Number one priority
Vladimir Spidla, the EU’s social affairs commissioner, is optimistic when he thinks ahead to tackling Europe’s looming pension crisis. As former minister of labour and social affairs in the Czech Republic, and subsequently the country’s premier, he has considerable experience of state pension reform – and he refuses to see demographic aging as an “impending disaster” for Europe.
“I think that the word catastrophe is out of place here,” he said. He rejected any suggestion that Europe’s over-worked pension systems would not be able to pay out to the growing number of pensioners.
All the same, the commissioner has made pension reform his number one priority for his next five years in office, and says that without it many of the economic targets that the EU has set itself will be missed. His over-arching objective in this context, he said, is to stabilise the pension systems across Europe.
Spidla proposed three points that need addressing in the framework of pension reform. He said that a pension system should provide adequate income for retirees (in proportion to their pre-retirement pay), that it should be financially sustainable over a long period of time (which is clearly not the case at the moment) and that
it should facilitate free movement of the workforce (through, for example, better transferability of pension rights).
The commissioner was unenthusiastic about encouraging more migrants into Europe, saying that this would provide only limited respite for the pension problem. He said that migration, provided it was carefully moderated, would have a positive impact on sustainable development, but is not in itself a solution. There will still be countless Europeans out of work and not contributing to society, which is why we really have to focus on boosting labour market participation, he argued.
As IPE went to press, the commission was expected to come forward with a new green paper outlining how it plans to deal with a rapidly ageing population in the coming years, especially concerning its pension reform and migration strategies.
Perhaps the most important piece of pensions legislation that Spidla will have to deal with during his term in office – the so-called pensions portability directive – is due out in the next couple of months, but the commissioner admits that he is worried about how well it might go down with some member states. The directive seeks to make it easier for workers who change country within the European Union, to take their pension entitlements with them.
“The indications so far is that there are likely to be relatively few opposed to the new directive, but those few may be quite vital,” said Spidla. He admitted that this proposal would “cut across the traditional pension systems” of member states, which could cause some upset among the more wary states.
The commissioner indicated that he is aware of the sensitivities of national feeling when it comes to pension systems, and said that the new directive “shouldn’t be too heavy-handed and shouldn’t undermine the willingness of employers to contribute to their pension schemes”.
Spidla predicts that, in the future, private pensions could account for something like 30% of the total pension provision in Europe, compared with the current level of around 10%. “This means that, without this directive, the transferability of pension schemes could be three times as much of a problem as it is today,” said the commissioner.
AGE, representing the elderly in Europe, has some serious concerns that the commission is paying scant regard to the need for adequate pension provision in its determination to boost economic growth and generate more jobs.
In particular, AGE is worried that a new economics agenda, outlined by the commission on 2 February, does not include an explicit reference to the European Union’s peer review mechanism - the so-called ‘open method of co-ordination’ - when it comes to reforming Europe’s pension system so that retirees are better cared for.
In an open letter sent to the commission president José Barroso, AGE said: “In our view, your aim should not only be to ‘make the EU a more attractive place to invest and work’. You should also do your best to ensure that the EU remains an attractive place to live for all, not just a happy few.”
Geert Decock, a policy adviser at AGE, complained that the commission is only looking at how pension reform can be used to stimulate jobs and growth, and not whether people will have enough to live off when they reach retirement age.
Decock indicated that this could mean that future discussions focus much more on pension reform as a tool to encourage people to stay in the labour market for longer, for example, by linking pensions entitlement to lifetime earnings rather than final salary.