Ireland is European pensions barometer
Ireland has been ranked top in terms of pensions reform within the European Union (EU); followed by the UK, the Netherlands and Sweden, according to a study published by Merrill Lynch.
Spain, Austria and France, on the other hand, find themselves at the bottom of the pile in the Pension Reform Barometer – a study compiled by Jan Mantel at Merrill to measure the overall progress that has been made by EU member states in reforming their public retirement systems.
The barometer consists of nine different indicators – some reflecting the actual pensions situation today and others acting as momentum indicators.
France’s 13th position in terms of reform, the barometer says, should act as a ‘wake up call’ to politicians that it is time to introduce some real measures towards alleviating the future pensions time bomb.
However, the UK should by no means be complacent, says the report.
While it scores highly at the top of the overall barometer it is almost at the bottom of the momentum indicator – showing a lack of reform in recent years.
Figures from the survey also reveal that pensions reform in Italy may have been underestimated – with the country picking up fifth spot overall.
Germany’s eighth placing, the barometer says, is heavily influenced by reunification issues and underestimates the progress that has been made.
The EU-wide study, which excludes Greece and Luxembourg due to lack of sufficient data, takes into account pension expenditure, debt, taxation, pension assets and pensioners’ living standards.
Ireland scores well due to low public debt, best performance in debt reduction and the highest living standard for pensioners.
The Netherlands scores well in the report because of its highest level of pension fund assets - more than 110% of gross national product (GDP).
Sweden ranks fourth in the study, mainly due to the 1999 reform of its pension system and the relatively low estimate for its retirement costs in 2050.
Austria, on a par with France, has made little progress in reform, which places it twelfth, while Spain, despite being bottom of the pile, scores slightly better than France on the reform scale.
In most European countries with funded pensions system, contributions and asset accumulation is tax-exempt but pension payments are taxed.
The research suggests that this future source of tax revenue, which will start to increase at exactly the same time as pay-as-you-go pension expenditure starts to rise, will be a very important counter balance against the rising cost of public pension schemes.
The researchers also suggest that public pension expenditure needs to be looked at in relation to the functioning of the overall pension system.
The overall ranking is as follows: