Ladies and gentlemen,
Pensions are a subject that does — and should — concern us all. Today around a quarter of the EU population depend on a pension for their main source of income.
Even today’s youngsters will need a pension one day — not just for protection from poverty in old age, but also to enjoy the decent standard of living that pensions should provide.
And we all — both young and old — have to pay for them in one way or another.
And pensions do not come cheap — even when the systems have been reformed. On average, public budgets spend around 10% of GDP on pensions today.
The cost of pensions is high, and we can expect it to go up as the population ages.
All this makes the subject of this conference very important, and I am grateful for the opportunity to address it.
It also comes at the right time from the Commission’s viewpoint.
As you know, in February we published a White Paper on pensions — entitled "An Agenda for adequate, safe and sustainable pensions".
It seeks to offer support to the Member States in tackling the big challenges facing pension systems to ensure they can continue to provide adequate retirement income for people.
Today I want to highlight the Paper’s main points. But first, let’s look at the challenges facing pension systems, and what led to and influenced the White Paper.
The biggest challenge facing our pension systems is population ageing. With rising life expectancy and a fixed retirement age, pensions are inevitably paid out for longer.
But ageing is also the result of fewer children being born, so fewer people are coming onto the job market.
Today our retired population is growing fast as the baby-boom cohorts reach retirement age.
The real issue is the economic dependency ratio, defined as the unemployed and pensioners as a percentage of the employed. The slide shows that if Europe achieves the employment goal of the Europe 2020 strategy of 75 % employment rate in the group 20-64 and further progress is made in the period 2020-2050, the economic dependency ratio will only increase from the current level of 65 % to 79 % in 2050.
And tackling the challenge has grown even harder still — given the impact of the financial and economic crisis on growth, jobs and public finances.
So pensions are critical both for ensuring people have an adequate retirement income and because of their impact on public finances and the financial markets.
While pensions are largely a matter for the Member States to decide, the European Union does have a big interest in all these aspects and in the overall success of the Member States’ pension reforms.
In fact, pensions are increasingly a matter of common concern in the European Union.
That was the background against which we published our Green Paper "Towards adequate, sustainable and safe European pension systems" in summer 2010.
It opened a debate on how the EU could best help the Member States to provide adequate pensions for their people.
It raised a number of important issues — including the balance between time spent working and time spent in retirement, and the role of supplementary pensions.
I was very pleased at the consultation’s success — particularly here in this country. Germany contributed the second-highest number of replies of any Member State.
This high degree of engagement in the Green Paper gave us a solid evidence base on which to base our next step.
People appreciated the way we looked at pensions’ social, economic and market aspects as a whole — recognising how they may work together and the trade-offs between them.
The overall message that emerged was the need to raise the effective retirement age.
This links up clearly with the Europe 2020 Strategy, which has a lot to say about pensions — given their impact on public budgets and the employment rate.
A key step in the Strategy is the publication of an annual growth survey.
This kicks off what we call the ‘European Semester’ — the first half of the year when we basically agree on policy orientations for the EU and the Member States through general and country-specific policy recommendations.
The Commission’s 2011 Annual Growth Survey called on the Member States to raise the retirement age and link it to life expectancy, reduce early-retirement schemes and support the development of supplementary private savings.
The next stage involved agreeing on country-specific recommendations, including many on pension reform.
16 Member States1 received such recommendations on pensions.
Another five Member States2 that rely on international financial assistance are concerned by Memoranda of Understanding rather than country-specific recommendations. These Memoranda cover pension issues, which account for a large share of public spending.
So recommendations relating to pensions were addressed to 21 of the 27 Member States. Germany is one of the few which received no recommendation on pensions in the 2011 European Semester3.
What such recommendations call for, generally, is to ‘increase the effective retirement age’ and ‘speed up reform’.
Other points they tend to include are the need to:
-curb early exits from the labour market — for instance, by reforming early-retirement and invalidity schemes;
-make it easier to work for longer through active-ageing measures — such as training or retraining;
-link the statutory retirement age to life expectancy;
-make the pensionable age for men the same as that of women or bring them closer; and
-improve the coverage of funded supplementary pension schemes.
The Annual Growth Survey for 2012 which the Commission published in November last year makes the same points. It calls on the Member States to push ahead with the reform and modernisation of pension systems.
It stresses the need to bring the retirement age into line with increasing life expectancy and to restrict access to early-retirement schemes and to support a longer working life.
It calls on the Member States to support the development of supplementary private savings to improve retirement income.
It acknowledges the need to respect national traditions of social dialogue.
And it emphasises that the reforms need to ensure pension schemes are financially sustainable and that pensions granted are adequate.
Country-specific recommendations for 2012 are currently being drafted in partnership with the Member States. We expect pensions to feature prominently in them again.
The White Paper should be seen as part of the Europe 2020 Strategy. It outlines the way the EU and the Member States can work together to tackle the major challenges facing our pension systems.
Demographic ageing means we need to increase the employment rate of the whole working-age population — young and old alike.
This is for the benefit of both the economy as a whole and the sustainability of our pension systems.
So one of the White Paper’s key messages is the need to strike a sounder balance between time spent in employment and time spent in retirement.
Future increases in life expectancy must also result in increases in the length of working life — not just in the time people spend retired. Many Member States have already taken action here.
The White Paper recognises that raising the pensionable age alone is not enough.
To enable people to stay on the labour market longer, we need to improve:
-the employability of older workers,
-working conditions and
— in particular by cooperating with the social partners on the mandatory retirement age.
It also calls on the Member States to take on board the fact that people’s ability to work and to find employment varies widely.
It points out that the life expectancy and health status at 60 or 65 of manual workers who started working at an early age tends to be lower.
The White Paper backs up the country-specific recommendations and the Europe 2020 Strategy. Member States that fail to get their pension systems into order will come under serious pressure.
But it would be wrong to see the EU as the ‘bad cop’, keen on ensuring that tough pension reforms are conducted by reluctant Member States. I would stress the positive and constructive partnership that we are building between European and national authorities.
This year is the European Year for Active Ageing and Solidarity between Generations.
You should see it as a framework for mobilising government at all levels and all stakeholders.
They need to look at what they can do to overcome the obstacles to remaining active as we grow old — not just on the labour market, but also as volunteers, or simply by living independently for as long as possible.
The European Year is about improving the opportunities for staying active. And without opportunities for active ageing, pension reforms that raise the retirement age will fail.
Pension schemes — both public and private — can play a role in helping people to stay active. For instance:
-by allowing older people to combine earned income and a pension;
-by making sure that working longer is not penalised;
-by helping to adapt working conditions instead of paying invalidity benefit.
Your own pension schemes may feature interesting approaches and fresh ideas. Let us hear about them and share your experience on the European Year’s website.
Ladies and gentlemen,
Many reforms already adopted will mean lower annual pensions in the future — sometimes as an automatic result of rising life expectancy and a less favourable balance between people in employment and retirees.
Reformed pension systems allow people to offset this reduction in pension levels by working longer. But many people may also want to save more for retirement by investing in supplementary schemes.
The White Paper lists measures to promote access to such schemes and to make them more efficient and safer.
I know you had detailed discussions on such measures yesterday, and that this aspect of the White Paper is of special interest to all of you here today.
Many of these measures rely on ‘soft’ power to facilitate good practice and encourage change rather than legislation. But they are still very important, and I hope that we can make real progress in conjunction with the Member States and stakeholders.
These measures include:
-providing people with better information — for instance, by promoting individual pension statements — to help them plan their retirement provision;
-exploring voluntary codes and perhaps an EU certification scheme for third-pillar pension products;
-looking at best practice in optimising tax and other incentives for supplementary pension savings;
-providing financial support for the Member States and the social partners in designing cost-effective supplementary pension schemes to help them turn other countries’ good practice and experience to account;
-developing codes of good practice for occupational pension schemes that address such issues as better coverage of employees, pay-out phase design, risk-sharing and mitigation and cost-effectiveness; and
-promoting the development of pension-tracking services to help people keep track of their pension rights when they move.
There are also some legislative initiatives covering supplementary pensions.
My fellow Commissioner, Michel Barnier, will be taking forward the review of the 2003 Directive on institutions for occupational retirement provision.
I know you heard more about this from the Directorate-General for the Internal Market at a session yesterday, so I will not go into it here.
May I just point out that there will be a thorough impact assessment which will also consider the business and social impact.
We want occupational pensions to be safer, but we certainly don't want to throw the baby out with the bathwater! I can assure you that the Commission as a whole will be very attentive to these issues.
There are also two issues involving legislation on which I lead.
First, there is the issue of protecting occupational pension rights when an employer becomes insolvent. This is covered by Article 8 of the Insolvency Directive which exists since 1980, so it’s not new legislation.
It’s about implementing legislation consistently — in the light of the rulings of the European Court of Justice and our own review of the way the Article is implemented in the Member States.
That approach is in line with the views of the vast majority of stakeholders as expressed in their replies to the Green Paper consultation.
The second piece of legislation involves ensuring that people’s freedom to move between Member States for professional reasons does not prevent them from acquiring and preserving supplementary pension entitlements.
This is the pension 'portability' proposal, which was first put forward in 2005. I know you discussed it yesterday.
As labour markets are becoming more flexible and supplementary pensions are growing more important in overall retirement income, a solution to the issue is more urgent than ever.
Statutory State pensions are protected at EU level where workers move between jobs by the Regulation on the coordination of social security.
But we need to ensure that supplementary pensions are also protected — albeit through a different mechanism.
Of course, I understand the calls for caution to avoid affecting or discouraging the continuation of existing supplementary pensions.
We will work closely this year with the parties concerned to take this forward.
Ladies and gentlemen,
Overall, the EU policy orientations for pension reform chime with reforms of the German pension system. For instance Germany has already legislated to raise the pensionable age to 67.
And supplementary pensions of various kinds are also expected to play a growing role in Germany in the future.
So I would hope that the White Paper will meet with broad approval in Germany.
Of course I realise — and I have commented on — one or two areas of the EU pensions agenda where there may be concerns in Germany.
But by working together with the Member States and the stakeholders, I hope we can ensure that the common framework for reform which the White Paper sets out can be properly implemented.
The goal is clear: to ensure that people have enough to live on when they reach retirement — despite population ageing.
We know it is possible. The White Paper shows the way.
AT, BE, BG, CZ, DK, ES, FI, FR, CY, LT, LU, MT, NL, PL, SI and SK.
EL, IE, LV, PT and RO.
The others are EE, HU, IT, SE and UK.