EUROPE - New European Union member states have been warned about adopting the so-called World Bank pensions model.
They should be cautious about developing models based on World Bank terminology without a proper level of co-ordination from the EU, Koen de Ryck, managing director of Pragma Consulting, told a conference in Brussels yesterday.
His comments follow the publication of a recent Pragma report that suggests the newer member states are facing an even worse pension problem than the EU15, with an already serious aging crisis aggravated by significant under-funding, particularly in the second pillar.
De Ryck said that it could be “awkward” if a select few member states forged ahead with a pension structure that differed significantly from the rest of Europe. He pointed out that six of the newer member states had chosen to adopt World Bank terminology, which differs significantly from EU terminology.
De Ryck also took the opportunity to call on the EU and national governments to encourage greater use of defined benefit schemes, which, he stressed, have significant advantages over traditional defined contribution schemes.
DB schemes allow for high levels of benefit security, solidarity and risk sharing, said de Ryck. He added that they also protect participants and beneficiaries from the risks of market failure and increased longevity.
The Pragma report highlights the differences between terminology used by the World Bank and the EU. For example, it says, the World Bank’s second pillar consists of mandatory pension funds (whether occupational or personal) whilst the EU’s second pillar consists of occupational pensions (whether mandatory or voluntary).
For its part, the World Bank is in the process of splitting its own three-pillar terminology into five distinct pillars. Richard Hinz, an economist at the World Bank, told the conference that this adjustment would help allow for a more accurate view of the individual risks of different market instruments.
But there was a general feeling of scepticism at the conference about the benefits of a five-pillar pension structure system over the three pillars that most European countries are used to.
For Peter Kraneveld, special advisor at Dutch pension fund PGGM, the issue is one of consistency. “We have to know what we are talking about,” he said, saying that there must be some co-ordination between member states over the type of structure used.
Kraneveld favours the three-pillar pension model put forward by the European Federation for Retirement Provision (EFRP), which says, among other things, that everything which is employer/employee-based should go in pillar two.
Jaap Maasen, Chairman of the EFRP, wrapped up the conference by saying: “New and old member states can and should learn from one another. In this respect, the EU should act as an enabler, co-ordinator and stimulator.”