THE SECOND ANNUAL EUROPEAN THE SECOND ANNUAL EUROPEAN PENSIONS CONFERENCEPENSIONS CONFERENCE

ANNE MAHERChief Executive 20 April 2004The Pensions BoardIreland

A PENSIONS ROLE MODEL A PENSIONS ROLE MODEL FOR EUROPE?FOR EUROPE?

2.

WHAT I WILL COVERWHAT I WILL COVER

Current European models

Influences on suitability of model

Does/should EU want a model?

3.

Four pillars social security supplementary pension schemes individual saving earnings in retirement

Huge diversity in EU member state modelsSome models planned but most evolvedDifferences arise from different

political tendencies cultural influences social traditions employment traditions external events e.g. war

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

4.

UK/Ireland/Netherlands ModelSouthern European Model Central and Eastern European ModelVarious Other Unique Models, for example

Germany France Denmark Sweden

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

5.

UK universal flat-rate basic social security pension mandatory additional earnings-related social security

cover minimum income guarantee long tradition of funded occupational pension schemes personal pensions and stakeholder pensions

Netherlands universal flat-rate safety-net social security pension extensive complementary funded pension schemes high proportion of industry wide schemes

Ireland universal basic flat-rate social security pension large number of funded occupational pension schemes personal pensions and Personal Retirement Savings

Accounts partial funding of social security pension through National

Pensions Reserve Fund

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

6.

Southern European (Italy, Greece, Spain, Portugal) extensive First Pillar social security covers

retirement, death and disability social security funded on PAYG basis social security usually earnings related up to high

earnings ceiling very little private Second Pillar provision because

unnecessary

Central and Eastern European comprehensive social security pensions on PAYG

basis low retirement ages are serious issue complementary pensions are new phenomena

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

7.

Other Unique ModelsGermany

First Pillar at level which encourages employers to establish private schemes

private occupational schemes but mostly book reserves (with insolvency insurance) rather than funded

France Second Pillar complementary pension schemes PAYG operated on industry wide basis compulsory for most employed people based on concept of solidarity very few private funded occupational schemes

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

8.

Denmark flat-rate First Pillar based on residence and financed

out of general taxation funded private pensions negotiated by industry,

financed by specialised pension insurance companies

Sweden PAYG defined benefit First Pillar recently transformed

into notional defined contribution scheme employees must also contribute to funded pension

arrangement other forms of complementary pension

arrangements also common

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

9.

Issues Arising Demographic changes

Falling birth rate Longer life expectancy Increasing old-age dependency

Pressure on public finances Pension cost increasing as % GDP IMF, ECB, and OECD calls for reform

Pension system sustainability in EU Some have private funded pensions Threat to monetary union

Common Debates Funding of public and private pensions Mandatory or voluntary supplementary pensions Defined benefit or defined contribution Appropriate fund investment

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

10.

Pension Reform High priority in every EU countryReforming Social Security

Increasing retirement age Part-time working as transition Changes in early exit Lowering replacement ratios

Developing occupational pensions Tax incentives Prudential rules Transfer rights

Developing individual pensions Market development Tax incentives Information campaigns

CURRENT EUROPEAN MODELSCURRENT EUROPEAN MODELS

11.

Adequacy Prevent social exclusion in old age Allow people to maintain living standards Promote solidarity between generations

Financial sustainability of pension systems Raise employment levels Extend working lives Ensure sustainable pensions in context of sound public

finances Adjust benefits and contributions so as to share financial

consequences of ageing in balanced way between generations

Ensure that private pension provision is adequate and financially sound

Responding to changing needs Adapt to more flexible employment and career patterns Meet aspirations for greater gender equality Make pension systems more transparent and demonstrate

ability to meet challenges

INFLUENCES ON SUITABILITY INFLUENCES ON SUITABILITY OF MODELOF MODEL

12.

EU Says NoCommission regularly confirms principle of

subsidiarity saying that Member States retain full responsibility for organisation of their pension systems and for role of each of Three Pillars of pensions in their

system.

EU commitment is to full internal market for financial services, including internal market for occupational retirement

provision organised on European scale.

DOES EU WANT MODEL?DOES EU WANT MODEL?

13.

EU Says No But … Pensions Directive

Protection of members Freedom of investment First step to Single Market for pensions

Tax Co-ordination European Court cases Tax Communication Current moves to enforce

Joint Commission/Council Report on Adequate and Sustainable Pensions Evaluates adequacy, effectiveness, financial sustainability

and responding to changing needs Other Areas of Interest

Mobility and portability Equality

DOES EU WANT MODEL?DOES EU WANT MODEL?

14.

No becauseAll Member States starting from very

different positionsDifferent

demographics economies cultures

Too inflexibleWould lack opportunities for creativity and

developmentNo single model could suit all

SHOULD EU WANT MODEL?SHOULD EU WANT MODEL?

15.

No butMember States need common understanding

of each others systemsStatistics, measurement and evaluation must

be based on commonly accepted basics (for example, measurement of funding)

Supervision must operate with strong cross-border co-operation

SHOULD EU WANT MODEL?SHOULD EU WANT MODEL?

16.

We are on the brink of Cross-border pensions and Pan European pensions

Some synchronization and common agreements will be needed

It is a time of change and opportunity for pensions

But we should all retain our separate national pension

models.

CONCLUSIONCONCLUSION