1European Economic and Social Committee
ChallengesFacing
the EuropeanPension Systems
Krzysztof Pater
2
Dramatic DemographicChanges
• low fertility rates
• increases in life expectancy
• retirement of the baby-boom generation
European Economic and Social Committee
3
European Populationin 2008 and 2060
European Economic and Social Committee
Source: Commission services
4
Pension Reformsare Challenging
• citizens don’t accept or fully understand changes
• tendency to postpone reforms, to leave problems for the next government(s) and generations
European Economic and Social Committee
5
Need for Pension Reforms
• more years in retirement• decreasing ratio of
people of working age to people of retirement age
• increase in pension schemes duration
European Economic and Social Committee
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Key Questions
European Economic and Social Committee
How to ...
... divide increases in longevity into work and leisure?
... share the costs of longer lives between and within generations?
... achieve balance between the number of working and
retirement years?
7
Objectives forEU Pension Systems
European Economic and Social Committee
adequate retirement incomes
reforms on the basis of consensus
financial sustainability
transparency
8
Major Trends in Reforms
• hybrid designs
• self-balancing
mechanisms between
liabilities and revenues
European Economic and Social Committee
9
Most Popular Changesin the Pension Systems
• contribution period: change from „best years” to average life-time earnings
• extended qualifying period for a minimum pension
• equal pension age for women and men• increased pensionable age• strengthened bonus-malus system
European Economic and Social Committee
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Pre-funding as Policy Response to the Demographic Challenge
• new defined-contribution (DC) schemes
• expansion of existing occupational schemes
• reserve funds• paying down of national debt
European Economic and Social Committee
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Increasing Roleof Funded Schemes
European Economic and Social Committee
Share of occupational and statutory
funded pensions in total
gross replacement rates in 2006 and 2046 in
selected Member States
12European Economic and Social Committee
Valorisation and Indexation
Variable valorisation indexationWages √ √
Prices and wages √ √
Prices √ √
Discretionary √
Progressive √
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Labour MarketParticipation Rates
• male workers (aged 25 to 54 years) - at around 90%
• men aged 55 to 64 years – declined in the past decades, now there are signs of reversal
• women - increased over the past 25 years• young people (aged 15 to 24 years) -
declined
European Economic and Social Committee
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Changes in Theoretical Replacement Rates
European Economic and Social Committee
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Pension Reforms Impacton Labour Market Performance
European Economic and Social Committee
0
5
10
15
20
25
SE EE PT LT BE DK FR ES UK FI SI
EU
15
EU
27 EA
EA
12
EU
25 HU AT DE
EU
10 PL SK MT IT CZ
15-64 15-71 55-64
Estimated impact of pension reform on participation rates (2060), in percentage points (comparison of projections with and without
incorporating recent pension reforms)
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Changes inPublic Pensions / GDP Ratio
European Economic and Social Committee
PLEE
ITHULVSE
DKATFR
PTDEEU27UKEA16BGCZFISK
NLLTIENOBE
MTES
SIRO
CYEL
LU
-8 -6 -4 -2 0 2 4 6 8 10 12 14 16Social Security Pension /GDP
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Impact of Career Breakson Pension Benefits
European Economic and Social Committee
Accumulated difference in net
theoretical replacement rates for an
average earner entering the
labour market at 25 and retiring at
the statutory retirement age with a 1, 2 or 3
year career break due to
unemployment compared with no
break
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Conclusions
European Economic and Social Committee
1) Pension reforms are still needed.
2) The crisis lesson must be taken into account.
3) Pension systems must be based on synergies between various policies.
19European Economic and Social Committee
Thank You for Your Attention
Krzysztof Pater