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THE SECOND ANNUAL EUROPEAN PENSIONS CONFERENCE

This article explores the current European pension models, their influences, and the question of whether the EU wants a standardized model. It covers the diversity of pension systems in EU member states, including the UK, Netherlands, Ireland, Southern European countries, and Central and Eastern European countries. The article also discusses the issues arising from demographic changes and the need for pension reform. Finally, it examines the influences on the suitability of a pension model and whether the EU wants to adopt a standardized approach.

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THE SECOND ANNUAL EUROPEAN PENSIONS CONFERENCE

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  1. A PENSIONS ROLE MODEL FOR EUROPE? THE SECOND ANNUAL EUROPEAN PENSIONS CONFERENCE ANNE MAHER Chief Executive 20 April 2004 The Pensions Board Ireland

  2. WHAT I WILL COVER • Current European models • Influences on suitability of model • Does/should EU want a model?

  3. CURRENT EUROPEAN MODELS • Four pillars • social security • supplementary pension schemes • individual saving • earnings in retirement • Huge diversity in EU member state models • Some models planned but most evolved • Differences arise from different • political tendencies • cultural influences • social traditions • employment traditions • external events e.g. war

  4. CURRENT EUROPEAN MODELS • UK/Ireland/Netherlands Model • Southern European Model • Central and Eastern European Model • Various Other Unique Models, for example • Germany • France • Denmark • Sweden

  5. CURRENT EUROPEAN MODELS • UK • universal flat-rate basic social security pension • mandatory additional earnings-related social security cover • minimum income guarantee • long tradition of funded occupational pension schemes • personal pensions and stakeholder pensions • Netherlands • universal flat-rate safety-net social security pension • extensive complementary funded pension schemes • high proportion of industry wide schemes • Ireland • universal basic flat-rate social security pension • large number of funded occupational pension schemes • personal pensions and Personal Retirement Savings Accounts • partial funding of social security pension through National Pensions Reserve Fund

  6. CURRENT EUROPEAN MODELS • Southern European (Italy, Greece, Spain, Portugal) • extensive First Pillar social security covers retirement, death and disability • social security funded on PAYG basis • social security usually earnings related up to high earnings ceiling • very little private Second Pillar provision because unnecessary • Central and Eastern European • comprehensive social security pensions on PAYG basis • low retirement ages are serious issue • complementary pensions are new phenomena

  7. CURRENT EUROPEAN MODELS Other Unique Models • Germany • First Pillar at level which encourages employers to establish private schemes • private occupational schemes but mostly book reserves (with insolvency insurance) rather than funded • France • Second Pillar complementary pension schemes • PAYG • operated on industry wide basis • compulsory for most employed people • based on concept of solidarity • very few private funded occupational schemes

  8. CURRENT EUROPEAN MODELS • Denmark • flat-rate First Pillar based on residence and financed out of general taxation • funded private pensions negotiated by industry, financed by specialised pension insurance companies • Sweden • PAYG defined benefit First Pillar recently transformed into notional defined contribution scheme • employees must also contribute to funded pension arrangement • other forms of complementary pension arrangements also common

  9. CURRENT EUROPEAN MODELS Issues Arising • Demographic changes • Falling birth rate • Longer life expectancy • Increasing old-age dependency • Pressure on public finances • Pension cost increasing as % GDP • IMF, ECB, and OECD calls for reform • Pension system sustainability in EU • Some have private funded pensions • Threat to monetary union • Common Debates • Funding of public and private pensions • Mandatory or voluntary supplementary pensions • Defined benefit or defined contribution • Appropriate fund investment

  10. CURRENT EUROPEAN MODELS Pension Reform • High priority in every EU country • Reforming Social Security • Increasing retirement age • Part-time working as transition • Changes in early exit • Lowering replacement ratios • Developing occupational pensions • Tax incentives • Prudential rules • Transfer rights • Developing individual pensions • Market development • Tax incentives • Information campaigns

  11. INFLUENCES ON SUITABILITY OF MODEL • Adequacy • Prevent social exclusion in old age • Allow people to maintain living standards • Promote solidarity between generations • Financial sustainability of pension systems • Raise employment levels • Extend working lives • Ensure sustainable pensions in context of sound public finances • Adjust benefits and contributions so as to share financial consequences of ageing in balanced way between generations • Ensure that private pension provision is adequate and financially sound • Responding to changing needs • Adapt to more flexible employment and career patterns • Meet aspirations for greater gender equality • Make pension systems more transparent and demonstrate ability to meet challenges

  12. DOES EU WANT MODEL? EU Says No • Commission regularly confirms principle of subsidiarity saying that Member States retain full responsibility • for organisation of their pension systems and • for role of each of Three Pillars of pensions in their system. • EU commitment is to • full internal market for financial services, including • internal market for occupational retirement provision organised on European scale.

  13. DOES EU WANT MODEL? EU Says No But … • Pensions Directive • Protection of members • Freedom of investment • First step to Single Market for pensions • Tax Co-ordination • European Court cases • Tax Communication • Current moves to enforce • Joint Commission/Council Report on Adequate andSustainable Pensions • Evaluates adequacy, effectiveness, financial sustainability and responding to changing needs • Other Areas of Interest • Mobility and portability • Equality

  14. SHOULD EU WANT MODEL? No because • All Member States starting from very different positions • Different • demographics • economies • cultures • Too inflexible • Would lack opportunities for creativity and development • No single model could suit all

  15. SHOULD EU WANT MODEL? No but • Member States need common understanding of each others systems • Statistics, measurement and evaluation must be based on commonly accepted basics (for example, measurement of funding) • Supervision must operate with strong cross-border co-operation

  16. CONCLUSION • We are on the brink of • Cross-border pensions and • Pan European pensions • Some synchronization and common agreements will be needed • It is a time of change and opportunity for pensions But we should all retain our separate national pension models.

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