EUROPE – A European Commission-backed report has questioned the viability of the pensions systems in the 13 so-called candidate countries, the mainly eastern European states who have been granted admission to the European Union.

“Whether these new systems will meet the intended expectations, whether they will be able to cope with future financial challenges and at the same time provide secure income in old-age is still an open question,” says a so-called final synthesis report of a conference on the social protection systems in the candidate countries.

The report summarises the findings of the "Modernisation of social protection systems in Candidate Countries: new opportunities and challenges for the European Union" conference. The event took place in Brussels last December and the report has just been posted to the web site of the European Employment and Social Affairs Directorate and is copyrighted to the EC.

“The transition to partly funded schemes and the impact on pensioners’ income, transition costs and intergenerational distribution is one of the crucial questions of pension policy in an enlarged Europe,” it says.

The report noted that the experiences of Poland, Hungary and Latvia “will be of great importance for other countries which also decide to introduce mandatory pension funds”.

It also queried the free movement of capital after the candidates join the EU. “Countries like Latvia and Poland, where funded pension schemes are only allowed to invest 15%, respectively 5% of the capital abroad, were already in 2001 asked to open up their capital market and to de-regulate pension fund investment rules.”

Another potential problem, the report says, is revenue collection, though an “increase of transparency and a modernised administration” might counteract such problems. It also identified the “shadow economy” as a potential brake on pensions development.

“It will be, furthermore, an interesting question to what extent the structure of the new emerging pension schemes in CEE will stimulate and speed up the European development and discussion on the co-ordination of benefits of the second pillar,” it adds.

But it was not all bad news for the new entrants. As Professor Winfried Schmaehl, Professor of Economics at the University of Bremen and Director of the Department of Economics at the Centre for Social Policy Research says in his analysis of the newcomers’ pensions systems: “If we look at the social protection system and its separate fields, we might observe more convergence between the transition economies than it is possible to identify among current EU member states.”

The conference was convened to discuss a report on the 13 candidate countries compiled by the German social policy body GVG on behalf of the European Commission. It was attended by more then 200 participants.