Transcript Jakub Wtorek-Are the European pension systems

Are the European pension
systems adequate and
sustainable?
Jakub Wtorek
European Commission
Directorate General for Employment, Social Affairs and Inclusion
Unit: Active Ageing, Pensions, Healthcare
Tbilisi, 20 May 2011
Are the European pension systems
adequate and sustainable?
•
•
•
•
•
EU competences in the field of pensions
National pension systems: an overview
Recent trends in pension reforms
EU indicators: adequacy and sustainability
Pensions in the EU economic governance
EU competence in the field of pensions
• EU competence:
– Free movement of workers (coordination of social
security schemes)
– Free movement of capital
– Minimum guarantees in case of insolvency of
employer and antidiscrimination
– Soft coordination of pension policies
• Green Paper (2010) brought these issues
together
• Challenge of maintaining holistic approach in the
White Paper (2011 Q3)
EU pension objectives
• Adequacy (solidarity and fairness between and within
generations, adequate retirement incomes for all, access
to pensions which allow people to maintain, to a
reasonable degree, their living standard after retirement)
• Sustainability (sound public finances, supporting longer
working lives and active ageing, fair balance of
contributions and benefits, promoting the affordability
and ensuring the security of funded and private
schemes)
• Modernisation (systems are transparent, well adapted
to demographic ageing and structural change, people
receive the information they need to plan their
retirement)
Demographic change: old-age dependency
ratios under different average exit age
scenarios
EU-27 old-age dependency ratios, 2010-2060, under four exit
assumptions (working ages from 20 to 59 through 69)
20 to 59 / 60+
20 to 63 / 64+
20 to 66 / 67+
20 to 69 / 70+
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2010
2020
2030
2040
2050
2060
Public Flat
Public Earnings
Occupational
in
til
e
5t
h
qu
in
til
e
4t
h
qu
til
e
qu
in
3r
d
qu
2n
d
1s
t
qu
in
t
in
til
e
ile
Contribution to pensioners' income
Stylised illustration: Tiers in pension
provision
Personal
Basic principles of European pension systems
FINANCING
PENSION FORMULA
PAYG
DB
DC
PAYG redistributive
Public
DB
21-Mar-17
Funded
PAYG earnings-related
Public
DB
(N)DC
Public
DC
Directorate-General for Employment, Social Affairs and Equal Opportunities
Funded
Occupational
DB
Individual
DC
DC
7
Wide variation in EU after reforms
PAYG redistributive
Public
DB
BE
BG
CZ
DK
DE
EE
EL
ES
FR
IE
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
PAYG earnings-related
Public
DB
(N)DC
PAYG Resdistributive
Minimum
Minimum
Basic
Basic
Minimum
Basic
Minimum
Minimum
Minimum
Basic
Social assistance
Basic
Minimum
Basic
Minimum
Minimum
Basic
Basic
Minimum
Minimum
Minimum
Minimum
Minimum
Minimum
Minimum
Minimum
Public
DC
Funded
Occupational
DB
PAYG earnings-related
Earnings-related
Earnings-related
Earnings-related
Earnings-related
Earnings-related
Earnings-related
Earnings-related
Public
Notional accounts
Supplementary
Notional accounts
Earnings-related
Earnings-related
Earnings-related
Earnings-related
Individual
DC
Funded
Occupational DC
Public DC
DC
Component 4
Occupational DC
Occupational DC
Public DC
Occupational DC
Occupational DC
Public DC
Public DC
Public DC
Occupational DB
Income tested
Notional accounts
Earnings-related
Points
Earnings-related
Earnings-related
Earnings-related
Notional accounts
Basic
Public DC
Public DC
Public DC
Public DC
Occupational DB
Occupational DB
Shift in typical EU worker pensions
2006
10 0 %
80%
60%
40%
20%
0%
B E B G CZ DK DE EE
EL ES FR
IE
IT
CY LV
LT
LU HU M T NL A T P L P T RO
SI
SK
FI
SE UK
LU HU M T NL A T P L P T RO
SI
SK
FI
SE UK
2046
10 0 %
80%
60%
40%
20%
0%
B E B G CZ DK DE EE
P A YG D B
EL ES FR
P A YG N D C
IE
IT
CY LV
F unde d M a nda t o ry
LT
F unde d O c c upa t io na l D C
F unde d O c c upa t io na l D B
9
Trends in pension reforms
• Strengthening of contributory principles
– Increasing contribution periods, higher pensionable
age  pension outcomes dependent on performance
of labour markets
• Greater role for prefunding
– Mandatory individual, enhanced voluntary, automatic
enrolment, occupational  pension outcomes
dependent on performance of capital markets
• Automatic adjustment mechanisms
– Life expectancy, GDP and labour market growth 
balancing the system at the expense of higher
uncertainty for individuals
Market exposure of future pensioners in DC
schemes
• The questions for countries that have opted for
an important role for funded DC provision:
– how to control the risk for the individual
– how to give people a realistic idea about what can be
obtained
– how to consider for which income and career profiles
these schemes are an appropriate solution
– how to ensure the payout phase matches the original
purpose of pension savings as efficiently as possible
At-risk-of-poverty rate for people aged 65+
• Defined as a percentage of population with
income after social transfers below the atrisk-of-poverty threshold. The threshold is
set at 60% of the median equivalised
income in a given country, thus the
indicator treats poverty as a relative and
not absolute concept
Severe material deprivation, 65+
•
Reflects the inability to afford 4 items
considered by most people to be desirable or
even necessary to lead an adequate life:
–
–
–
–
–
–
–
–
–
to pay their rent, mortgage or utility bills
to keep their home adequately warm
to face unexpected expenses
to eat meat or proteins regularly
to go on holiday
a television set
a refrigerator
a car
a telephone
Population 65+ at risk of poverty or social
exclusion, 2009
70
severe material deprivation
60
at-risk-of-poverty rate (threshold: 60% median)
50
EU2020: at risk of poverty or exclusion
40
30
20
BG
LV
CY
RO
LT
EE
EL
ES
PT
PL
SI
UK
FI
BE
IT
MT
EU27
DK
SK
SE
IE
HU
AT
DE
FR
CZ
NL
0
LU
10
What are the expected effects of
reforms?
40
30
20
10
0
-10
-20
PT IT
FR PL CZ FI EL LV SE DK DE ES MT SI UK IE LU BE AT LT SK NL EE CY HU BG RO
Change in gross replacem ent rates from statutory schem es
Evolution of statutory pensions expenditures
Change in Theoretical replacement rates and public pension expenditure between 2006 and 2046
21-Mar-17
Directorate-General for Employment, Social Affairs and Equal Opportunities
15
Projected increase in public pension
expenditure, 2007-2060
25
2007
20
15
10
Source: Ageing Report 2009
Social security old-age and early pensions are covered
IT
FR
AT
GR
PL
PT
HU
DE
EU27
FI
BE
SI
SE
DK
LU
ES
BG
CZ
MT
SK
LT
UK
NL
RO
EE
LV
0
CY
5
IE
% of GDP
2060
Decomposition of the projected increase in
public pension expenditure, EU27 2007-2060
Public pension expenditure in the EU is projected to increase from
10.1% in 2007 to 12.5% in 2060
Percentage of GDP
10
8
•
Population ageing effect: change in the dependency ratio (number of
people aged 65 and more to the working age population)
6
•
Eligibility effect: tighter eligibility conditions for public pensions
•
Employment effect: increase in the number of employed
•
Level of benefits: less generous public pensions
4
8,7
2
2,4
0
-0,6
-0,7
-2,5
-2,6
-2
-4
Population
ageing effect
Eligibility
effect
Source: Ageing Report 2009
Employment
effect
Level of
benefits
Residual
Projected
increase
Social security old-age and early pensions are covered
EU2020: pensions in European economic
governance
• Europe 2020: the EU’s growth strategy for
the coming decade
• Crisis: employment and public finances
dimensions
• EU2020 recommendations:
– To prolong working lives
– To develop complementary private savings
Thank you for your attention
http://ec.europa.eu/social/main.jsp?catId=75
2&langId=en