European pension gap seen reaching e456bn
EUROPE – A group of Europe’s leading financial services companies has written to the European Council of Finance Ministers, urging them to speed up the creation of a single market in financial services to tackle Europe’s pension crisis.
The European Financial Services Round Table (EFR) has estimated that Europeans have to save an additional 456.39 billion euros per year to close the pensions gap building up over the next forty years.
According to Economic Policy Committee figures, public pensions expenditures to people aged 55 and over will be 13.6% of European Union GDP in 2040, compared to 10.4% in 2000. Austria, Finland, France, Germany, Greece, Italy and Spain will all see public pensions expenditure as a percentage of GDP rise above 15% by 2040.
Such additional costs cannot be assumed by the system, says the EFR. Raising retirement ages or promoting increased participation in the labour force are ideas being contemplated by many governments in order to tackle the demographic issues facing them, but it is likely that they will also have to reduce benefits. This will create the need for private funded pensions, says the EFR, and a single market for these private pensions is needed.
EFR’s message to Ecofin states: “EFR encourages the Council of Ministers to create a genuine open and transparent single market for private pensions in which costs, prices and charges will come down and quality will go up.
“Only competition, not regulation, can achieve that. EFR urges Member States to agree the same taxation principles for pensions (the “EET” model) removing tax discrimination from non-domestic providers. This is a prerequisite for portability of pensions, which must become a reality. We must also avoid national restrictions on product features.”
The issue of a single market in financial services has already been addressed – the EFR cites the prudent person principle approach to investment as set out in the Pension Funds Directive as being a first tentative step towards a single market in pensions, but the EFR is urging progress.
Says Pehr Gyllenhammar, chairman of the EFR and chairman of Aviva: “We now need to move much faster. It will be even more difficult to agree a new vision in a larger EU after 2004.”