EUROPE - Governments across Europe have been criticised for their short-term approach to pension savings by the European Federation for Retirement Savings (EFRP), which said clawing back privately managed pension assets or selling off reserve fund holdings would not change a country’s net debt.

Responding to the European Union’s recent annual growth survey, the lobby group said governments should look for long-term solutions to mounting debt and that growing private pension provision was one of these, as it reduces dependence on state benefits.

Referencing recent events in Hungary - which saw prime minister Viktor Orbán’s government transfer the majority of second-pillar assets into the state treasury in an effort to tackle its deficit - chairman Patrick Burke said such an approach was regrettable.

“Such policies only serve to solve short-term problems, but jeopardise the adequacy and sustainability of future retirement income,” he said.

In its response, ‘Towards More Funded Pensions’, the EFRP said the Stability and Growth Pact was encouraging governments to shift the burden of ageing onto future generations due to its short-term approach.

The report said the pact would potentially allow member states to “claw back privately managed pension assets to the public pay-as-you-go scheme” or “sell off assets in public pension reserve funds”.

Ireland’s previous government repeatedly accessed its National Pension Reserve Fund to recapitalise struggling banks, resulting in the fund now owning close to 93% of Allied Irish Bank.

The lobbying group conceded the 60% debt level enforced by the EU did now allow for leeway to account for the cost of funded pension systems - following demands by nine member states, including Sweden.

However, the concession only allowed for pension fund cost to be exempt from debt levels for five years. In the event of another recession, governments might consider sacrificing funded pensions once again, the EFRP said.

Chris Verhaegen, secretary general at the EFRP, also warned governments against using inflation as a means of reducing the real value of its debt, saying this was being achieved by financing new debt with nominal bonds.

She said: “We urge member states to enhance their commitment to price stability by issuing more index-linked bonds. In turn, that would allow pension providers to better protect citizens’ old-age income against erosion due to inflation.”

The organisation’s report suggested the European Financial Stability Facility and its successor, the European Stability Mechanism - both used to fund any future bailouts should the need arise - could issue index-linked debt as a means of finance.