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Funded systems better for economy – Deutsche

EUROPE – A new report from Deutsche Bank argues that countries with funded pension systems are at an advantage as populations get older.

“Countries where funded systems play a greater role are therefore generally at an advantage in the current demographic shift,” the report says, pointing to the impact of pension contributions on labour costs.

“For companies, contributions drive labour costs up. By doing so, they reduce demand for labour. Low labour force participation rates and high unemployment are therefore the consequence of overstrained state pension systems.”

The report says that the more that countries rely on supplementary funded pension schemes the better the prospects for growth and employment.

“The volume of PAYG pension schemes in relation to that of funded schemes is therefore an important indicator of the sustainability of a country’s pension architecture,” said the report by Dieter Braeuninger, published in Deutsche Bank’s EU Monitor.

The report admits that a complete rejection of pay-as-you-go schemes “is not on the social agenda anywhere”. “The idea of completely privatising pension provision has no chance at present.”

But the pension-fund concept was becoming important for occupational plans in many countries. “This is in keeping with the interests of all stakeholders as regards high security, cost efficiency, transparency and flexibility of investment scope.”

Defined benefit plans, the report argues, defy reason because they favour employees with longer ties to companies. “Therefore, such plans are a substantial impediment to the professional and geographic mobility of the citizens and thus to the flexibility of the labour market in the EU.

“This defies reason in times of accelerated structural change in the economy.”

The report also calls for a level playing field in taxation between occupation and personal pension provision, saying it “is a target worth striving for”.

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