Sections

The Commission hides its teeth

The authors of the European Commission’s policy paper, ‘Towards Adequate, Sustainable and Safe European Pension Systems’, are clearly aware that solving Europe’s pension challenge is a formidable task. Not only are there the oft-cited demographic problems and injustices to workers who move across national boundaries, but there is also the fragmented nature of member states’ legislative frameworks to consider.

It is not surprising that the authors approached their mission with caution. The paper keeps its fangs well hidden, and a number of controversial subjects have been struck from the final draft. But, all the same, the paper makes an uncontroversial case for a radical overhaul of pensions if Europe is to avoid a situation of overburdened public finances and crisis like Greece.

Not that the Commission would ever say as much, but the fear for this century is the re-emergence of poverty and crisis for those too old to earn and too numerous to be supported.

So, the Commission repeatedly sets out a series of facts that member state governments and other interested parties may shy away from. And for each group of questions, aimed at the consultation process, there can be only one answer. And, that has to be in line with affirmative action across Europe.

The consultation paper is likely to kick-start debate in a number of areas. There will also be regional debates, in at least two of the EU’s national capital cities and activity in four of the European Parliament’s committees: Economic and Monetary Affairs; Employment and Social Affairs; Industry, Research and Energy; and Women’s Rights and Equal Opportunities. A combined parliamentary report is due by the end of the year; other discussions could continue into the distant future.

However, observers note significant omissions from the consultation paper as published, compared with a fuller version, leaked and circulating in Brussels prior to publication. Conspicuously, a section devoted to the global financial crisis was struck out. So was another, on the sensitive issue of national pay-as-you-go pension systems. No doubt both cuts followed pressure from governments anxious not to cause alarm. A Brussels bystander finds the result to be “a much softer paper”.

Another element missing from the green paper is comment on the benefits gap that exists between civil servant pensions and those in the private sector - both at national level and for Brussels officials.

On setting an example to EU citizens on extending working life, the Commission tells IPE that, from 2006 onwards, the average pension age for its staff has been 61.7 years. During the period, 27% retired between the ages of 65 and 67. Staff regulations forbid employment after the age of 67, although some former officials help on specific projects without remuneration. The 2004 administration reforms raised the normal retirement age to 65. But the Commission excuses itself saying that its rules “compare favourably with those for civil servants in national systems”.

Not actually cut - but given scant mention - is the idea of the twenty-eighth regime, which would comprise an optional, parallel EU system of legislation. It could be the basis for an eventual borderless legislative structure to replace the present arrangements.

The twenty-eighth regime idea first appeared in 2005 and re-emerged in a May paper, ‘A New Strategy for the Single Market’ by Mario Monti, the former competition commissioner. He wrote that the Commission should prioritise the issue of obstacles to trans-national labour mobility and suggested policy action to ensure tax neutrality on the income taxes levied on the parts of the income related to expatriation allowances.

Support for the twenty-eighth regime comes from both the European Financial Services Round Table, which represent the banks and insurance businesses, and from the Brussels-based European Fund and Asset Management Association (EFAMA), Its director general, Peter De Proft, comments: “It is not impossible that an idea in this direction might reappear in the Single Market Act communication that Commissioner Michel Barnier [commissioner for the internal market DG] is preparing for the autumn.”

On legislation for DC schemes, the consultation paper could be hitting a raw nerve when it asks whether current EU regulation is able to cope with the shift towards DC schemes. It asks whether “a reassessment of the IORP directive may be required in areas such as governance, risk management safekeeping of assets, investment rules and disclosures”. The paper says that the current EU framework does not address the accumulation, pension investment build-up phase.

On this point, Chris Verhaegen, secretary general of the European Federation for Retirement Provision (EFRP), comments that member states have developed their own legislation.

The secretary general of the European Association of Paritarian Institutions of Social Protection (AEIP), Francesco Briganti, appreciates the overall analysis by the Commission, but goes on to highlight that the subsidiarity principle places pension competence with the member states.

A less controversial implication concerns financial education, to make future pensioners better informed on their choice of a pension scheme. The consultation paper clearly states the facts: “When making savings decisions it is important that individuals be offered appropriate options.” It then asks: is there a case for modernising the current minimum information disclosure requirements, and should the EU develop a common approach about investment choice? It is difficult not to answer in the affirmative.

The green paper also asks whether existing EU legislation needs to be reviewed, and how European regulation or a code of good practice could help member states achieve a better balance between risk, security and affordability for pension savers and pension providers.

On employer insolvency, says the paper, there is a particular risk to schemes under the Institutions for Occupational Retirement Provision (IORP) directive when employers become insolvent. It states that while the insolvency directive was revised in 2008, there is still no obligation on member states to fund the rights. In other words, it cautions that there remains “considerable latitude” on the protection given.

Future debates on the policy paper are likely to take in the views of the European Trade Union Confederation. On the issue of extending the retirement age, it points out that employers are currently allowing employers to retire well short of the normal retirement age and are “too set in their ways” to adapt to twenty-first century labour market conditions. John Monks, general secretary, finds the Commission’s ideas for higher retirement ages to be “unrealistic” and would promote measures to create jobs.
The response deadline for the green paper is 16 November.


 

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

Begin Your Search Here