EU says DC schemes not classed as social security

EUROPE – The European Union’s statistical office says government-run defined contribution pension schemes cannot be classified as social security schemes.

“Among pension schemes that may be managed by government, a defined contributions funded scheme cannot be classified as a social security scheme,” said Eurostat.

It said the new decision clarifies uncertainty about the impact of DC schemes on countries’ deficit and debt.

A Eurostat spokesman said the countries most likely to be affected by the decision were Sweden, Poland and possibly Denmark. He said the new decision provided a framework. “Each case is different, with its own particularities.”

“Within this framework decision, individual cases in member states will be analysed bilaterally during the following weeks,” the office added.

It said: “Eurostat has decided that if a government unit is responsible for the management of a defined contributions funded scheme, for which there does not exist any government guarantee for the risk of defaulting payments covering the majority of the participants, the scheme cannot be treated in national accounts as a social security scheme.”

It said that the unit managing the scheme must be classified as a public financial corporation.

“Therefore, the flows of contributions and benefits under the scheme are not recorded as government revenue or expenditure and do not have an impact on government deficit or surplus.”

And it said that two different institutional units must be distinguished in national accounts where a government unit manages both unfunded and funded schemes.

A government guarantee was not enough for a DC scheme to be reclassified as a social security scheme, Eurostat added.

The new decision, which does not cover corporate DC schemes, follows Eurostat’s decision that the transfer of company pension funds to states should be recorded as government revenue.

Meanwhile, the European Commission has issued a policy document saying Europe needs to make better use of its older workers.

“Europe’s older workers have much to offer, and we need to ensure that they are given the maximum support to remain in the labour market,” said Margot Wallstrom, acting commissioner for employment and social affairs. The report highlighted early retirement schemes “as a particular cause for concern”.

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