || 58,9 || 59,9\*\*\* || 62y6m/60 || 64/63 || 65/65 || 15,3 || 6,7

Luxembourg || 56,8 || : || 65/65 || 65/65 || || 18,3 || 5,1

Hungary || 57,6 || 59,3 || 62/62 || 64/64 || 65/65 || 15,5 || 6,8

Malta || 57,6 || 60,3 || 61/60 || 63/63 || 65/65 || 17,5 || 5,6

Netherlands || 60,9 || 63,5 || 65/65 || 65/65 (66/66) || (67/67) || 18,2 || 5,1

Austria || 59,2 || 60,9\*\* || 65/60 || 65/60 || 65/65 || 18,7 || 4,9

Poland || 56,6 || 59,3\*\* || 65/60 || 65/60 || || 16,5 || 6,2

Portugal || 61,9 || 62,6\*\* || 65/65 || 65/65 || || 18,1 || 5,1

Romania || 59,8 || 55,5 || 63y8m/58y8m || 65/60 || 65/63 || 15,0 || 6,8

Slovenia || 56,6° || 59,8\*\*\* || 63/61 || 63/61 || || 17,6 || 5,5

Slovakia || 57,5 || 58,8 || 62/59 || 62/62 || || 15,2 || 6,8

Finland || 61,4 || 61,7 || 65/65, 63-68 || 65/65, 63-68 || || 18,6 || 4,9

Sweden || 62,1 || 64,3 || 61-67/61-67 || 61-67/61-67 || || 18,9 || 4,8

United Kingdom || 62,0 || 63 || 65/60 || 65/65 || 68/68 || 18,2 || 5,4

EU 27 average || 59,9 || 61,4 || || || || 18,2 || 5,3

Source: Eurostat, MISSOC, Ageing Report.

Note: ° - 2002, \* - 2008, \*\* - 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. \*\*\*\*\* Italy: i) the age requirement is half a year higher
for self-employed; ii) for civil servants, the statutory retirement age of
women equalizes that of men, starting from 2012; iii) further increases in the
retirement age after 2020 accounts for about 4 months every three years.

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

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

In the majority
of Member States the average exit age from the labour market is usually lower
than the legally defined pensionable age. In consequence, in a number of
countries people on average spend 25 or more years receiving pensions or other
benefits. As illustrated in the Figure 5, countries with higher life expectancy people do not necessarily
register higher exit age from the labour market. And according to the long-term
projections carried out in the context of the Ageing Report 2009, the impact of
enacted reforms on longer working falls behind what is needed to face the
demographic change (see Figure 6).

Figure 5. Exit age from the labour market compared
with the remaining life expectancy at 65, EU Member States, 2009

Source: Eurostat

Figure 6. Impact of pension reforms on the average
exit age from the labour force

Source: Commission services, EPC

Economic vs Demographic dependency Ratios

According to
projections[23],
the EU-27 will face a substantial increase in the demographic dependency ratio
(population 65+ to population 15-64) from 26% in 2010 to 50% in 2050 and 53% in
2060.

The ageing
challenge is even better illustrated with the economic dependency ratios, which
can be defined in various ways. For instance, despite the increase in
employment rate of population 15-64 from 65.5% in 2007 to 69.9% in 2060, the
economic dependency ratio (expressed as inactive population aged 65 and more as
percentage of employed 15-64) still rises from 37% in 2007 to 68% in 2050 and
72% in 2060.[24]

If we define the
economic dependency ratio more broadly (the unemployed and pensioners as
percentage of the employed) and assume that the employment rate of population
15-64 reaches 70% in 2050, the ratio is projected to grow from 64% in 2010 to
87% in 2050.[25]
Even if starting from a higher level, the increase is less marked than for the
demographic ratio or the narrowly defined economic ratio.

A less
pronounced increase in the economic dependency ratio is possible if Member
States tap the potential of labour markets and increase the employment rates of
working age population. Different labour market scenarios have thus an impact
on the evolution of the economic dependency ratios in the context of the
demographic change.

Figure 7. Impact of different labour market
scenarios on economic dependency ratios

Source:
AK-Wien/ Dependency ratio calculator

d\_DR =
demographic dependency ratio (65+ relative to 15-64)

e\_DR =
economic dependency ratio (old-age pensioners, early pensioners and unemployed
relative to employed people)

The example of Austria (Figure 7) illustrates the importance of
increasing employment rates to face the adverse effects of demographic ageing.
The demographic dependency ratio (population 65+/15-65) is projected to
increase from 25% to 48% in Austria between 2008 and 2050, as the combined
effect of longevity growth and changing cohort size. If Austria could tackle
underemployment of women, youth and older workers to improve its employment
rates in 2050 to the level of the current best performing Member States (e.g.
Denmark) its future economic dependency ratio (population of the unemployed and
retired to the employed) would increase only from 61% to 72%.

Adequacy challenges

Recent pension
reforms have only partly addressed the adequacy issues.

Regarding current
adequacy of pension systems, data shows that people aged 65+ are more
likely to be at risk of poverty comparing to those aged less than 60 years old
(17.8% versus 16.1%)[26].
At-risk-of-poverty rates are especially high for older women (see graph below)
and those aged 75+ (20.2%). There are also substantial differences between
Member States. Some including LU, HU, SK and CZ have at-risk-of-poverty rates
below 5%, while others such as ES, CY, LV and BG experience rates higher than 20%.

Figure 8. At risk of poverty rates, 65+ males versus
females, 2008 – EU-27

Source: Eurostat

A similar picture emerges from the analysis of future adequacy of
pension systems. The indicators used to measure future adequacy are theoretical
replacement rates (TRR)[27],
the benefit ratio and the gross average replacement rate[28]. Sizable decreases in these
indicators are projected over coming decades for a significant number of
countries[29].
For example, the graph below shows the percentage change in net and gross TRR
between 2008 and 2048. Given
the assumptions for the calculations of TRR in the basecase, 15 Member States
display results where reforms of statutory schemes would lead to a decrease
of net replacement rates between 2008 and 2048, for a worker with average
earnings retiring at 65 after 40 years. This is most probably a reflection
of reforms that have lowered future benefit levels at a fixed retirement age in
order to cope with increasing longevity and the expenditure it would otherwise
entail. These reforms entailed extension of
contribution periods and increases in pensionable ages or introduction of
automatic adjustment mechanisms. For other group of Member States there seem to be no
significant changes in their replacement rates between 2008 and 2048. And a
last group of Member States (which are the ones with initially lowest levels of
replacement rates) may actually observe their replacement rates rise as
a result of recent reforms that would be fully in place by 2048.

In addition to changes in the population
pyramids, the household structure is expected to change dramatically. More
single person households will mean that an increasing proportion of pensioners,
particularly women, will not be able to rely on their partners' income in
retirement. This can lead to a higher risk of poverty and widening of the
income gap between older men and older women.

Figure 9. Percentage change in TRR between 2048 and
2008, the "base-case" scenario [30]

Source: ISG calculations on Theoretical
Replacement Rates

Regarding the
evolution of the TRR for low earners and people with incomplete careers, the
decline is in many case of comparable magnitude. However, for some Member
States where contribution-benefit links have been strengthened, the future
projections of TRR appear to be much less favourable for lower than for average
earners.

Employment rates of older workers

One has to note
that in most cases changes in pension systems will tend to make benefits more
contingent on developments in labour markets. Despite the recent impressive
increases in the labour market participation of older workers, the current
employment levels for those aged 55-64 (46.3%)[31]
remain much lower than for those aged 15-64 (64.2%) (see graph below). There is
a high risk that unless changes in statuary pension ages are solidly
underpinned by changes in age management in work places and labour markets, as
well as a better preservation of the health and skills of older workers, they
will result in large inflows into alternative benefits such as disability,
sickness and social assistance benefits, with very negative effects on future
pension adequacy.

Figure 10.  Employment rates for persons aged 55–64, 2000 and 2010

Figure 11 Average
exit age from the labour force in 2009

Effects of early
retirement & career interruptions on pension adequacy

Calculations of
the theoretical replacement rates show that early retirement is usually
penalised with a malus (calculations compare situation of a hypothetical worker
who retired at 63 in 2008 to a worker who retired at 65). Also workers with
career breaks due to childcare or, especially, unemployment (and long-term
breaks) can expect a lower replacement rate than those with a full career. This
is not calculated for workers retiring currently, but the 2048 replacement
rates are quite illustrative in this respect. With a notable exception of a few
countries where childcare breaks are credited to the extent where the drop in
replacement rate is avoided, workers with a one, two or three-year break can
expect a lower pension.

Figure12

Source: Annexes to
the EPC-SPC joint report on Pensions, 2010

Figure 13

Source: Annexes to
the EPC-SPC joint report on Pensions, 2010

Figure 14

Source: Annexes to
the EPC-SPC joint report on Pensions, 2010

Figure 15

Source: Annexes to
the EPC-SPC joint report on Pensions, 2010

Premature
retirement related to Health and Safety at Work

In 2010 19.8% of those
out of employment who were aged 50-64 in the EU-27 reported that their main
reason for not seeking employment was their own illness or disability, the
highest shares corresponding to Sweden, followed at some distance by Denmark, Estonia and Ireland. The lowest percentage shares instead were reported in France, the
Czech Republic, Greece and Italy.

Figure 16  – Main reason for not seeking employment - Own illness or
disability, % of inactive population, aged 50-64, by country, 2010

Source:
Eurostat

Eurostat's 2006 LFS ad-hoc module 'Transition
from work into retirement' included a question addressed at those aged 50-69
who were not in employment, asking whether they would have stayed longer (or
not) if their workplaces had been healthier. Data suggest that in Estonia
almost half (48.9%) of those aged above 50 and who are not employed would have
stayed longer at work if their workplaces had been healthier/safer. Lithuania,
Latvia and Malta follow at some distance, while the lowest shares are reported
in France, Ireland, Austria and Cyprus. The average for the EU-27 was 8.1%.

Figure 17– Better health and/or safety at work would contribute/have
contributed to person staying longer at work, % of non-employed aged 50-69, by
country, 2006.

Source: Eurostat, LFS
ad-hoc module 'Transition from work into retirement', 2006.

The extent of the issue has been recently
documented by the OECD in its report 'Sickness, Disability and Work: Breaking
the Barriers- A Synthesis of Findings across OECD Countries, November 2010' (http://www.oecd-ilibrary.org/social-issues-migration-health/sickness-disability-and-work-breaking-the-barriers\_9789264088856-en)
Too many workers leave the labour market permanently due to health problems or
disability, and too few people with reduced work capacity manage to remain in
employment. Mental health is a particular challenge due to the fast increase in
most OECD countries in the number of disability benefit claims due to mental
health problems. Moreover, sickness absence plays a major role as a precursor
to exit from the labour market in the form of disability benefits in the Nordic
countries, the Benelux countries, the United Kingdom, France and Spain.

The importance of the working
environment as cause of premature retirement is further born out and elaborated
in various national studies.  German data ('Sicherheit und Gesundheit bei der
Arbeit 2009', http://osha.europa.eu/fop/germany/de/statistics/statistiken)
suggest that early retirement due to work incapacity has increased by 8.1%,
with a notable increase in mental and behavioural disorders (from 32.5% in 2006
to 37.7% in 2009). Women are particularly concerned (43.9% of all incapacities among
women linked to these causes).

Other national studies[32]
typically report that both psychosocial and physical aspects of job quality
affect early labour force exits and thus shed some light on the actual diseases
that may lead to early retirement. Among male workers, eye problems, back pain,
ulcers and migraines can be particularly likely to increase the relative risk
of early retirement.

The inclusion of various
indicators of work stress have documented the effect of job quality or
workplace wellbeing on early retirement from the labour force. Job strain
significantly increases the likelihood of early exit for women: women with
high-strain jobs were almost twice as likely as their colleagues with
low-strain jobs to exit the labour force early. When older workers feel that
the psychological demands of their jobs are too high, and/or the job control is
too limited, the risk of early retirement tends to increase. These findings are
in line with previous research which shows that early retirement is related to
environmental factors at the workplace and that women are more affected than
men. The effects of job strain were similar but not statistically significant
for men's retirement.

For male workers supervisors'
support at the workplace may be an important factor in avoiding early
retirement. Men who felt that they had low support from their supervisors had
almost twice the risk of retiring early compared with those who had support. Research
has also clearly linked conditions of physical work strain with the decision to
retire. These conditions include repetitive or continuous strain,
musculoskeletal strain, and uncomfortable working positions such as crouching,
bending, twisting or being fixed. For men having a physically demanding job has
been shown to increase the risk of retirement by more than 50%.

Changes in
pension systems: greater role for pre-funding

Many pension systems are moving from a
largely single pillar model towards multi-pillar systems where retirement
income will be derived from a range of pension entitlements instead of a single
benefit. Future pensioners will rely ever more on funded pension provision  (see graph below). Partly this growth in
importance is relative, given declines in the generosity of Pay-As-You-Go
(PAYG) pensions.  But new funded pension schemes have also been set up (notably
the mandatory funded schemes established in many new Member States in the last
10 – 15 years) and attempts have been made to expand various other types of
funded pension schemes. Despite some very recent retrenchment in mandatory
funded schemes stemming from the financial and economic crisis, it is clear
that future pensioners will rely ever more heavily on funded pension
provision.

Almost all the prefunded occupational
schemes established over the last decades are of the Defined Contribution type.
At the same time Defined Benefit schemes have increasingly been transformed
into Defined Contribution schemes or moved to a hybrid between these two
designs. Today, nearly 60 million Europeans are enrolled in Defined
Contribution schemes where the individuals bear nearly all of the risk[33].

Figure 18.
Share of occupational and statutory funded pensions in total gross
replacement rates in 2008 and 2048 in selected Member States

Source:
Indicators Subgroup calculations on Theoretical Replacement Rates

The AGS recommends that "Member
States should support the development of supplementary private savings to
enhance retirement incomes". So achieving an optimal balance between risks,
security and affordability for funded pension schemes is becoming ever more
important. However, the current framework does not ensure consistent regulation
and supervision of funded pension schemes.

A number of issues relating to the design
of current funded pension schemes and their ability to withstand shocks was
noted in the European Commission's Memo of 6th March 2009 "The economic
crisis and pensions in the EU"[34].
The Green Paper on pensions already built on this analysis highlighting a
number of areas of concern. These included the ability to mitigate short-term
volatility in returns, absorb the effects of shocks when they occur and issues
like investment choice, default investment options and payout phase design.

Effects of the
crisis: all types of pension schemes have been impacted

While prefunded
schemes were particularly affected by the financial crisis, payg schemes felt
the subsequent effects of the economic and the public budget crisis. The
financial, economic and sovereign debt crises have aggravated the challenges
involved in adjusting pension systems to the transition from larger to smaller
cohorts of working age and the structural growth in longevity.

Lower growth
rates, higher unemployment, higher national deficit and debt levels and the
need for budget consolidation have made it harder for national systems to
deliver on pensions policies. The scale of fiscal deterioration (see graph
below) following the crisis is equivalent to offsetting 20 years of fiscal
consolidation, implying that fiscal constraints will be very strong in the next
decade. In addition, variations in the ability of funded schemes to weather the
crisis have demonstrated the need for a better regulation (e.g. risk mitigation
strategies and better shock absorption)[35].

Figure 19. Fiscal position of Member States, 2006 and 2009.

Source: Eurostat

Impact of crisis on prefunded pensions

When the SPC
adopted its report on private pensions in April 2008 the increased importance
of pre-funded schemes in the overall pension package envisaged by Member States
was illustrated in the figure below. It depicts the trajectories in coverage
and share of pensioner income which prefunded schemes were expected to take in
various Member States until 2050.

Figure 17

Source: EC, "Private pension
schemes. Their
role in adequate and sustainable pensions", December 2009

Yet, with the
sudden onset in the early autumn of 2008 of a financial crisis of unprecedented
scope and the subsequent deep economic downturn funded pension schemes have
suffered a major reduction in the book value of their assets from which they
still have to recover. As illustrated in the OECD figure below pension funds
across Europe had by November 2008 already experienced a negative real return
on their investments in the magnitude of 15% to 35%.  By 2009 several funds had
recovered most of the losses while others were still lingering as not only the
exposure to the crisis but also the ability to recover and absorb the shock
differed a lot across Member States and among schemes.

Figure 17 Pension funds' real return on investment in
selected OECD countries

The subsequent
steep economic downturn and rapidly rising unemployment has in several Member
States made it impossible to sustain the hopeful expectations that rapid growth
would allow active wage earners to quickly build-up extra funded pensions for
themselves at the same time as they financed pensions for their parents and
grandparents.

Indeed a number
of the more ambitious countries have had to revisit their plans and temporarily
shift part of the contribution for the funded scheme back to the financing of
the pay-as-you-go scheme and thus extend the timeframe for the build-up of
pension funds.This was particularly the case in Member States that had
established so-called mandatory private pensions.

In the table and
box below we have summarised key traits of the prefunded schemes in the Central
– an East-European Member States established since the late 1990's  as well as
the scaling back of schemes that happened as effect of the crisis.

Table 2 Mandatory funded pension schemes in selected EU Member States

Country || % wage to funded scheme || Year funded scheme started || Participation in funded scheme || Year funded participants retire || Effects of the crisis on contribution rates

Bulgaria || 5% || 2002 || Mandatory <42 || Full cohorts in 2023 ||

Estonia || 6% || 2002 || Voluntary || Partial cohorts by 2012 || Contributions suspended temporarily in 2009-2010

Hungary || (8%) || 1998 || Mandatory for new entrants; voluntary for all others || Partial cohorts by 2013; full cohorts by 2045 || Nationalisation of the scheme in 2011

Latvia || 2% increasing to 6% || 2001 || Mandatory <30, voluntary 30-49 || Partial cohorts by 2013; full cohorts by 2033 || Scheduled increase to reach 10% in 2011 was blocked in 2009. The contribution reduced to 2%, will increase to 6% from 2013

Lithuania || 2% || 2004 || Voluntary || Partial cohorts by 2014 || From 2009 the contribution temporarily reduced from 5.5% to 2% of gross wage

Poland || 2.3%, increasing to 3.5% || 1999 || Mandatory <30; voluntary 30-50 || Partial cohorts of women by 2009 and men by 2014; full cohorts of women by 2029 and men by 2034 || Contribution reduced from 7.3% to 2.3% of the wage (will be gradually increased to reach 3.5% in 2017 and thereafter)

Romania || 2.5%, increasing to 6% || 2008 || Mandatory <35; voluntary 36-45 || Partial cohorts of women by 2023 and men by 2028; full cohorts of women by 2033 and men by 2038 || Scheduled increase has been temporarily blocked at 2% and then restarted in 2010

Slovak Republic || 9% || 2005 || Voluntary for all (from 2008/2009) || Partial cohorts by 2020 ||

Sources: EPC-SPC report on pensions, World
Bank "The Financial Crisis and Mandatory Pension Systems in Developing
Countries http://siteresources.worldbank.org/INTPENSIONS/Resources/395443-1121194657824/PRPNote-Financial\_Crisis\_12-10-2008.pdf

Box 1: Crisis responses affecting mandatory funded pension schemes In Estonia, all compulsory contributions to the DC scheme have been cancelled from 1 June 2009 until 31 December 2010. Scheme members have been allowed to restart their contributions on a voluntary basis in 2010. The contributions have been partially resumed in 2011 (with a 2% state and 1% member share) and will reach their original level only in 2012 (4% plus 2%).  In Lithuania, social insurance contributions to the DC pension schemes have been reduced temporarily from 5.5% to 2%. They are scheduled to be increased again to 6% after 2012 over a minimum of 3 years.  In Latvia, parts of the contributions to the mandatory funded DC scheme have been diverted back into the PAYG NDC scheme. Contribution rates to the funded pillar are being reduced: in 2009 from 8% to 2%; in 2010 from 9% to 2%; in 2011 from 10% to 2%; in 2013 and subsequent years from 10% to 6%.   In Romania, the government has suspended legal provisions that would have seen contributions to the mandatory DC scheme rise from 2% to 2.5% of employees’ gross salary in 2009. The scheduled increase has been restarted in 2010, so that ultimately the contribution rate would reach 6% of wage some time in the future. Slovakia has allowed workers to opt out of the funded scheme and return to the PAYG scheme in 2008, and the DC scheme has become optional for all new entrants to the labour market.   In Poland, the contribution to the DC scheme has been reduced from 7.3% to 2.3% of gross wages in 2011. The difference has been diverted to the PAYG scheme. The contribution will be gradually increased to reach 3.5% in 2017 and thereafter. Hungary has nationalised the funded scheme in 2011 (and included the assets in the national budget). Contributors who decided to keep their assets in the funded scheme and continue contributions will be penalised with a lower benefit in the mandatory PAYG scheme.

Increased cross-border mobility

The 2010
Demography Report Older, more numerous and diverse Europeans, Commission
Staff Working Document, March 2011 pointed out that, [a]s the flows of
migration from non-EU countries and mobility between Member States have
intensified, a growing proportion of the working-age population (15% in 2008)
was either born abroad or has at least one parent who was born abroad. The
number of EU27 citizens migrating to a Member State other than their own
country of citizenship increased on average by 12% per year during the period
of 2002-2008[36].
In January 2009, 11.9 million (2%) EU nationals were citizens of another Member
States than their country of residence. About one million cross-border workers
within the EU reside in one EU Member State and work in another. Furthermore, a
Eurobarometer survey carried out for the Demography Report revealed that around
one in five EU citizens has either worked or studied in another country at some
point, lived with a partner from another country or owns a property abroad.
These people, who tend to be younger than the general population, show a much
greater propensity to move abroad, up to four times greater than those who do
not have such connections with another country. Thus, more and more Europeans
will have different options when it comes to choosing a place of residence, social
protection may well play a part in such choices.

Diversity in situations across Member States

In conclusion, the
analysis above has highlighted the high diversity of current and
projected situations across countries and therefore the diversity of their
pension challenges: Member States show different current or projected
demographic challenges, sustainability challenges, adequacy outcomes and
employment situations.

 Annex 6:  Recent
pension reforms in EU Member States

Bulgaria\* Since October 1, 2008 all old-age pensions, assigned before December 31, 2007, were recalculated, using a different base which is now the 2007 average insurance income (EUR 203.6). The recalculation was made to unify pension-determining parameters (individual coefficient and length of service), and to overcome their different size. As of 1 January 2009 the insurance contribution rate to the State Social Insurance Pensions Fund was reduced from 22% to 18%. The contribution rate of the employers was set at 10% and that of the employees - at 8%. In addition to the employers and employees, the state entered as a third party providing 12% of the overall amount of the annual contributions to the State Social Insurance Pensions Fund. Following the change in the insurance contribution rate the total social security burden was reduced by 2.4pps for employers, while for employees it remained at the same level. Not taking into account the health insurance contribution, the social security burden dropped by 3.6pps for employers and by 0.8pps for employees. As of January 1, 2009 the minimum pensions were increased by 10.0%. The old-age pensions were raised as of April 1, 2009 by increasing the weight of each insurance year in the pension formula from 1 to 1.1. In addition starting from 1 April, the maximum pension amount (excluding bonuses thereto) was increased to EUR 357.9, from EUR 250.5. As of July 1, 2009 pensions were updated by 9.0% following the so called Swiss rule. Several legislative amendments were adopted and will be gradually implemented between 2011 and 2016. \* Changes have been incorporated in the Law on the Budget of the State Social Security for 2009 (SG N 109/23.12.2008) and the amendments in the Code of social insurance (SG.N 42/05.06.2009).

Estonia The main policy measures implemented during 2009-2011 were ad hoc changes in the indexation rule of pensions in 2009, which smoothed the value of nominal pensions; a temporary suspension of the transfers to the funded pension system in the second half of 2009 and in 2010 and its compensation mechanism in 2014-2017; and an increase of the pension age to 65 for the period 2017-2026. In the compulsory funded pension scheme, the crisis has resulted in stricter control and clearer rules over the management of the private pension funds and more flexibility for employees and employers.

Ireland In March 2010 the Irish government published the National Pensions Framework which sets out the Government's intentions for reform of the pension system in Ireland. The main provisions are: − Mandatory social welfare pension provision will continue and the government will seek to maintain the level of the state pension at 35% of average weekly earnings, to increase the age when the state pension can be received to 66 in 2014, 67 in 2021, and 68 in 2028, and to allow for the postponement of the receipt of the state pension beyond these years, − to adopt a more progressive pension tax relief of 33% with lower earners receiving more tax credits than they have to date with higher earners receiving less, although many will have more choice in how they draw down their pension, − to introduce mandatory pension provision for employees (auto-enrolment with a possibility to opt-out) not already in an occupational pension together with mandatory employer contributions from those employers not already providing an employee pension scheme. − a new single public service pension scheme will be introduced for new entrants into public service  in 2010. The main provisions of this scheme will include a new minimum retirement age of 66 years which will be linked henceforth to the State pension age, a maximum retirement age of 70 and a pension based on career average’ earnings.

Greece The 2010 pension reform manifests change from a highly fragmented, Bismarckian social insurance system (based primarily on the fist pillar), to a unified, multi-tier system that distinguishes between a basic (quasi-universal) non-contributory and a contributory pension. Furthermore, replacement rates are drastically reduced; pensionable income is redefined on the basis of total career earnings; stricter conditions are introduced for early and regular retirement; measures are taken for equalising men and women’s retirement conditions (in a phased-in way); and provisions are made for linking longevity to retirement age (from 2021 onwards).

Spain The pension reform adopted in 2011 foresees an increase in the pensionable age from 65 to 67 between 2013 and 2027, increase in the contribution period required for a full pension benefit from 35 to 37, increase in the contribution period required for retirement at 65 to 38.5 years. Benefits will be calculated over the whole career. The schemes for agricultural and domestic workers will be integrated into the general pension scheme.

France A reform of statutory pension schemes has been passed in the French Parliament, in November 2010. The most publicised outcome of the reform is the gradual increase of the statutory retirement age from 60 to 62 years by 2018. The reform includes a series of other measures such as a gradual harmonisation of contribution rates between the public- and private-sector schemes or the creation of a right to early retirement (from age 60) for workers with a partial incapacity to work. Some technical changes have also been introduced to promote the development of funded pension schemes.

Italy Article 12 of the law no. 122/2010, which has converted with amendments and integrations law decree 78/2010, foresees the following three interventions to the public pension system: a) Revision of “exit windows” mechanism ( Paragraphs 1-6). The exit window mechanism, which postpones pension entitlements with respect to the fulfillment of minimum age and/or contribution requirements, has been strengthened, starting from those qualifying for a pension after 1rs January 2011. Such postponement is now 1 year for employees and 1 year and half for the self-employed and concerns both early (including the 40-year channel) and old age pensions. Moreover, art. 10 of the law decree 78/2010 establishes a restriction of the delivering criteria for disability pensions, by a percentage increase of disability incidence from presently 70% to 85 %. b) Indexation of retirement age to changes in life expectancy (Paragraph 12-bis/12-quinquies). On the basis of what already stated by law 102/2009, an indexation mechanism has been foreseen, linking the age retirement prerequisites to changes in life expectancy at 65, as measured by the National Statistical Office over the preceding three-year period. Such a mechanism applies to both early and old age pensions and to old age allowances (assegno sociale) and is foreseen to be first applied in 2015, when the gradual increase of age requirements to retire, stated by the previous legislation, is fully phased-in. As regards the first application, the increase of the retirement age cannot exceed three months. The subsequent updates are foreseen in 2019 and then every three years, so as to align this mechanism to the revision of the transformation coefficients used to calculate the amount of pension according to  the contribution-based method . c) Increase of the statutory retirement age of women in the public sector (Paragraph 12-sexies). In the public sector, the statutory retirement age of women (60, in 2009) has been equalized to that of men (currently 65) starting from 2012, instead of 2018 as previously foreseen by law 102/2009. Such intervention has been adopted to comply with the sentence of the European Court of Justice recommending the removal of any gender difference in the retirement age in the public sector.

Cyprus Within the context of combating the effects of demographic ageing on the Social Insurance Scheme, the Government has adopted measures to safeguard the long-term financial sustainability of the Social Security Scheme at least until 2048. Social Insurance legislation has been amended as of 1 April, 2009 (Amendment Law 22(I)/09), with measures aiming at increase in the revenue and containment of the expenditure of the Social Insurance Fund. 1. Revenue side − Gradual increase in contribution rate – 1.3p.p. every 5 years: from 1.4.2009 (1st increase) until 1.1.2039 (final increase) 2. Expenditure side − Increase in the number of years of contribution required for eligibility to old-age pension – 10 years paid contributions, instead of 3 − Increase in the number of years of contribution required for eligibility to the old-age lump sum – 6 years paid contributions, instead of 3 − Maximum limit on the number of education/ training credits granted - 6 years, instead of unlimited number of years − Abolition of the right, as of January 2010, to receive unemployment benefit for all those insured persons who take early or normal retirement, and are eligible for pension benefits from a non-contributory occupational pension plan. The amending legislation also provides for on-going monitoring of the long-term financial position of the Social Insurance Fund. Every three years the Ministry of Labour and Social Insurance should present to the Parliament an actuarial valuation of the system. Based on the actuarial valuation additional measures to secure long-term viability of SIF may be submitted if needed. In addition to the measures above the Government aims at improving the investment returns of the reserve of the Social Insurance Fund by introducing a new investment framework and policy which will be based on internationally accepted governance and investment process standards and best practices.

Latvia Since July 2008, the Latvian authorities have introduced the following policy changes: The amount of early retirement pension is 50% from calculated pension (till 30 June, 2009 it was 80%). From 2011 - CPI based indexation (before: indexation was depending on individual pension amount – low-amount pensions were indexed on April 1, considering an actual consumer price index and on October 1, considering an actual consumer price index and 50 per cent of real growth of contribution wage sum; medium-amount pensions were indexed annually on October 1, considering an actual consumer price index; high-amount pensions were not indexed) and indexation is frozen in 2009 and 2010. Reduction of contribution rates to 2nd tier: 2009- from 8% to 2%; 2010 -2%; 2011 -4%; 2012 and for all next years -6% (before: 2009 -8%; 2010 -9%; 2011 and for all next years -10%).

Hungary The 2009 reform had three strands: 1) Increase in the statutory retirement age from 62 to 65 between 2014 and 2022 (increase by 6 months for every cohort, those born in 1952 should retire at the age 62.5, born in 1953 at 63 etc.). The advanced retirement age also increases gradually form 60 to 63. 2) Less generous indexation of pensions dependent on real GDP growth, as of 2010                                share of component in index real GDP growth  consumer prices             nominal wages <3.0                       100                                    0 3.0-3.9                   80                                      20 4.0-4.9                   60                                      40 5.0<                       50                                      50 The earlier used Swiss indexation formula will be applied only if the real GDP growth exceeds 5.0%. 3) Abolition of 13th month pension from second half of 2009 and introduction of pension premium. 13th pension has been phased in between 2004 and 2006, then capped at HUF 80,000 (average pension benefit) in 2008, and cancelled from second half of 2009 (so first of two instalments has been paid) Pension premium will be provided if the real GDP growth is higher than 3.5%. The amount of pension premium gradually increases according to the size of GDP growth. If the GDP growth is 7.5% or more, this amount is equal to the earlier 13th month pension, but the premium is also capped at HUF 80,000. In consequence of these reforms future sustainability will be improved and gross social security pension expenditure will reach 10.5% of GDP in 2060 instead of 13.8% projected in the Ageing Report 2009.

Poland Bridging pensions have been implemented from 2009, which replaces early retirement provision for some categories of workers. This is temporary solution for workers, whose started work in special conditions before 1999.

Portugal Within the scope of the 2006 Agreement on the Social Security Reform, the new legislation on the financing (contributive) system of the Social Security General Regime was published in September 2009 (Law no. 110/2009 of 16 September) and discussed in National Parliament but postponed in implementation to 2011 due to the current economic crisis. The main elements of the new contributive code, impacting on the financial sustainability of the social security system, through the expected increase in revenue, are the following. i) In relation to wage earners: Enlargement of the contributive base to fringe benefits previously not considered (travel expenses, participation in enterprise profits,…) in a progressive way (33% in 2011, 66% in 2012 and 100% from 2013 on); Differentiation of the employers’ contribution rate (23.75%) according to the labour contract type by decreasing 1 percentage points (p.p.) in the case of permanent contracts and increasing it 3 p.p. for temporary contracts; Incentives to postpone retirement by reducing further the contributory rate for those who are eligible to a full pension (the reduction applies to employer and employee). ii) Concerning self-employees: Entities that contract self-employees’ services have to contribute to Social Security, with the contribution base being 70% of the service paid. The contribution rate is 2.5% in 2011 and 5% from 2012 on; Employees contributive base is now determined by the Social Security services taken into account tax declared earnings and it is foreseen a progressive (yearly) adjustment of the contributive base; Employees contributive rate is now harmonised (29.6% over 20% of the sales amount or 24.6% over 70% of the value of services provided). iii) For all workers: Harmonization of the contribution rates according to the risks covered, reducing the number of special regimes.

Romania A pension reform was adopted in December 2011. The reform integrates special regimes in the social insurance one, introduces a mechanism for recalculating the special pensions, and increases the retirement age to 65 years for men and 63 years for women by 2030. Early retirement is more strictly regulated, while disability pensions are granted under more severe conditions. The reforms are expected to bring important savings to the system and to reduce the number of beneficiaries.

Slovakia · Opening of the second pillar in 2009: For the second time, from 15 November 2008 to 30 June 2009, all pension savers were again (as in the year 2008) given the chance to leave the 2nd pillar while, at the same time, those individuals who have not entered yet were allowed to join in. During this period 66 thousand people left the 2nd pillar and 14.6 thousand people joined the 2nd pillar. Because of this measure, the number of savers in the 2nd pillar declined by 3.5%.

Annex 7:  The
Commission's Country Specific Recommendations (2011) on reforms of pension
systems

Country || Recommendation

AT || CSR 3- In consultation with the social partners and according to national practices, take steps to further limit access to the current early retirement scheme for people with long insurance periods and take steps to reduce the transition period for harmonisation of the statutory retirement age between men and women to ensure the sustainability and adequacy of the pension system. Apply strictly the conditions for access to the invalidity pension scheme.

BE || CSR 2- Take steps to improve the long-term sustainability of public finances. In line with the framework of the three-pronged EU strategy, the focus should be put on curbing age-related expenditure, notably by preventing early exit from the labour market in order to markedly increase the effective retirement age. Measures such as linking the statutory retirement age to life expectancy could be considered.

BG || CSR 3- Implement the agreed steps with social partners under the current pension reform, advance some of its key measures that would help to increase the effective retirement age and reduce early exit, such as through the gradual increase of the social insurance length of service, and strengthen policies to help older workers to stay longer in employment.

CY || CSR 3 - Improve the long-term sustainability of public finances by implementing reform measures to control pension and healthcare expenditure in order to curb the projected increase in age-related expenditure. For pensions, extend years of contribution, link retirement age with life expectancy or adopt other measures with an equivalent budgetary effect, while taking care to address the high at- risk-of-poverty rate for the elderly. For healthcare, take further steps to accelerate implementation of the national health insurance system.

CZ || CSR 2- Implement the planned pension reform in order to improve the long-term sustainability of public finances and to ensure the future adequacy of pensions. Additional efforts should focus on further changes to the public pillar to ensure that the system is not a source of fiscal imbalances in the future, and on the development of private savings. With a view to raising the effective retirement age, measures such as a link between the statutory retirement age and life expectancy could be considered. Ensure that the envisaged funded scheme attracts broad participation, and is designed to keep administrative costs transparent and low.

DK || CSR 2- In order to strengthen employment and the sustainability of public finances, take further steps to increase long-term labour supply, by implementing the recently concluded reform on the voluntary early retirement pension (VERP) scheme, reforming the disability pension and better targeting subsidised employment schemes (the "flex-job" system) towards the most vulnerable groups.

ES || CSR 2- Adopt the proposed pension reform to extend the statutory retirement age and increase the number of working years for the calculation of pensions as planned; regularly review pension parameters in line with changes to life expectancy, as planned, and develop further measures to improve lifelong learning for older workers.

FI || CSR 4- Take measures to improve the employability of older workers and their participation in lifelong learning. Take further steps, in consultation with social partners and in accordance with national practices, to encourage older workers to stay in the labour market, by measures to reduce early exit and increase the effective retirement age. In view of the already existing system of linking pension benefits to life expectancy, consider a link between the statutory retirement age and life expectancy.

FR || CSR 1- Ensure the recommended average annual fiscal effort of more than 1 % of GDP over the period 2010-2013 and implement the correction of the excessive deficit by 2013, in line with the Council recommendations under the EDP, thus bringing the high public debt ratio on a downward path, and ensure adequate progress to the medium-term objective thereafter; specify the necessary corresponding measures for 2012 onwards, take additional measures if needed and use any windfall revenues to accelerate the deficit and debt reduction as planned; continue to review the sustainability of the pension system and take additional measures if needed.

LT || CSR 2- Adopt the proposed implementing legislation on Pension System Reform. In order to enhance participation in the labour market, remove fiscal disincentives to work, especially for people at pensionable age.

LU || CSR 2- Propose and implement a broad pension reform to ensure the long-term sustainability of the pension system, starting with measures that will increase the participation rate of older workers, in particular by discouraging early retirement. With a view to raising the effective retirement age, measures such as a link between the statutory retirement age and life expectancy, could be considered.

MT || CSR 2- Take action to ensure the sustainability of the pension system such as by accelerating the progressive increase in the retirement age and by linking it to life expectancy. Accompany the higher statutory retirement age with a comprehensive active ageing strategy, discourage the use of early retirement schemes and encourage private pension savings.

NL || CSR 2- Take measures to increase the statutory retirement age by linking it to life expectancy, and underpin these measures with others to raise the effective retirement age and to improve the long-term sustainability of public finances. Prepare a blueprint for reforming long-term care in view of an ageing population.

PL || CSR 3- Raise as planned the statutory retirement age for uniformed services, continue steps to increase the effective retirement age, such as linking it to life expectancy. Establish a timetable to further improve the rules for farmers' contributions to the social security fund (KRUS) to better reflect individual incomes.

SI || CSR 2- Take the required steps to ensure the long-term sustainability of the pension system, while preserving the adequacy of pensions. Increase the employment rate of older workers through later retirement, and by further developing active labour market policies and lifelong learning measures.

SK || CSR 3- Enhance the long-term sustainability of public finances by further adjusting the pay-as-you-go pillar of the pension system also by changing the indexation mechanism and implement further measures with a view to raising the effective retirement age, in particular by linking the pensionable age to life expectancy. Introduce incentives to ensure the viability of the fully-funded pension pillar so as to progress towards fiscal sustainability while assuring adequate pensions.

Sixteen out of
22 Member States[37] received a Country Specific Recommendation related to the reform of
their pension system. Out of this 12 countries were requested to increase the
effective retirement age, nine to increase the statutory retirement age or link
it to life expectancy, eight to reform the system in view of improving
long-term sustainability of public finances, three to reform special pension
schemes, two to develop supplementary private pension savings, and one to
harmonise the pensionable age between men and women.

The challenge of
improving current adequacy of pensions has been raised in the case of Cyprus, even if at least three other Member States record similar or worse adequacy
problems (measured with the commonly agreed indicators). The Czech Republic, Austria, and Slovenia have been asked to ensure adequacy of pensions in the
future. A quick look at projected adequacy developments measured by changes in
future benefit ratio and theoretical replacement rates shows that it is at
least as urgent to monitor future adequacy of pensions in at least five or six
other Member States.

ANNNEX 8: Argumentaire
for the three Commission Recommendations in option IIa

Gender equality in
pensions:

A
Commission recommendation on equality for women and men in pension systems
addressing gender differences in pensionable ages and in pension adequacy will
be presented by early 2013.

The issue and present
practices

There are major gender dimensions
in the obstacles to achieving a better balance between years in work and in
retirement and problems here tend to accentuate the gender adequacy gap in
pensions. Employment rates for workers aged 55-64 and average exit ages are
substantially lower for women than for men across EU 27. But in some Member
States differences in activity and employment rates at higher working ages are
much larger than in others. To a great extent these extra differences reflect
lower pensionable ages for women in social security pension schemes.

Currently 14 M/S's (BE, DK, DE, IE,
ES, FR, CY, LV, LU, HE, NL, PT, FI and SE) have equal statutory social security
pension ages for men and women but 13 M/S's (EE, MT, UK, CZ, EL, LT, SK, AT,
BG, IT, PL, RO, and SI) still set a lower age for women than for men.  By 2020
3 further M/S's are expected to have equalised pension ages (EE, MT and UK), leaving 10 unequal (CZ, EL, LT, SK, AT, BG, IT, PL, RO, and SI).  Of these 10,
five have plans to equalise (CZ, EL, LT, SK and AT - although often over a very
long period eg AT where this will commence only in 2024 and not be finally
complete until 2033) and five (BG, IT, PL, RO, and SI) have no current plans to
equalise or equalisation is not certain (June 2011).

Growing disparities
between historical legacies and modern needs

Lower pension ages for women have
their historical rationale in earlier gender roles. In periods when men tended
to marry women that were somewhat younger than themselves and where women
tended to work more as homemakers than in the formal economy lower pensionable
ages for women allowed couples to take up pension at around the same time.
Moreover, pension for married women in many countries were generated as rights
derived from the entitlements build by their husbands. Importantly the bearing
and raising of children and the meno-pause were perceived as taking its toll on
women and leading them to be worn down at an earlier age.

In modern societies where women
work in the formal sector and entitlements in pension schemes tend to be
closely tied to contributory (i.e. de facto work) records lower pension ages
are not necessarily to the benefit of or in the interest of most women. Though
in some countries where there is a general lack of formal child-minding
capacities lower pension ages for women may continue to be somewhat attractive
in as much as it allows them to look after their grand-children while the
parents are at work and care for dependent relatives.

Different EU gender
equality rules for social security and occupational pensions

In occupational pension schemes EU
law imply that pension ages have to be the same for men and women. This is
because these pensions are considered to be deferred pay and come under the
provisions of equal pay for women and men enshrined in Article 157 of the TFEU.
The Commission has brought and won cases at the ECJ in November 2008 and March
2009 to enforce this.

However, when it comes to statutory
social security pension schemes, Directive 79/7/EEC of 19 December 1978 on the
progressive implementation of the principle of equal treatment for men and
women in matters of social security explicitly excludes from its scope pension
ages in social security schemes.

It is clearly
inconsistent to prevent discrimination in pension ages by gender in one type of
pension, whilst allowing it in another.

The negative impacts of
lower pension ages for women on public budget and economic growth

Since women on
average live about 3 years longer than men after age 65, a lower pensionable age for women greatly accentuates the imbalances between years spent in work
and in retirement. If the difference amounts to 5 years – as often is the case
– and women on average live 15 years after the pensionable age for men, it
makes pension expenditure for women 25% more expensive than it would be with
equal pension ages. In a situation with an urgent need to find ways to
consolidate public budgets equalising pension ages present itself as an
attractive option. It would allow significant long-term savings while
substantially adding to GDP and bringing in extra tax-revenue from women
working 5 years more.

The disadvantages for women of lower pension ages

Where women work in the formal
sector and contributory pension schemes predominate lower pensionable ages for
women have several negative consequences for themselves.

These earlier pensionable ages in
social security schemes are translated into lower mandatory retirement ages in
labour law or collective agreements and expectations about earlier exit which
cause women to retire earlier irrespective of whether they would prefer to
continue to the same ages as men. Moreover, lower pension ages are likely to
impact negatively on the relative labour market position and remuneration of
women and on their access to training and upgrading as they age thus eroding
their employability.

This in turn
means women have less time to build up pension rights or other savings and are
then reliant on these (often smaller) pensions from a younger age.  Add in the
greater longevity of women and these pensions (as well as other resources) have
to cover a much longer retirement than for men.  Over these long retirements,
declining pensions (where they are uprated by less than wages) and depletion of
other resources can mean women fall into poverty, especially as labour market
effects typically mean women have lower pensions than men to begin with. Having
5 years less in which to build pension entitlements and on average 8 years more
where they have to rely on pensions[38] can play a role in the higher poverty rates suffered by women
pensioners, in particular the oldest segments. Aligning pension eligibility
ages of women with those of men would afford more time to women for accruing
pension rights while reducing the time they have to draw on these and thus
greatly improve the adequacy of their pension benefits.

Obviously there
are several other factors contributing to adequacy gaps in pensions for women
such as the gender pay gap, the gender activity and employment gaps (women
working less and often only part-time), career breaks related to child bearing
and child rearing and other caring duties, gender gaps in pension coverage (in
particular in 2nd and 3rd pillar schemes), inadequate
reconciliation of work and family life, insufficient sharing of pension
entitlements between spouses in case of divorce etc. Initiatives seeking to
raise gender equality in pensions would therefore have to locate the question
of gender equalisation of pension ages in this context.

Commission initiative to help rise gender equality in employment
rates, effective retirement ages and pension adequacy

If pensions are to sufficiently
underpin European employment objectives of more women working more and longer
and thereby affording women the same opportunities for building entitlements in
schemes based on earnings-related contributions, pensionable ages for women will
need to be equalised with those for men. Therefore the Commission is suggesting
an initiative to that end.

It would be open to the Commission
to propose a revision of Directive 79/7/EEC to outlaw such gender
discrimination in social security pension ages. But most Member States have
already equalised pension ages, or have plans to do so and a revision of the
Directive could be rather controversial.

More critically, such an approach
would do little to address the many other well known issues of gender related
inequalities in pensions, largely stemming from the labour market.  Thus, women
tend to predominate among those with atypical contracts and possibly less than
full pension coverage. They are also very likely to earn less than men and to need
career breaks for caring responsibilities more often than men. Also for these
reasons women’s pension entitlements will tend to be lower.

A Commission recommendation on
gender equality in pensions would be a suitable functional alternative to
legislation and broader in scope. By using the Commission’s right of initiative
in an area of economic and social importance without seeking to change
competences it would be both proportionate and respect subsidiarity. Importantly,
the recommendation could also address wider problems of gender inequality in
access to and levels of pension benefits as also called for in the Green Paper
consultation responses from the EP and other stakeholders.

The recommendation would raise
awareness and engage Member States in setting out their position. It would use
the persuasive powers of peer pressure to motivate Member States with gender gaps
in adequacy, coverage or pensionable ages to take steps to address problems and
inequities. It could help quantify the costs of such differences and thus
deliver ammunition to coming rounds of country specific recommendations.
Synergies between the various forms of policy coordination would increase and
it could help prepare the ground for correcting measures and reforms.

Therefore a more rounded and proportionate
approach on gender is to present a recommendation on equality for women and men
in pension systems addressing differences in retirement ages as well as the
pension adequacy gap between women and men.  The latter could include issues
such as entitlement via derived rights (pension supplements for spouses &
survivors pensions) vs self-earned pension rights; credits for periods spent
with caring responsibilities [including possible ways to address this in funded
schemes]; and improved childcare provision and re-insertion mechanisms to
enable women to return to work after having children. Issues such as the
sharing of pension entitlements among spouses and splitting them in case of
divorce could conceivably also be included. Naturally, equalisation of gender
ages would have to be backed by targeted labour market measures to improve the
employability of women aged 50+ and widen their job opportunities[39]. Often it will also require
changes in gender specific age management in work places.

Full details would be developed
during 2012 with the aim of presenting the recommendation in early 2013.  The
work would draw on a range of evidence, information and experience across the
EU including stakeholder views given in the Green Paper and key reports
relating to these issues.

 Reducing early retirement:

The
Commission will at the end of 2012 present a recommendation on restricting
access to early retirement schemes and other early exit pathways and increasing
measures to maintain workability and employability over the entire working
career.

In the Annual
Growth Survey 2011 the Commission called for measures to reduce early
retirement. This echoed a long standing concern in policy coordination on
employment, social protection and public budgets to which several Member States
over the last decade have responded by restricting access to early exit
pathways in various benefit schemes through tougher eligibility criteria, by
creating incentives to continue working in the form of bonus/malus rules in
benefit calculation or by phasing out early retirement options altogether. Yet,
further restrictions may be needed and some Member States still need to take
the first serious steps in this direction.

To a large
extent early exit has its root causes in work place practices and labour market
conditions. Therefore early retirement options have often been portrayed as the
necessary policy response to the need for lower pension ages for those, who
perform arduous, and those low skilled groups, who have worked in manual occupations
since their late teens and in their fifties tend to meet the limits of their
workability and employability.

Yet, in the
medium to longer term such options are unlikely to be in the best interest of
these groups and other workers. This is because early retirement options tend
to remove key necessary pressures on the social partners to organise work life
so that it is possible to maintain people’s workability and employability over
a standard work career and because such options tend to concentrate labour
shedding in connection with downsizing and restructuration on older workers.

Though policy
makers in most cases have combined the introduction of early exit opportunities
with greater efforts in health and safety at work, early retirement options
have to a considerable degree amounted to allowing workers and employers to
offload to social protection systems problems that should be solved in work
places and labour markets. This runs against the principles which usually apply
to work accident insurance and to pollution, namely that the perpetrator/
polluter have to bear or substantially share the cost in order to create
sufficient incentives to invest in preventive precautions.

Arduous and
stressful working conditions that lead to premature erosion of workability
imply a false productivity that is very costly to individuals and society as it
generates a need for early retirement or disability benefits. The same goes for
the insufficient preservation of employability through continuous maintenance
and upgrading of skills. Public policy has also contributed to this, because
older workers, who have reached the age where early retirement was available,
often have been denied access to active labour market measures on the same
terms as prime-age workers. Such harmful practices must therefore be eliminated
and the social partners are well-placed to take the lead in this with the help
of public policies.

Obviously, for
both blue and white collar workers early exit options have also been attractive
for personal and family related reasons. In several Member States early
retirement options have therefore also led to major deadweight problems in the
sense of substantial extra costs because people who could have continued to
work opted for early retirement.

In sum: early
retirement options tend to undermine not just work incentives but basic
incentives for the social partners and policy makers to organise work and
labour market practices in a full working age perspective. If pension systems
are to offer sufficient support for an organisation of work which allows for
longer working lives early retirement must be aborted or at least restricted
and made unattractive on an actuarial basis.  Obviously, pension reforms to
that effect must be combined with gender sensitive measures that encourage and
enable women and men to continue working, including active labour market
policies, stepped up health and safety, changes in age management practices and
widened job opportunities. Moreover, the initiative would have to function in
close synergy with the proposal for a new European strategy for Health and
Safety at Work that would give more attention to barriers to and opportunities
for healthy ageing at work.

The proposal for
a Commission recommendation on restricting access to early retirement and
measures to prevent premature labour market exit (including good mechanisms for
re-insertion of older workers) would imply that the Commission develops its
proposal in dialogue with the Employment and the Social Protection Committees.
Such an initiative would raise awareness and knowledge about the necessity to
avoid premature exits from the labour market including through faults in policy
design which leave open too many early exit pathways or imply insufficient
attention to life time preservation of workability and employability.

In as much as a
Commission recommendation would make it necessary for Member States to set out
and argue their policy lines in Council this could initially help Member States
take the first steps in the right reform direction. Subsequently it could
inspire and inform the reform efforts of Member States it this area. Obviously,
it would be backed up through attention to its principles and messages in the
European Semester instruments of the AGS and the CSRs and progressively it
would be better reflected in the NRPs.

The particulars will be elaborated
during 2012 with the goal of presenting the recommendation towards the end of
2012 or the beginning of 2013.  The work will draw on a range of evidence,
information and experience across the EU including key reports relating to
these issues and stakeholder views given in the Green Paper.

Ending mandatory retirement ages:

The
Commission will present a recommendation on abolishing mandatory retirement
ages and addressing other barriers to working longer in early 2013.

Article 6(1) of the
anti-discrimination Directive (2000/78/EC) allows differences in treatment on
grounds of age, where "they are objectively and reasonably justified by a
legitimate aim, including legitimate employment policy, labour market and
vocational training objectives, and if the means of achieving that aim are
appropriate and necessary."

This article is used to allow the
setting of mandatory retirement[40] ages.  It permits the
compulsory retirement of workers simply because they have reached a set (and
inevitably somewhat arbitrary) age, regardless of any consideration of their
actual abilities and performance in their job.

It appears[41] that nearly all Member
States currently allow the use of mandatory retirement ages, although at least
one is moving to outlaw the practice.  Outside of Europe a number of countries
have abolished the use of mandatory retirement ages (including Australia, Canada, New Zealand and the United States) but it remains in use in others (e.g. Japan).

Allowing mandatory retirement ages
is at odds with active ageing and longer working.  There is a contradiction
between continuing to allow fixed age related dismissal and efforts to raise
pensionable ages, link them to longevity increases and increase effective
retirement ages. Compulsory retirement is a blunt instrument that has
behavioural impacts by setting retirement expectations for both employers and
employees.  It also has direct effects on individuals in terms of limiting the
actual choices and opportunities for them to work longer.  But it is not just a
problem for individuals.  Demographic ageing means Europe's working-age
population is set to start shrinking from 2012.  Given this, it also makes less
and less sense for companies to automatically discard older and often highly
experienced workers simply for the arbitrary reason of them reaching a fixed
age, rather than directly considering productivity and efficiency.

Ending the use of mandatory
retirement ages would send a very strong signal to all stakeholders in work
places and labour markets that age management practices need to change in order
to enable and encourage people to continue working for some more years including
beyond the pensionable age. The purpose of retirement in the functioning of
work organisations could still be served through time limited end-of-career
employment contracts, while possibilities for further employment would be
decided on individual merits in terms of workability and employability.

It would be open to the Commission
to propose an amendment to Directive (2000/78/EC) to prevent the use of
mandatory retirement ages.  However, such an approach may be narrow and
disproportionate and therefore rather controversial and time consuming.

Hence a better option is to develop
a thorough evidence based recommendation during 2012 for presentation in early
2013.  This approach will enable a wider look at issues associated with longer
working and the role of general retirement rules in the functioning of labour
markets – including in dialogue with the social partners. It will also facilitate
links to the other initiatives in this section and ideas coming from the
European Year for Active Ageing 2012.

Full details would be developed
during 2012 in collaboration with the relevant committees such the EMCO and the
SPC with the aim of presenting the recommendation in the 1st quarter
of 2013.  The work will draw on a range of evidence, information and experience
across the EU including stakeholder views given in the Green Paper and key reports
relating to these issues.

ANNEX 9: Background, substance and mutual synergies
of measures

2 Supporting Member States in achieving a better
balance between time spent in work and in retirement

Achieving a better balance between
working years and retirement years will require Member States to combine
pension reform focussed on raising the age at which people take up a pension
with work place and labour market measures to encourage and enable women and
men to continue working to higher ages. This is about making pension systems
supportive of longer working lives and getting employment practices to cater to
later pensioning.

The first entails making sure that
there are strong work incentives in access to pension entitlements and that
they are effective over the entire work career. This can be secured by linking
pension coverage to employment/formal work so that all declared work leads to
coverage and by making pension right accruals identical with earning-related
contributory record over the whole career (e.g. benefit calculation based on
career-average earnings). It also involves raising the pensionable age to make
up for earlier longevity growth and establishing mechanisms for raising
pensionable ages in line with future increases in life expectancy[42].

Employment practices which
facilitate longer working lives are largely identical to work place conditions
and labour market measures which will enable people to maintain their work
ability and employability over their entire working careers and support them in
their efforts to live productive lives. Health & safety at work, career
long access to training and updating, flexicurity arrangements, reconciliation
of work and family life as well as sensible management and suitable
remuneration of people of all working ages are crucial elements in such
measures.

European support for pension reform
contributing to more people working more and longer will be continued through
policy coordination on social protection and public budgets. Work life policies
that encourage and enable people to have longer and less broken working career
will primarily be assisted through the employment process. Importantly these
three strands of policy coordination have already has been brought together in
the governance framework of Europe 2020.

2.1 Pension system reform

In the policy area of pension
system reform the White Paper suggests a mutually reinforcing set of new
and intensified initiatives that address issues of gender equality in pensions,
reduce early retirement, assess the specific reform needs of Member States and
promote pension reform in line with the 2011 Europe 2020 pension
recommendations.

Gender equality in pensions:

A
Commission recommendation on equality for women and men in pension systems
addressing gender differences in pensionable ages and in pension adequacy will
be presented by early 2013.

For details see Annex 8.

 Reducing early retirement:

The
Commission will at the end of 2012 present a recommendation on restricting
access to early retirement schemes and other early exit pathways and increasing
measures to maintain workability and employability over the entire working
career.

For details see Annex 8.

Backing pension reform
by recommendations and dissemination of best practise

Europe presents a very rich experience of efforts to create pension
provisions that are both adequate and sustainable while also being safe. Nowhere
else in the world is pension provision so well-established and quite so
well-developed.

This has often been
portrayed as part of the soft underbelly of the European social model which
will have to be cut back under the pressures from population ageing and
Globalisation.

However, in a
world where most countries are ageing - and emerging economies usually much
faster than Europe - pension systems in EU Member States represent role models
for the old age income provisions, which many of these countries hope to get in
place before their populations become old.

Moreover, after
the last decade of reforms Europe leads the world (not just in 'pension
generosity threatened by population ageing', but very much also) in innovative
ways to improve the present and future sustainability and safety of pensions
while maintaining attention to adequacy.  In fact some of the best pension
systems in the world and some of the few that reasonably can meet the three key
objectives of adequacy, sustainability and safety are found in EU countries.
Both when it comes to pension systems with a significant element of private
funded schemes and systems that are dominated by public pay-as-you-go, there
are EU Member States that clearly can be counted among the best in the world.

Evidently, even
as pensions in some Member States are state of the art in the world, Europe also holds several pension systems with considerable room for improvement. This is
why there can be very significant added value from using the EU to facilitate
the spread and application of best practices in European pensions. In this
sense the methods of dissemination of good policy practice developed in the
Open Method of Coordination are very important. Now they need to be stepped up
while also backed by the Country Specific Recommendations and the methods of
persuasion in the Europe 2020 governance framework.

Promoting pension reforms:

In
the framework of Europe2020, the Commission will from 2011 intensify its
support for pension reforms that improve the adequacy, sustainability and
safety of pensions in Member States.

In particular the Commission will step
up its promotion of pension reforms that improve both adequacy and sustainability
through better support for longer working lives. Such reforms would typically
aim at reducing access to early retirement, encouraging later pension take up
(e.g. by help of bonus/malus rules in benefit calculation), connecting
entitlements to contributions and linking benefit levels and/or pensionable
ages to longevity growth. Reforms  to be promoted would also focus on adequacy
aspects including the need for pension schemes to cover all formal work
including all types of employment and self-employment (and thus prevent
contribution evasion including through false self-employment and short term
atypical contracts); equal conditions for women and men; crediting of parental
leave and other career breaks due to caring duties; as well as the quality of
guarantee pensions and minimum income provision for older people In addition
reforms would seek to bolster future adequacy through greater contributions
from complementary retirement savings by raising their safety and
cost-efficiency.

Assessing reform needs in pension and retirement policies:

Financial
support from the PROGRESS programme will from 2012 be provided to Member States
who want to review the need for reform of their pension and retirement policies
particularly in the light of their country-specific recommendations.

The interaction
between pensions and labour markets are complex and where funded pensions are a
significant part of provision the overall matrix of pension delivery can be
particularly intricate. Analysis can help identify what is wrong and where
limited resources for reform can be of most value in a sequence of necessary
changes. Getting an independent expert assessment can be helpful including by
easing controversies over reform. The Commission therefore suggests redirecting
PROGRESS funds to allow Member States to access expertise from other countries
or international organisations (e.g. OECD led country reviews). Such support
may be used to cover all aspects of pensions and retirement including for
example how to design, scale and scope the build up of complementary private
pensions so as to improve their sustainability and safety and raise their
contribution to adequacy. Using PROGRESS to help
interested Member States to employ well-merited international consultants to
pinpoint the weaker aspects of their retirement practices and suggest ways to
improve them can galvanize their own reform efforts. The idea is to tie the use
of PROGRESS funds much closer to actual reform processes.

2.2 Work place
and Labour market measures promoting people’s ability to stay longer on the
labour market

In the policy area of initiatives
aimed at raising people's ability to stay longer in the labour market,
which is needed to underpin pension reforms, the White Paper suggests to secure
and reinforce synergies between social protection and labour market reforms
through a set of measures to end mandatory retirement ages, promote healthy
ageing at work, use EU funds to enable older workers to work longer, adapt work
places and labour market to longer working careers and develop opportunities
for extended working lives including through end-of-career jobs. In view of the
significant differences in employment rates for women and men aged 55-64 all
initiatives will give particular attention to gender aspects of longer working
lives.

Ending mandatory retirement ages:

The
Commission will present a recommendation on abolishing mandatory retirement
ages and addressing other barriers to working longer in early 2013.

See Annex 8

Promoting healthy ageing at work:

The
Commission will in 2012 propose a new strategy for health and safety at work
2013-2020 in which special attention will be paid to healthy ageing at work and
invite the European Agency for Safety and Health at Work to focus on working
condition issues that prevent older workers from remaining longer on the labour
market.

As pension reforms including the
restriction of early retirement options provide better incentives to organise
work with concern for career long preservation of work ability it will be
crucial to reinforce this spur by stepping up efforts in health and safety at
work measures to identify and mitigate aspects of working conditions and work
practices that erode the physiological and psychological aspects of work
ability.

In its proposal for a new strategy
for health and safety at work covering the period from 2013 to 2020 the
Commission will naturally seek to strengthen its ability contribute to
achieving the employment targets in Europe 2020.  Moreover, the strategy will
give attention not just to risks and potential barriers to longer and less
interrupted working lives but also seek to pinpoint the type of conditions that
function as active facilitators and enablers of longer working lives.
Importantly, the strategy will seek to present not just the societal macro case
but also the SME business case for investing in good working conditions and
better reconciliation between work and family life.

Enabling older workers
to stay longer on the labour market:

The
Commission will promote greater support from the European Social Fund
for work place and labour market measures that enable older workers to work
longer in the current and future programming period.

In the re-orientation of work place
and labour market practices and of employment policies towards promotion of
longer working lives economic support from EU funds can play an important role
as catalyst. Given the underemployment of women 50+ and the particular problems
related to training and re-insertion of women in this group the Commission
working with Member States would give priority to activities that address these
difficulties.

To open for greater support from
the European Social Fund for work place and labour market measures that enable
older workers to work longer Commission will facilitate the review of ESF Ops
in the current programming period. For the next programming period 2013-2020,
the Commission will encourage Member States to use their ESF programmes in line
with reform needs identified in Europe2020.

This will include capacity building
for public policy makers and the social partners as well as labour market
measures directed at older workers.

Adapting work places and
labour markets to longer working careers:

In
the framework of European Social Dialogue the Commission will from 2012
call on the social partners to develop ways of adapting work place and labour
market practices so as to facilitate longer working lives for women and men and
ensure their work- and employability.

Work place and labour market
practices which influence whether people are able and motivated to work longer
are to a large extent determined by collective agreements between the social
partners in the labour market. If the changes, which can lead to the longer
work lives, are to come about, it will therefore be crucial for Member States
to involve the social partners in policy efforts. While social dialogue at the
national level provides the key arena social dialogue at EU level can contribute.

In the framework of European Social
Dialogue the Commission will therefore in 2012 call on the social partners -
and request Eurofound to provide advice and expertise - to develop ways of
adapting work place and labour market systems for training, remuneration, work
organisation and working time, as well as career management, notably for
workers in strenuous jobs, so as to facilitate longer working lives for women
and men and maintain the workability and employability of older workers.

Opportunities for extended working lives and end-of-career jobs:

In
the framework of Europe 2020 the Commission will from 2012 intensify its
support for policy coordination and joint work on enabling and encouraging
older workers to stay longer on the labour market including through the
development of end-of-career jobs.

Population forecasts expect a rise
in remaining life expectancy at 65 of up to 6 years (check) over the next 5
decades. As pension reforms link pensionable ages to the growth in longevity
providing for longer working lives will become a permanent challenge for labour
markets and employment policies.

A key question is which forms
longer working lives will take. Most likely continuing in ones late sixties or
even early seventies in the same job or type of employment which one had when
one was 40 may only be possible for a minority of us. For many working time
will have to be reduced. So part-time is likely to be one of the forms working
longer will take. But to encourage and enable people to continue working they
may also have to move to a new kind of jobs.

Looking to experience from the USA and Japan, what is likely to be needed is the development on a mass basis of various
end-of-career job opportunities. The new labour market practises to emerge
could be some where people end their primary career at some point in their
sixties in order to begin secondary or tertiary work careers in some form of
end-of-career jobs. To a limited extent jobs of this type will emerge through
market forces. But if the rising demand for jobs at higher ages is to be
satisfied policy makers will probably have to work very intentionally with
public and private employers to get them to create such jobs as part of their
personnel planning for the future.

The Commission will from 2012
intensify its support for policy coordination and joint work on enabling and
encouraging older workers to stay longer on the labour market in the framework
of Europe 2020, the European Employment Strategy and the Social OMC.

This will include promoting joint
work by the SPC/EMCO/EPC on obstacles to, and opportunities for, extended
working lives and the development of end-of-career labour markets across the
Member States. This work will be further informed by research on the
development of labour markets in our ageing societies generated under the
research framework programmes.

3. Supporting Member States in enhancing the
contribution to adequacy from complementary retirement savings

Rebalancing the time spent in work and retirement by more people
working more and longer can secure the bulk of conditions we need to make
adequate pension delivery sustainable. Yet, it will not be enough to secure
benefit levels fully similar to those which citizens in many Member States have
become accustomed to. While generating more resources by working longer, most
people will also have to put away for the future a larger share of the means they
otherwise would consume. If Europeans in the future are to secure pension
benefit packages at recent replacement levels many of them will therefore need
to supplement income from public pension entitlements with income based on
complementary retirement savings.

Indeed, maintaining
adequacy without overburdening public finances will for most Member States mean
that they will need to complement public pay-as-you-go pension schemes with private
pre-funded schemes. However, in many countries the
crisis has demonstrated that the ability of pre-funded pension schemes to
mitigate risks and absorb shocks are far from optimal. If the envisaged
contribution to pension adequacy is to be delivered it will be important to
enhance the safety and cost effectiveness of private pensions[43].

The recession and the subsequent
deterioration of public budgets also revealed some fundamental weaknesses in
the way several Member States had sought to build mandatory private pension
schemes[44]. Most of these Member
States have therefore had to scale back their ambitions and will now have to
reconstruct private pensions and adjust the timeframe for and the scale of
their contribution to future pension adequacy.

Given the great
variance in how well pension funds in different Member States weathered the
financial crisis it will be crucial to disseminate knowledge about best
practise in the design, running, regulation and supervision of pre-funded
private pension schemes. To remove barriers to labour mobility it will also be
necessary to improve the portability of occupational entitlements based on
complementary retirement savings. Europe can add substantial value to national
efforts in these areas both through improved regulation at European level and
via better facilitation of access to state of the art knowledge in Member State with good practises.

In the policy area of coverage
and cost-effectiveness of complementary private pensions the White Paper
proposes initiatives to promote cost-effective supplementary pension schemes
and optimise the effect of tax expenditure in support of private pension
savings.

Suggested initiatives in the policy
area of safety of complementary pension savings seek to increase the
safety of occupational pension schemes, improve protection in case of
insolvency of pension sponsoring employer, raise the quality of third pillar
pensions and upgrade consumer protection, and improve the design and
performance of funded occupational pension schemes.

Proposed measures in the policy
area of mobility of supplementary pensions aim to reduce the barriers to
cross-border movement from supplementary pension rights in the private and the
public sector, enhance people's ability to keep track of their various pension
rights, remove tax obstacles to the cross-border mobility and investment of
pension funds and life insurance providers, and raise the cross-border security
of occupational pension rights for migrating researchers.

3.1 Promoting
coverage and cost-effectiveness of complementary private pensions

Promoting cost-effective supplementary pension schemes:

From
2012 financial support for advice to Member States and social partners wishing
to develop cost-effective supplementary pension schemes will be provided from
the PROGRESS programme.

Occupational pension schemes based
on collective agreement between the social partners (or employer sponsorship)
have demonstrated themselves to hold important potentials as stable providers
of supplementary pension benefits. As established by evidence from some Member
States there can be important advantages to anchoring supplementary provision
with the social partners.

But across the Union such schemes
vary widely in design, regulation and investment management. Subsequently these
differences result in significant variations in the cost-effectiveness of
occupational pensions between Member States. For Member States and social
partners that are interested in developing occupational schemes or improving
the ones that already are established it would be very important to be able to
consult the experience and lessons from some of the better practices across the
Union.

Beginning in 2012 financial support
for advice to Member States and social partners wishing to set up
cost-effective supplementary pension schemes will be provided from the PROGRESS
programme, so that they can benefit from the good practices and experiences of
other countries, notably for collective schemes on an sectoral, intersectoral
and/or territorial basis which would also increase the coverage of women and
workers in SMEs by such pension schemes. The Commission would further support
the value of access to expert advice through conferences and seminars focussed
on aspects of occupational pensions.

Optimising the effect of tax expenditure in support of private pension
savings:

The
Commission will from 2012 further develop and intensify work with Member States
to optimise the efficiency and effectiveness of tax expenditure in support of
private pension provision.

In many Member States retirement
savings in both the second and third pillar benefit from tax advantages, in the
sense that contributions may be wholly or partly deductible from taxable income,
investment returns may be wholly or partly exempt and outpayments may be exempt
or taxed at lower rates than the normal income tax rate. Such tax advantages
encourage individuals to save for their old age.

Pension tax regimes vary
considerably across the EU. However, taxes forgone through such advantages
influence public budgets just as much as direct expenditures. Therefore the tax
foregone as a result of such tax advantages has increasingly been perceived as tax
expenditures for pensions and is listed among expenditure items in public
budgets.

To the extent that tax expenditures
encourage more savings than would otherwise occur they may justify the expenses
involved. However, where they subsidise savings that would have occurred anyway
they represent deadweight cost which should be avoided.

Tax expenditures for pensions are
usually meant to result in complementary pension income in old age which can
add to pension adequacy and relieve public pension of some of the cost of
social protection in old age. However, some retirement savings may be paid out
as a lump sum and never really be used for retirement income or at least not be
converted to an annuity leading to pension income. For these reasons, policy
makers need to monitor and regulate tax conditions for second and third pillar
retirement savings to ensure that tax expenditures are justified by their
cost-effective contribution to the adequacy and sustainability of pensions.

At the time when there is a dire
need for budget consolidation, Member States will need to review the purpose
and value of all expenditures and all aspects of revenue collection, including
tax expenditures in connection with retirement savings. Member States about to
embark on an expansion of incentives for second and third pillar retirement
savings will have a keen interest in avoiding the pitfalls leading to excessive
costs and securing that tax advantages to stimulate the growth and maintenance
of private pensions are as well designed and cost-effective as possible. Some Member
States have designed their tax systems in a way to ensure that many of the tax
expenditures incurred will be recouped when pension benefits are paid out. In
the Commission's view there can be important European added value in sharing
experience and best practices in this respect.

The Commission will therefore intensify
work with Member States to optimise the efficiency and effectiveness of tax
expenditure in support of private pension provision (via EPC and SPC, etc.)
including by providing extra tax relief for pension contributions for those who
otherwise would not build up an adequate pension.

3.2 Enhancing the safety of complementary private
pension provision

Increasing the safety of occupational pension schemes:

The
Commission will review the IORP directive and present proposals for its
amendment with a particular view to the solvency requirements in 2012.

The
Commission has foreseen a review of the IORP Directive for three main reasons. First,
there are currently less than 80 IORPs operating across different Member
States, which represents a very small proportion of the around 140,000 IORPs
existing in the EU. The Commission intends to propose measures that simplify
the legal, regulatory and administrative requirements for setting-up
cross-border pension schemes. Employers, IORPs and employees should be able to
reap the full benefits of the Single Market. Second, the recent economic
and financial crisis has forcefully demonstrated the need for risk-based
supervision. This is the case already for IORPs in some Member States, but not
at the EU level. Building on the know-how and technology existing in Member
States, the Commission intends to propose measures that would allow IORPs to benefit
from the risk-mitigating security mechanisms at their disposal. Third, while
not very prevalent at the time of adopting the IORP Directive in 2003, today
nearly 60 million Europeans rely on a defined contribution (DC) scheme for an
adequate retirement income. DC schemes shift the risks – in particular market
risk, longevity risk or inflation risk – to individual households.
International discussions have shown that this raises important new policy
issues. The Commission therefore seeks to modernise prudential regulation for
IORPs that operate DC schemes.

As part of the review the
Commission has asked the European Insurance and Occupational Pensions Authority
(EIOPA) for advice on how to improve the IORP Directive. The EIOPA advice
should cover all the types of schemes operated by IORPs, ranging from pure
defined benefit (DB) schemes to pure defined contribution (DC) schemes. A
description of this spectrum of pension schemes is contained in the EIOPA
report on risk management.[45] Pension schemes with a
minimum guarantee for the contributions paid and/or of the investment returns
are, depending on the Member States, considered to be DC, hybrid or DB schemes.

The Commission's proposal to review
the IORP Directive will take into account that supplementary occupational
pension schemes are generally proposed by employers to their employees on a
voluntary basis. The new supervisory system for IORPs should not undermine the
supply or the cost-efficiency of occupational retirement provision in the EU.

The Green Paper consultation
confirmed that completing the Single Market for occupational retirement
provision can make a significant contribution towards these objectives. The
Single Market can reduce the cost of financing pensions by allowing for further
efficiency gains through scale economies, innovation and diversification. It can
also enhance the safety of pension schemes through effective and intelligent
regulation. The best way for the Single Market to support fiscal sustainability
and pension adequacy is through the facilitation of cross-border activity and
the further development of risk-based supervision.

An important
part of the review concerns the scope of the IORP Directive as not all
occupational pension schemes are covered by it. Occupational retirement
provision, operating on a funded basis, is delivered through different
financing vehicles and under different legal regimes in Member States. Some DC
schemes either do not fall under any EU prudential regulation or Member States
have chosen to subject them to national legislation that is inspired from the
provisions of EU prudential regulation for similar financial products (e.g. the
IORP Directive itself or the UCITS Directive). The Commission is therefore
investigating how part of the provisions in the IORP Directive could be
extended to occupational DC schemes currently not covered.

Another major aim is to introduce
risk-based supervision for IORPs. The supervisory system should provide
supervisors with the appropriate tools and powers to assess the overall
financial position of an IORP based on an economic risk-based approach. The aim is to reflect the true
risk position of the IORP and therefore supervision should not only focus on
quantitative elements, but also cover qualitative aspects that influence the
risk-standing of the institution (managerial capacity, internal risk control
and risk monitoring processes, etc.). The supervisory system should also be
designed to gives an incentive
to the IORPs to
measure and properly manage
their risks. In
this regard, common EU principles on risk management and supervisory review
should be developed.

Specific
attention should be paid to defined contribution (DC) schemes that do not offer
a principal and/or investment guarantee. These schemes have become much more
prevalent in the EU since the adoption of the IORP Directive in 2003. It is
important to consider whether the IORP Directive needs to be adjusted to better
address the specific needs for the regulation

and supervision
of DC schemes.

Improved protection in case of
insolvency of pension sponsoring employer:

The
Commission will in 2012 take initiatives to ensure a more effective enforcement
of article 8 of the Insolvency directive.

The Commission will in 2012 take
initiatives to ensure a more effective enforcement of article 8 of the
Insolvency directive on the basis of a horizontal assessment of its state of
implementation across the EU and in the light of the ECJ jurisprudence.

Raising the quality of third pillar pensions and improving consumer
protection:

The
Commission will by 2013 present an initiative aimed at raising the quality
of third-pillar retirement products and improving the protection and
information of consumers via voluntary codes of good practise.

Third pillar pensions or individual
pension saving contracts represent an important supplement to occupational
schemes in Member State efforts to raise and improve the contribution to
pension adequacy from complementary retirement savings.

Third pillar pensions are developed
to very different degrees in Member States. In some they have a significant
role in retirement income provision and may be designed to be attractive and
accessible to all income groups and supplement benefits from collective schemes
which only cover income up to a ceiling and therefore may not offer adequate
replacement levels. In a number of Member States third pillar pensions also
represent the main pension instrument available to the self-employed. In other
Member States, however, the coverage of third pillar products may be skewed
towards mid-to-high income earners and be frequented for the tax advantages
they provide.

The regulation and quality of third
pillar products also vary enormously between Member States. Given that they
will have a growing role in pension provision it is important to secure a
better standardisation and cost transparency of third pillar products. It is
important through the Internal Market to allow pension savers in all Member
States access to state of the art schemes which are cost-effective and safe.

Apart from its regulatory efforts
the Commission would like to engage the third pillar pension industry in work
to develop voluntary codes which can establish standards for good practise
including in terms of cost transparency, information and consumer protection.

After working with relevant
stakeholders the Commission will by 2013 therefore present an initiative aimed
at raising the quality of third-pillar retirement products and improving the
protection and information of consumers (including payout phase products and
ways to access housing wealth) via voluntary codes and possibly an EU
certification scheme for such products.

Improving the design and performance of funded occupational pension
schemes:

In
collaboration with key stakeholders the Commission will in 2012 begin work
towards a code of good practice for occupational pension schemes (2nd
pillar).

While the key measures to improve
the safety of occupational pension schemes will come about through the review
of the IORP Directive (see above) such regulation at EU level can usefully be
supplemented by voluntary codes of good practice for the occupational pension
industry in its various forms.

Working with stakeholders such as
the social partners, the pension industry and advisory bodies such as EIOPA and
the Pension Forum the Commission will develop a code of good practise for
occupational pension schemes (2nd pillar) , thus addressing issues such the
payout phase, risk-sharing and risk mitigation, cost-effectiveness, shock
absorption and ways of avoiding pro-cyclicality in investments.

3.3 Raising the Mobility of supplementary pensions

Improving cross-border portability of supplementary pension rights:

The
Commission will table a modified proposal for a portability directive based on
setting minimum standards for the acquisition and preservation of supplementary
pension rights by early 2013 at the latest.

In order to
facilitate mobility, statutory social security pensions (often referred to as
'pillar I' pensions) earned in different Member States are aggregated under the
Regulation (EEC) No 883/2004. 
This ensures that if a person works in more than one Member State they do not lose out when it comes to their statutory social security pension
entitlements.

However,
occupational pensions (so-called 'pillar II' pensions) have no such arrangement
which means that people who move to jobs in other Member States (or often even
within Member States if this involves them changing occupational pension
schemes) may lose out.  As occupational entitlements are acquiring a solidly
growing importance in overall pension provision in Europe this obviously
hampers the increasing cross-border mobility of workers which is essential to
the functioning of the Internal Market.

The Commission
first dealt with this issue as far back as a 1991 Communication. A first basic
step was Council Directive 98/49/EC which ensured people moving cross border
were treated no worse than those moving within a Member State.  Recognising the
limited nature of this Directive, the Commission proposed a new Directive in
October 2005 on improving the portability of supplementary pension rights. 
This had three elements – transfers of pension rights, timely acquisition of
pension rights and preservation of pension rights once granted. Being subject
to unanimity in Council and co-decision this proposal proved difficult to agree.
In 2007 the Commission taking account of the European Parliament opinion therefore
issued a revised proposal which dropped the pension transfers element. This
left the emphasis of the Directive on timely acquisition of pension rights (i.e.
avoiding long vesting periods) and then ensuring such rights were preserved (i.e.
indexed so that inflation did not erode them).  Yet, this proposal also failed
to get enough support to be adopted Council.

The main
sticking point was on vesting periods which determine how long an employee must
be in the pension scheme before their pension rights are irrevocably granted. 
The vast majority of Member States were content to accept maximum vesting
periods of 2 years.  However, this remained problematic for a small number of
Member States, who had traditionally had longer vesting periods.  These
countries argued that long vesting periods reflected that pensions were there
to encourage employee loyalty to employers. Other countries were more in line
with modern labour market economics that view free labour mobility as a
necessary element in the flexibility needed to ensure the well-functioning of labour
markets.

Clearly, the
issue at the heart of this – removing obstacles caused by supplementary
pensions to the free movement of workers – has only grown more important. In
today's labour market, particularly with the added challenges from the
financial and economic crisis, people need to be able to change jobs easily and
without hardship and employers need to be able to recruit the right person with
the right skills. With ageing demographics, people need to have opportunities
to work and build up and retain pension rights, not lose them just because of a
change of job.

In order to
address this situation the Commission will therefore re-launch the proposal for
a Directive in an updated version taking into account responses to the Green
Paper consultation and changes in legal possibilities with the Lisbon Treaty.
The proposal will stimulate labour mobility and improve the pension adequacy of
flexible workers. Respondents to the Green Paper on
Pensions expressed their positive appreciation of taking this file forward
along these objectives.

Improving cross-border portability
of statutory supplementary pension rights:

The
Commission will explore the possibility for extending the material scope of
application of Regulation (EC) No 883/2004 on the coordination of social
security schemes, in particular as regards certain occupational schemes, and
thus remove barriers to cross border mobility.

Legislation on the coordination of
social security systems has been in force since the very beginning of the European Economic Community. A modernised version of these social security coordination
rules is contained in Regulation (EC) No 883/2004 on the coordination of social
security systems and in its Implementing Regulation (EC) No 987/2009 which both
entered into force on 1 May 2010. Throughout their existence, the social
security coordination rules have been limited in scope to the different
branches of social security, such as old-age benefits, which are based on
"legislation".

In light of the seminal changes
which have intervened since the late 1950's in the way how pensions are
provided, most notably with the growing importance of occupational schemes, the
Commission recently ordered a study on the "Scope of the co-ordination
system in the pension field" which was delivered in September 2011. The
study contains an overview of pension schemes in the Member States, an analysis
of the existing legal instruments in the pensions field at EU level having an
impact on the free movement of persons, a proposal for a typology of pension
schemes with regard to the problematic of exportation of pension rights, a
description of the main problems in the application of EU legislation to the
different pension schemes and a critical assessment of the delimitation of the
scope of application of the social security coordination rules to
"legislation".

The results of this study will be
presented to the Administrative Commission on the Coordination of Social
Security Systems. This body, in which representatives of the Member States meet
since the entry into force of the first rules on social security coordination
at EU level in the late 1950's in order to discuss issues of interpretation and
implementation as well as possible revisions of these rules, is very well
placed to examine the recommendations made in the study. This committee will
also discuss whether the current delimitation of the scope of application of
the social security coordination rules in the pension field by the formal
criterion of being based on "legislation" still reflects the needs of
a changing social and economic environment or whether it should be adapted. Given
their growing importance and some legal difficulties in respect of the
classification of some of them, occupational schemes are the most notable case
in point[46]. The Commission will
actively support these discussions in the Administrative Commission for the
Coordination of Social Security Systems.

Improving people's
ability to keep track of their various pension rights:

To
help people to keep better track of their various pension entitlements the
Commission will in 2012 tender for a feasibility study on how a European
pension tracking service could be developed.

Pension reforms have tended to
change the character and public-private mix of pension provision in Member
States. Pension systems are becoming more complex and can no longer be grasped
simply by looking at the formerly all dominant 1st pillar public
pension schemes.

In the future the majority people
will build entitlements not just in 1st but also in 2nd
and 3rd pillar schemes. Moreover, quite a significant group of
people will over their work and savings careers be likely to accrue rights in a
number of 2nd and 3rd pillar schemes. To be able to plan
for their retirement – including determining to what extent they will need to
work longer to earn the pension income they aim for - people will therefore
need instruments which over long periods can help them keep track of the
pension entitlements they accrue.

Some Member States that already
have developed pension systems where people will rely on a package of pension
income from a combination of 1st, 2nd and 3rd
pillar schemes have sought to respond to this need. They have opened national
web-portals on pension, which allow people to track the development of the
total sum of their pension rights. Often portals also enable people to consult
scenarios of what their total pension income will amount to at different
retirement ages, if they continue working and saving as hitherto and certain
economic conditions prevail.

As more Member States are moving
from largely single to multi-pillar systems there will be important added value
in disseminating knowledge about how such tracking instruments have been
developed, to what extent the people are consulting them and how it affects
their planning for retirement. With increasing cross-border mobility of workers
it furthermore becomes important at EU level to move beyond the present
tracking of the social security entitlements which workers earn in different
Member States to include also rights acquired in 2nd and 3rd
pillar schemes. This would underpin a portability directive.

Keeping track of pension
entitlements over people's careers would be important both for individuals who
need to know where they stand in terms of accumulating adequate pension
entitlements and for pension providers who need to keep track of their members
as they move jobsand change address over very long periods. Responses to the
2010 Green Paper on Pensions supported the idea of building a European tracking
service for pension rights.

The Commission will give attention
to experiences so far in the context of the Social OMC and promote the
development of national pension tracking services as basis for building a
European pension tracking service allowing people to monitor and trace their
pension entitlements. First step will be the commissioning of a feasibility
study for a European level tracking service in 2012.

Removing tax obstacles to cross-border mobility and investments of
pension funds and life insurance providers:

The
Commission will from 2012 step up its efforts to tackle the issues of tax
obstacles to cross-border mobility and cross-border investments of occupational
pension funds and life insurance providers.

The Commission will tackle the
issues of tax obstacles to cross-border mobility and cross-border investments
linked to discriminatory taxation of transfers of occupational pension and life
insurance capital and of life insurance contributions paid to providers
established elsewhere in the EU, as well as discriminatory taxation of
cross-border investments by occupational pension funds and life insurance
providers.

Improving cross-border security of occupational pension rights for
migrating researchers:

The Commission will pursue the
on-going work on a pan-European Pension Fund for Researchers.

(if included to be elaborated with
contributions from DG RTD)

4. Enhancing the EU's
monitoring and coordination tools on pensions

While reforms some times
can be decided relatively fast actual delivery on the ground is the real test. Impacts
of reforms in terms of adequacy and financial sustainability may take decades
to materialise. Therefore it is crucial to closely monitor both reform
measures and policy outcomes. This can be done with the instruments developed
for the Open Method of Coordination and the surveillance instruments developed
under the EU 2020 strategy and the Stability and Growth Pact. These include not
only reporting on reforms, but also outcome indicators and projections (of
future spending and future replacement rates, in particular) as well as
effective surveillance mechanisms to prevent and correct macro economic
imbalances with potential spill over risks.

To sufficiently assist Member
States in pension delivery the policy framework must be comprehensive in the
sense of including the combined contributions all types of pensions and fully
reflecting and the interactions between pensions and labour markets as well as
those between funded pensions and financial markets. Holistic consideration of
all components can only be assured if coordination mechanisms at EU level are
substantially strengthened. Europe 2020 governance structures present a good
base for building better pension policy coordination. Yet even with Europe 2020
this will entail considerable challenges as this has not really been achieved
before. If a truly comprehensive policy approach is to materialise establishing
strong coordination mechanisms at the level of Commissioners and their services
will be key.

In the policy area of coordinated
monitoring of the adequacy, sustainability and safety of pensions the White
Paper proposes to bring together the monitoring of the adequacy, sustainability
and safety aspects while also launching a special initiative for raising the depth
and scope of adequacy monitoring.

Measures put forward in the policy
area of coherent policy making at EU level aim to strengthen the
coherence and integration of EU policies impacting on pensions, ensure the full
coordination and integration of Commission pension policies, and establish
holistic monitoring of progress in pension delivery in the EU.

4.1 Coordinated
monitoring of the adequacy, sustainability and safety of pensions

Coordinating the monitoring of adequacy, sustainability and safety:

Working
with Member States the Commission will in 2012 raise the attention to private
pensions in the Ageing report and complement this with a Pension Adequacy
Report which also will highlight gender differences.

The Commission will promote
cooperation between EPC and SPC with the aim of presenting future adequacy
trends/challenges alongside ageing-related public spending trends while
covering all pension types and finding ways to connect this also to the
monitoring of the safety of private pensions. Working with Member States the
Commission will in 2012 raise the attention to private pensions in the Ageing
report and complement this with a Pension Adequacy Report which also will
highlight gender differences.

Building on the latter the
Commission will be promoting common methodologies for assessing the present and
future adequacy of pension provision, including its gender dimension, via work
in the context of the Poverty Platform and the social OMC and developing
guidance that makes it possible for Member States to establish criteria for a
minimum level of pensions taking into account the specific national circumstances.

Raising the quality of adequacy monitoring:

The Commission will promote the use
of agreed indicators for benchmarking, review of national policies and
outcomes, exchange of best practice focusing on cost-efficient provision of
adequate incomes and living conditions of older people, with a special emphasis
on the gender dimension and on vulnerable groups, whilst bearing in mind the
role of services (housing, health and long-term care) in ensuring decent living
conditions in old age.

4.2 Coherent policy making at EU level

Measures put forward in the policy
area of coherent policy making at EU level aim to strengthen the
coherence and integration of EU policies impacting on pensions, ensure the full
coordination and integration of Commission pension policies, and establish
holistic monitoring of progress in pension delivery in the EU.

Strengthening the coherence and integration of EU policies impacting on
pensions:

The
Commission will review the mandate and functioning of the Pensions Forum with
the aim of strengthening its contribution to the European pension debate and
broadening its material scope.

Presently the consideration of the
contribution to the adequacy, sustainability and safety of future pension
income from the different types of pension schemes takes place in separate
fora. The EPC looks at public pension expenditure and thus primarily at public
pension schemes from a sustainability angle. For the SPC primarily concerned
with the adequacy outcome of pension systems occupational and third pillar
pensions have remained a concern at the margin while the main attention have
gone to the public components of pension provision. The mandate of the Pension
Forum is limited to the consideration of supplementary (i.e. occupational)
pensions. Since none of the components of pension system really can be
considered in isolation from the others this situation is far from helpful. As
part of its deliberations over whether to suggest a new single Forum for EU
policy reflections with Member States the Commission will investigate
possibilities in the Pension Forum (which already brings the pension industry
and the social partners together with Member State representatives) to locate
discussions of occupational schemes much more in the context of overall pension
provisions.

Securing full coordination and integration of Commission pension
policies:

To
oversee consolidate a comprehensive and coordinated approach to pension
challenges the Commission will continue the Commissioners Group on pensions
beyond 2012 and support it by establishing a standing inter-services group on
pensions.

Strong coordination mechanisms will
determine the ultimate ability to realise a comprehensive approach to pensions.
While the Commission will seek to develop these in Committee work and with
Council formations it will in the first instance take determined steps to
reinforce coordination between Commissioners and their services.

Thus the Commission will continue
the Commissioners Group on pensions beyond 2012 and support it by establishing
a standing inter-services group on pensions to oversee the implementation of
the White Paper measures and consolidate a comprehensive and coordinated approach
to pension challenges across Commission services. These two bodies would focus
on achieving a better consistency of EU actions and stronger synergies between
the different instruments. The Commissioners Group would meet at least twice a
year and the Inter-Services Group could have quarterly meetings.   (possibly to
be elaborated by D3)

Securing holistic monitoring of progress in pension delivery in the EU:

The
Commission will publish a report on progress towards 'adequate, sustainable and
safe pensions in Europe' in 2014.

A major report on
progress towards 'adequate, sustainable and safe pensions in Europe' from the
Commission to the Parliament and the Council can help focus the attention of
all stakeholders on the challenges in pensions and the best ways to tackle
these. This Commission therefore intends to produce such a report towards the
end of its mandate to take stock of its major initiatives in pensions. If it
proves to be a worthwhile instrument for taking the objectives forward future
Commissions can decide whether they want to repeat the exercise.

Annex 10:  EU Treaty articles of
relevance for pensions

Treaty articles relating specifically to
social protection and pensions

Treaty on the
Functioning of the European Union

Article 5

1. The Member States shall coordinate their economic
policies within the Union. To this end, the Council shall adopt measures, in
particular broad guidelines for these policies. Specific provisions shall apply
to those Member States whose currency is the euro.

2. The Union shall take measures to ensure
coordination of the employment policies of the Member States, in particular by
defining guidelines for these policies.

3. The Union may take initiatives to ensure
coordination of Member States' social policies.

Article 9

In defining and implementing its policies and
activities, the Union shall take into account requirements linked to the
promotion of a high level of employment, the guarantee of adequate social
protection, the fight against social exclusion, and a high level of education,
training and protection of human health.

Article 48

The European Parliament and the Council shall, acting
in accordance with the ordinary legislative procedure, adopt such measures in
the field of social security as are necessary to provide freedom of movement
for workers; to this end, they shall make arrangements to secure for employed
and self-employed migrant workers and their dependants:

(a) aggregation, for the purpose of acquiring and
retaining the right to benefit and of calculating the amount of benefit, of all
periods taken into account under the laws of the several countries;

(b) payment of benefits to persons resident in the
territories of Member States.

Article 151

The Union and the Member States (...) shall have as
their objective the promotion of (…) proper social protection (…) and the
combating of exclusion.

Article 153

1. With a view to achieving the objectives of Article
151, the Union shall support and complement the activities of the Member States
in the following fields:

(...) (c) social security and social protection of
workers;

(...) (k) the modernisation of social protection
systems without prejudice to point (c).

(...)

2. To this end, the European Parliament and the
Council:

(a) may adopt measures designed to encourage
cooperation between Member States through initiatives aimed at improving
knowledge, developing exchanges of information and best practices, promoting
innovative approaches and evaluating experiences, excluding any harmonisation
of the laws and regulations of the Member States;

(b) may adopt, in the fields referred to in paragraph
1(a) to (i), by means of directives, minimum requirements for gradual
implementation, having regard to the conditions and technical rules obtaining
in each of the Member States. Such directives shall avoid imposing
administrative, financial and legal constraints in a way which would hold back
the creation and development of small and medium-sized undertakings.

(...)

4. The provisions adopted pursuant to this Article:

- shall not affect the right of Member States to
define the fundamental principles of their social security systems and must not
significantly affect the financial equilibrium thereof,

- shall not prevent any Member State from maintaining
or introducing more stringent protective measures compatible with the Treaties.

Surveillance of public budgets is carried out in
accordance with Article 126.

Provisions to ensure the functioning of private
pension institutions in the Internal Market are adopted in accordance with Articles
26 and following.

Annex 11:  Bibliography

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Commissioner
Laszlo Andor, "Statement on the results of the EU-wide public consultation
on pensions", available at:

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Committee of
Independent Experts, "Report on Company taxation",
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the Regions, Opinion on ‘Towards adequate, sustainable and safe European
pension systems’ (2011/C 104/09) of 4th February 2011 available at:

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Communication
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Communication
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COM (2011)
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for Business, Innovation and Skills, "Phasing out the Default Retirement
Age: Government Response to Consultation: Impact Assessment", 2011,
available at:

http://www.bis.gov.uk/assets/biscore/employment-matters/docs/p/11-634-phasing-out-default-retirement-age-impact-assessment.pdf

Directive
2003/41/EC Of The European Parliament And Of The Council of 3 June 2003 on the
activities and supervision of institutions for occupational retirement
provision available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:235:0010:0021:EN:PDF

Directive
2008/94/EC of the European Parliament and of the Council of 22 October 2008 on
the protection of employees in the event of the insolvency of their employer, aavailable at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32008L0094:EN:NOT

EESC,
Opinion on Green Paper "towards adequate, sustainable and safe European
pension systems", 20 Jan 2011Adopted References: CESE 72/2011 - SOC/386 available
at: http://www.eesc.europa.eu/?i=portal.en.soc-opinions.14892

EPC,
"2009 Ageing Report" – Economic and Budgetary Projections for
the EU-27 Member States (2008-2060), 2010, available at: http://ec.europa.eu/economy\_finance/publications/publication14992\_en.pdf

EPC-SPC
Joint Report on Pensions: "Progress and key challenges in the delivery of
adequate and sustainable pensions in Europe", 2010, available at: http://ec.europa.eu/economy\_finance/publications/occasional\_paper/2010/op71\_en.htm

"Europe
2020 - A European strategy for smart, sustainable and inclusive growth" of
3.3.2010 COM(2010) 2020 available at: http://europa.eu/press\_room/pdf/complet\_en\_barroso\_\_\_007\_-\_europe\_2020\_-\_en\_version.pdf

"European
Council Conclusions 24/25 March 2011", Annex I, EUCO 10/1/11 REV 1,
available at: http://www.consilium.europa.eu/uedocs/cms\_data/docs/pressdata/en/ec/120296.pdf

European Commission,
"Private pension schemes. Their role in adequate and sustainable
pensions", December 2009, available at:

http://ec.europa.eu/social/main.jsp?catId=752&langId=en&pubId=494&type=2&furtherPubs=yes

European
Commission, "The Demography Report 2010", 2011, available at:

http://ec.europa.eu/social/BlobServlet?docId=6688&langId=en

European
Federation for Retirement Provision, "Survey on DC pensions", 2010;

European
Parliament resolution of 16 February 2011 on ‘Towards adequate, sustainable and
safe European pension systems’ (2010/2239(INI)) available at: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0058+0+DOC+XML+V0//EN

Eurostat:
Indicators of the pension strand, available at: http://epp.eurostat.ec.europa.eu/portal/page/portal/employment\_social\_policy\_equality/omc\_social\_inclusion\_and\_social\_protection/pension\_strand

FIOH, OSH and Corporate Competitiveness in
a Global Context, PEROSH Seminar, 25th November 2010, Brussels;
available at: http://www.perosh.eu/per/per01.nsf/52b2da8b666e069080256aaa002ab228/4d5ea5d82ae26dbfc12577ff0056fbd5/$FILE/PEROSH\_OSH%20and%20Comp%2334F4AFF.pdf/PEROSH\_OSH%20and%20Competitiveness\_G\_Ahonen\_FIOH.pdf

Green Paper "towards adequate,
sustainable and safe European pension systems" SEC(2010)830 of 7.7.2010 
COM(2010)365 final available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

Green Paper
"Towards adequate, sustainable and safe European pension systems" -
Summary Of Consultation Responses , 7th March 2011,  available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yeshttp://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

Green Paper
"Towards adequate sustainable and safe European pension systems",
Report on the consultation on the Presentation by the Commission of 7th
March 2011 available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

Gruber J.,
Milligan K., Wise D., "Social Security Programs and Retirement Around the
World: The Relationship to Youth Employment, Introduction and Summary",
National Bureau of Economic Research Working Paper No. 14647, 2009, available
at:

http://econ-www.mit.edu/files/6745

MEMO/10/302 Brussels, 7 July 2010 "Green
Paper on pensions" available at: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/302&format=HTML&aged=0&language=EN&guiLanguage=en

MEMO/09/99 "The economic crisis and
pensions in the EU", available at: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/99

OECD, "Pension Market in Focus",
July 2010, Issue 7, available at:

http://www.oecd.org/dataoecd/46/46/45637367.pdf

OECD, "Sickness, Disability and Work:
Breaking the Barriers. A synthesis of Findings across OECD countries", 24
November 2010 available at:

http://www.oecd-ilibrary.org/social-issues-migration-health/sickness-disability-and-work-breaking-the-barriers\_9789264088856-en

Orszag J. M., "The Early retirement
Burden. Assessing the costs of continued prevalence of Early Retirement OECD
countries", Watson Wyatt 2003, available at:

http://benefitslink.com/articles/earlyretire200306.pdf

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Release "3073rd Council meeting Employment, Social Policy, Health and
Consumer Affairs Employment and Social Policy" of 7 March 2011 available
at: http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/11/52&format=HTML&aged=0&lg=et&guiLanguage=en

Study on the implementation
of Directive 80/987/EEC as amended by Directive 2002/74/EC on the protection of
employees in the event of insolvency of their employer in the EU Member States,
2007, available at:  http://ec.europa.eu/social/main.jsp?catId=706&langId=en&intPageId=198

Study on the
protection of supplementary pensions in case of insolvency of the employer for
defined benefit and book reserve schemes, 2010, available at: http://ec.europa.eu/social/main.jsp?catId=706&langId=en&intPageId=198

[1] Green Paper "towards adequate, sustainable and safe European
pension systems" SEC(2010)830 of 7.7.2010  COM(2010)365 final available
at:
http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[2] MEMO/10/302
Brussels, 7 July 2010 "Green Paper on pensions" available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/302&format=HTML&aged=0&language=EN&guiLanguage=en

[3] "COMMISSION STAFF WORKING DOCUMENT EU LEGISLATION, COVERAGE
AND RELATED INITIATIVES Accompanying document to the GREEN PAPER towards
adequate, sustainable and safe European pension systems" of 7.7.2010
SEC(2010) 830 final available at: http://ec.europa.eu/social/main.jsp?langId=en&catId=752&newsId=839&furtherNews=yes

[4] The Pension Forum was established by Commission Decision of 9 July
2001 on the setting-up of a committee in the area of supplementary pensions
(2001/548/EC).  The Forum meets regularly and includes representatives from the
Member States, social partners, civil society organisations and the pensions
and insurance industry.

[5] EESC opinion: Green Paper – Towards adequate, sustainable and safe
European pension systems

20 Jan 2011Adopted References: CESE
72/2011 - SOC/386 available at: http://www.eesc.europa.eu/?i=portal.en.soc-opinions.14892

[6] Opinion of the Committee of the Regions on ‘Towards adequate,
sustainable and safe European pension systems’ (2011/C 104/09) of 4th
February 2011 available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:104:0039:0043:EN:PDF

[7] European Parliament resolution of 16 February 2011 on ‘Towards
adequate, sustainable and safe European pension systems’ (2010/2239(INI))
available at: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0058+0+DOC+XML+V0//EN

[8] Available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[9] Summary Of Consultation Responses to the Green Paper "Towards
Adequate, Sustainable And Safe European Pension Systems" of 7th
March Available at:
http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yeshttp://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[10] Report on the consultation on the Green Paper: “Towards adequate
sustainable and safe European pension systems” Presentation by the Commission
of 7th March 2011 available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[11] Summary Of Consultation Responses to the Green Paper "Towards
Adequate, Sustainable And Safe European Pension Systems" of 7th
March Available at: http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yeshttp://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[12] "Statement on the results of the EU-wide public consultation
on pensions".  Available at: http://ec.europa.eu/commission\_2010-2014/andor/headlines/news/2011/03/20110308\_en.htm

[13] PRESS RELEASE "3073rd Council meeting Employment, Social
Policy, Health and Consumer Affairs

Employment and Social Policy" of
7 March 2011 available at: http://europa.eu/rapid/pressReleasesAction.do?reference=PRES/11/52&format=HTML&aged=0&lg=et&guiLanguage=en

[14] See http://ec.europa.eu/social/main.jsp?catId=700&langId=en&consultId=3&visib=0&furtherConsult=yes

[15]          Whilst
there are EU level rules on the co-ordination of social security (including
social security pensions) designed to ensure the free movement of EU citizens,
these only apply to intra-EU cross-border situations. The relationships with a
third country like Canada are not covered by them.

[16]             The Pension Forum is an advisory committee composed of
experts from governments, social partners and representative organisations at
EU level and its remit concerns supplementary pensions.  It was set up by
Commission Decision 2001/548/EC of 9 July 2001.

[17] For more detailed information see the report "Updates of
current and prospective theoretical pension replacement rates 2006-2046",    
http://ec.europa.eu/social/main.jsp?langId=en&catId=752&newsId=551&furtherNews=yes

[18]             See OECD "Pension Markets in Focus".  October
2009, Issue 6.

[19] People in bad health may require special consideration.

[20] Europop 2008 population projections (EUROPOP 2010).

[21] AK-Wien, Dependency Ratio Calculator.

[22] For detailed definitions of the indicators see the
2009 Sustainability Report.

[23] Europop 2008 population projections.

[24] Ageing Report 2009, Table A52, p. 282.

[25] AK-Wien, Dependency Ratio Calculator.

[26] Eurostat: Indicators of the pension strand, available at http://epp.eurostat.ec.europa.eu/portal/page/portal/employment\_social\_policy\_equality/omc\_social\_inclusion\_and\_social\_protection/pension\_strand

[27]
Theoretical Replacement Rates, developed by the Indicators Subgroup of the SPC,
are defined as a level of pension income in the first year after retirement as
a percentage of individual earnings at the moment of pension take-up and are
calculated for an assumed hypothetical worker (in the so-called
"base-case" scenario, a male with average earnings retiring at 65
after a 40-years career).

[28] The
benefit ratio is the average benefit of public (or public and private) pension,
as a share of the economy-wide average wage (gross wages and salaries in
relation to employees). The gross average replacement rate is the average first
pension as a share of the economy-wide average wage at retirement. These
indicators are developed by the Ageing Working Group of  the EPC. In contrast
to the TRR which project future situation of a hypothetical individual worker,
they are calculated on the basis of macro data, so they reflect averages.

[29] More details can be found in the 2010 EPC-SPC Joint Report on Pensions,
pages 33-38.

[30] In case of HU, the changes in gross replacement rate are partially
caused by a methodological change. As from 2013, benefits will be calculated on
the basis of gross earnings and will become taxable, thus the gross replacement
rate also includes the effect of a foreseen change in taxation rules.

[31] Eurostat – Indicators of the pension strand, available at http://epp.eurostat.ec.europa.eu/portal/page/portal/employment\_social\_policy\_equality/omc\_social\_inclusion\_and\_social\_protection/pension\_strand.

[32] One particularly detailed one is the Canadian: 'Health factors and
early retirement among older workers', Jungwee Park, Statistics Canada, 2010,
http://www.statcan.gc.ca/pub/75-001-x/2010106/pdf/11275-eng.pdf

[33] EFRP survey on DC pensions 2010

[34] MEMO/09/99 available
at: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/99

[35] Conclusions from the 2010 EPC-SPC Joint Report on Pensions.

[36] Demography Report 2010, p.43.

[37] EL, IE, LV, RO & PT were not given specific CSRs by the
European Commission as they have "Memorandum of Understandings" as
part of their "bail-out" conditions.

[38] A few Member States on top of this also reward women that have many
children by lowering their pension age by up to three years, which leave these
women with 8 years less to build entitlements and 8 years more over which to
stretch them.

[39] For this see initiatives in chapter 2.2 .

[40]
Indicates the age at which people are legally obligated to retire from work
because their employment contract automatically ends as an effect of rules in
labour law or collective agreements. To be distinguished from the pensionable
age, which is the age where pensions normally become payable (though often the
two ages are closely linked they are not identical), and from the effective
retirement age, which is the average age at which people actually stop
working and move away from earned income.

[41] Part
of the work towards the recommendation would involve establishing precisely to
what extent and how Member States allow the use of mandatory retirement ages
under this article (and whether minimum ages are set in legislation or in
collective agreements).

[42] A number of Member States have instead linked the calculation of
benefits to the growth in life expectancy after pension age. While this can add
the same measure of stability to scheme finances it will over time have the unfortunate
effect of lowering the value of pension benefits. Adjusting to growth in
longevity by raising the pensionable age will avoid this.

[43] For more
information on the impacts of the financial and economic crisis on funded
pension schemes see Memo/09/99 "The economic crisis and pensions in the
EU" available at: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/99

[44] Financing mandatory
private pensions by simply shifting part of the social security taxes needed
for current pensions into individualised accounts in private pension funds
eroded the deficit and debt position of these countries and when economic
growth slowed this practise became unsustainable. As social taxes forgone were
not explicitly replaced by other taxes or gradually increased private pension
contributions the double payment problem associated with the move from payg to
funded was primarily tackled by taking on more public debt.

[45] Report on
risk management rules applicable to IORPs (CEIOPS-OP-22-09), 6.11.2009.

[46] It is crucial to
emphasise that "legislation" on old-age benefit already now does
include most occupational schemes for public officials. Most of them are based
on some kind of law, regulation, ... and therefore are "legislation".
It is therefore incorrect to assimilation the scope of application of
Regulation (EC) No 883/2004 to what is often referred to as first pillar
schemes. In reality (or rather theory as far as the actual practice is
concerned), some second and even third pillar schemes do fall within the scope
of application of the coordination rules. Given the very different ways in
which schemes are organised, there is of course considerable room for mismatch.
The study therefore aims at giving a comprehensive overview of the picture.
Therefore, even if the discussion will focus on the situation of some
occupational schemes in particular, the discussion will be a rather open one.

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