Time for talk is over
“There really is little or no good news to tell you about pension provision in the EU.” So began Alastair Ross Goobey, chief executive at London based Hermes Pension Management, at a recent conference sponsored among others by the European Federationfor Retirement Provision in Brussels on pensions, the consumer and modernising social protection in Europe. Coming hot on the heels of the Commission’s pension proposal, the conference focused on it and many of the speakers stressed reform was taking too long, that talk, not action, was prevailing.
Odile Quintin,EC director general for employment and social affairs, summarised the EC timetable on pensions, evidence that those speakers frustrated at progress had a point. She said the Lisbon European Council had highlighted the importance of sustainable pensions when it requested a study on social protection and sustainability. A high level working party on social protection, set up earlier this year, is carrying out this study and producing a progress report for the Nice European Council in December.
Quintin said she expected there to be an agreement to ask each member state to report on its strategy for making pensions sustainable. The deadline for this, she suggested, could be March so the study requested by the Lisbon European council could be ready by June. She added: “in parallel, discussions in the council and the European Parliament on the commission proposal for a directive on institutions for occupational retirement provision will begin.”
Quintin claimed pensions are high on the on the EU’s policy agenda and this is probably true, but it’s easy to understand why there’s frustration at Brussels’s notorious bureaucracy. Dirk Popielas, executive director at Goldman Sachs in Franfurt expressed dissatisfaction at the pensions directive’s timescale: “we’re talking about four to five years and that’s a big frustration.”
Quintin said the dependency ratio- the number of over-65% in relation to those between 20 and 64- will double by 2050. Popielas said dependency ratios are actually far more severe than often reported as not everyone of working age, works. According to him, the window of opportunity is between 10 and 15 years, after which time the baby boomers will retire. Although 15 years may appear an eternity, Popielas highlighted the conntributions that will be lost during the delay and urged the EC to speed up the programme.
Bolstering his argument for immediacy were public spending projections for 2030 that he described as crazy figures. In France and Germany in 1995, 17.6% and 17.3% of GDP was spent on pensions and health. By 2030, these two are projected to be 25.8% and 28.8% respectively. Popielas outlined the prospects for private pensions and said Europe had to reduce state benefit levels while maintaining contributions. At the same time, defined benefit schemes will move towards defined contribution schemes and supplementary private funded schemes will have to rise. Distinctions between Pillar II and III pensions will eventually blur creating what he called ‘Instividual pension’ similar to those in Sweden.
Following Popielas was Beatrice Hertogs, confederal secretary of the ETUC, who said her organisation was all for liberalising pension funds under a free market but added they needed “a social dimension”. Workers should be involved when an occupational system is established, have some say in the investment process and management, and consider investing in socially responsible companies. She then addressed access to pension funds saying occupational schemes should be available to everyone including part-timers and an increase in productivity and the number in work are vital to sustain pension funds. She said that, as a trade union, they believed in solidarity. “If there’s no social aspect to occupational systems, then it’s much ado about nothing,” she said. There was a feeling in the audience that funding the proposals had been left unexplained.
Alan Pickering, chairman of the UK’s National Association of Pension Funds, another sponsor of the conference said the association supported the latest communication although it wasn’t perfect.
Given the diversity of pension schemes it encapsulate, Pickering agreed it was unfair to expect perfection. What is needed is to persuade employers to supplement state pensions and make it as easy as possible for them to do so, one caveat being occupational pensions should bolster, not replace state provision. “Employers cannot give the guarantee that the state can give. Employers shouldn’t be expected to give the guarantees that the state can give. That’s why it’s important that, as we increase the role of the employer, the state doesn’t back out entirely from pension provision. The state is the natural provider,” he said. Reiterating Ross Goobey, he said negotiations have been going on for eleven years, not one. “Action rather than further debate is the order of the day,”
Closing the opening speech Ross Goobey scolded the politicians. “The recent pensions directive promulgated by the European commission is a helpful step in the right direction. We need permissiveness, rather than paternalism in the provision of pensions. Nevertheless, we can afford to wait no longer….the clock is ticking and, unless someone comes along quickly to wind it up again, it will wind down completely. At the moment, politicians seem entirely content to stand by and watch this happen. We need action now.”