he main forces that will shape the next decade are ‘known' - ageing and globalisation. Both are impactful on economies and they will force member states to meet rising social security bills - including long-term care - in an increasingly competitive environment, even within the EU. Perhaps solutions can be designed on paper but structural reform seems to have become impossible in the ‘old' member states. Populations no longer believe ‘Europe' is delivering "progress for everybody" and retrench in a mindset of "acquired rights".

In the occupational pensions area, the EU's main role is to join up national systems. However, since social policy remains - and probably will remain even under the constitution to be - a national matter, the way towards integrated pan-European provision of occupational pensions will be tricky for some time. The tax aspect we do not even consider, but it also needs addressing.

The EU has recently begun to encourage an integrated approach through the ‘open method of co-ordination' under the Lisbon agenda. This is aimed inter alia at understanding the economic foundations of social policy choices. One of the positive elements in this master plan concerns creating a common analytic framework for member states to understand each other's (and their own?) pensions system.

We are hopeful that at some stage the member states, prompted by the European Commission (EC), will agree on a EU pensions model which involves the same wording for the same concepts describing a multi-pillar structure. Agreement on a broad three-pillar structure would mark progress. This is needed if the EU really wants to become a single market also for labour forces. The current EU ‘three-pillar system' emerged over several decades with no clear overall concept. The lack of coherence is making itself increasingly felt.

Apart from their social ingredients, occupational pensions are also financial products provided by different operators, market based or not for profit. Here the EU has performed better in delivering a legal framework for supervision and investment liberalisation, the Institutions for Occupational Retirement Provision Directive (2003/41 EC). A market-driven approach is prevailing here and consolidation of financial markets is a stated policy objective.

But do occupational pensions have a future in such a Europe ?

The answer is obviously is yes. We do need occupational pensions, more than in the past. But, how
will they be provided for? This is the key issue. Performing as a Delphi oracle is beyond our reach but we can play with two scenarios, each of them pretty possible. Neither of them is inevitable. It is up to us - and to our political leaders - to avert the one we do not like so it does not materialise.


ushed by some favourable developments - financial market integration, call for savings efficiency (over a career 1% extra return generates 30% higher pension capital) - pension funds merge and implement strategies to increase their size. This goes for corporate as well as industry-wide funds.

The Commission openly favours this move, having been convinced it is the right way to go by the DNB survey on the efficiency of occupational pension provision.

This landmark survey from the Dutch supervisor provided the insight that size does matter when it comes to the delivery of quality pensions.

Solidarity mechanisms can be built into occupational schemes without carving into the efficiency of the financing mechanism because large pools of unselected participants can support this.

Also large pools of assets create economies of scale for their management. Hence collective systems need to be put in place. Therefore governments lend a favourable ear to calls for making occupational schemes compulsory or quasi-compulsory. It creates not only the technically favourable basis for large pension institutions but also smoothens down the political despair about the adequacy of retirement income through statutory pensions only.

In this scenario, classic pension funds become efficient operators - not-for-profit or for profit. The policy choice favouring their development is based on economic evidence. Any Solvency II type regulation has been abandoned since those pension funds can make use of different levers to manage the pension scheme compared with life insurers that operate in fact individual pension policies.

Therefore, in between statutory state-provided pensions and the individual supplementary pensions, there is a need for cost efficient pensions providing simplicity of understanding, transparency in the governance of the pension institution and a lifetime security for payment of the pension. Those great benefits for the individual/member come at a cost - limited choice. But economists and social policy advisers agree that the benefits far outweigh the burden to the system.

Would it be far-fetched to suggest that the Dutch - industry-wide and large corporates - pension funds are in pole position for providing all this? Can they hope to expand their domestic activities across borders given their expertise gained over the last 50 years?

An alternative scenario would see increased pressure on labour markets to become more flexible, resulting in the promotion of individual occupational schemes. It is the consumerisation of pensions - the belief that flexibility and efficiency require everything to be individualised.

In many member states the social partners have abandoned their role
of organising the labour market through collective bargaining. In some other member states the unions have been ruled out from being workers' representatives.

Faced with budgetary strain on future pension expenditure, most EU governments have decided to allocate part of income taxes to individual pension saving accounts. Other governments have made contributions to supplementary schemes compulsory.

The system assumes citizens display pension awareness but there is evidence this is rather an assumption than a reality.

Yet this approach has the benefit of offering an almost limitless choice of investment opportunities within a huge number of managed funds. Unfortunately, most citizens do not like to make a positive choice for a provider and if they do, it is likely to be their life-time pension savings fund, showing they are inert investors.


The system also has the advantage of being simple in that the accrued assets are stated but sometimes the corresponding monthly pension that can be bought with that amount of money is not provided.

As size matters, market operators that are also providing pension savings accounts are looking for economies of scale, and establish specialised funds for managing those savings. Life insurance companies are also developing such pension contracts and putting them into the market, highlighting the security of the benefit compared with fund-based saving leaving the investment risk with the individuals.

The capital funding of supplementary pensions will increase but will the pensions pay-out also get bigger? In other words, will the efficiency gains be passed on to the consumers/individuals or largely remain with the providers? And, last but not least, which institution will pay the lifetime income stream?

Probably neither of these scenarios will happen as described. Yet, we hope solidarity in occupational pension systems becomes appreciated not only in terms of its social benefits but also for economic reasons, both at micro and macro levels.

Predicting the future, as Donald Rumsfeld famously observed, depends in part on "known knowns" and "known unknowns". He also said that we may not overlook "unknown unknowns" - "things we don't know we don't know".

So, one and the same set of dynamics may lead to quite different scenarios - some will be surprising. To reduce the risk of ambush by "unknowns", timely, reliable intelligence is essential. We are sure that IPE will be there to provide it. Ten years ago we were in the unknown about this.

Jaap Maassen is the chairman and Chris Verhaegen is the secretary general of the European Federation for Retirement Provision in Brussels.