Towards a European Pension Policy? The Possible Impact of the European Commission's Green Paper ‘Towards Adequate, Sustainable and Safe European Pension Systems’ on National Pension Strategies
| Published date | 01 September 2010 |
| DOI | 10.1177/138826271001200302 |
| Date | 01 September 2010 |
| Subject Matter | Article |
tHe PossIBLe IMPACt of tHe euRoPeAn
CoMMIssIon’s GReen PAPeR ‘toWARDs
ADequAte, sustAInABLe AnD sAfe
euRoPeAn PensIon systeMs’ on
nAtIonAL PensIon stRAteGIes
Hans-Joachim Reinhard*
Abstract
The Green Paper provoked angry headlines after fixing 70 as the compulsory
retirement age and reducing pension income. This article outlines some ideas and
findings for developing pension issues at the EU level and examines possible impacts
on national pension systems. The recent financial crisis showed the deficiencies of
capital-funded pensions. Discussions at EU levels should to consider unemployment,
childcare or taking care of frail persons in achieving adequate pensions. The question
arises as to whether earnings-related schemes as main source of income in old age
are still feasible. Different taxation of retirement pensions, additional contributions
for healthcare, long-term care and the lack of coordination rules for supplementary
pensions may impede free movement. Better coordination is needed. EU wide
solutions for pension systems seem inevitable in a converging Europe for reasons
of social cohesion and competition. There should be a minimum standard for all
European citizens in old age that guarantees sufficient financial means, adequate
healthcare and access to professional long-term care.
keywords: capital-funded pension plans; competition; financial crisis; pensions;
social cohesion; solutions at Eu level1
*
Professor of Social Law and Private Law, university of Applied Sciences, Fulda, Germany; Address:
Fachbereich Sozial- und Kulturwissenschaften, Marquardstrasse 35, 36039 Fulda, Germany; tel:
+49 661 96 40464; e-mail: Hans-Joachim.Reinhard@sk.hs-fulda.de.
200
Intersentia
Towards a European Pension Policy?
1.
INTRoDuCTIoN
on 7 July 2010, the European Commission published the long-awaited Green Paper
on adequate, sustainable and safe European pension systems.1 The political outcry
was tremendous. Newspaper headlines promptly announced that the European
Commission was going to make 70 the compulsory retirement age, while lowering
pension income at the same time. Politicians immediately warned the Commission
that it had no competences at all to meddle with pensions. Indeed, apart from tax law,
social security, and, in particular, pensions, is one of the major remaining playgrounds
for national politics. In addition, it is an area where the public still listens eagerly
to the diminishing voice of the trade unions. Moreover, raising the pension age is
very unpopular, and some of European Commission President José Manuel barroso’s
misleading remarks when he presented the study resulted in a bad performance for
the Commission.
This article attempts briefly to outline some of the ideas in the Green Paper. It
discusses some major findings of the report and asks whether, in light of recent
developments in social security, the Green Paper could have an impact on national
pension systems in the future.
The first question is why there was such an impassioned discussion. Is the
Commission really planning a European pension system? Will the Member States lose
their competence to deal with social security matters? The answer is ambiguous. It is
clear that the European Treaty has transferred only a limited and shared competence
to the European institutions in the field of social security.2 The Member States still
have the right to define the fundamental principles of social security. The provisions
adopted at a European level must not significantly affect the financial equilibrium
of national social security schemes.3 The Green Paper itself does not leave any
doubt about this distribution of powers. It explicitly states that the Member States
are responsible for pension provisions and does not question the Member States’
prerogatives in pensions or the role of social partners. It does not suggest that there
is a single, ideal ‘one-size-fits-all’ pension system design.
If it does not want to interfere in national pension politics, then what is the purpose
of this Green Paper? officially, it asks for ideas from the public on pensions. It calls for
a kind of public brainstorming that could help to develop pensions in the next decade.
However, it is not hard to imagine that the objectives go considerably further than this.
No administration would make such efforts if it did not intend to use them as the basis
for future activity. of course, the Commission aspires to exercise greater influence on
pension issues. Most administrations are keen to use powers that they formally do
not have. In any case, it does make sense that the Commission should deal with social
1
CoM(2010) 365 final SEC(2010)830.
2
Article 153(1)(c) TFEu (Treaty on the Functioning of the European union), consolidated, 2010/C
83/01 official Journal C 83, 30 March 2010.
3
Article 153(4) TFEu.
European Journal of Social Security, Volume 12 (2010), No. 3
201
Hans-Joachim Reinhard
security matters. Not only is the European economy becoming more integrated, so is
European society. If this coming together of society is to be successful, greater social
cohesion will be needed. Social security can be expected to play an important role in
this process. Therefore, social security and, specifically, the future of pensions, are
subjects that politicians should no longer deal with only at the national level.
The Green Paper takes an integrated approach and covers economic, social and
financial policies. It recognises the links and synergies between pensions and the
Europe 2020 strategy for smart, sustainable and inclusive growth, and takes into
account the work done by the Economic Policy Committee and the Social Protection
Committee on pensions.4 Their joint report outlined a number of reforms at the national
level, notably the strengthening of the contributory principle, the establishment of
automatic adjustment and the support of pension reforms.
2. PENSIoNS AND FINANCIAL CRISIS
The Green paper demonstrates the impact of the financial crisis, which has affected
all Eu Member States. The transnational nature of the capital market means that no
Member State can escape the ventures of floating capital. This is the price of a free
capital market,5 which seeks the highest yields. Since pension payments make large
sums of money circulate, pensions have become a major target for investors. The
decision about where to invest not only affects national capital markets but also has an
effect on other Member States. The interdependence of capital markets can threaten
the financial equilibrium of national social security systems even if they try to avoid
excessive financial risks.
The danger is more acute than it was some years ago. The reason for this is that
there has been a shift in the pillars or layers of social security. Most Member States
have an earnings-related public pay-as-you-go-scheme as their main pension scheme.6
The financial crisis affected pay-as-you-go-schemes less than other schemes. This was
mainly due to fact that financing on a rollover basis does not involve so much capital.
However, in the last decade many Member States have reduced or at least frozen
their pay-as-you-go schemes. Capital-funded pension schemes have partly replaced
traditional social security schemes. In general, banks and insurance companies
organise capital-funded schemes at a private level. This is why, until recently, experts
have looked at capital-funded schemes primarily in terms of the financial rules on
4
Interim EPC-SPC Joint Report on Pensions, 21/04/2010, ARES save number (2010)221924, available
at: www.fecif.eu/downloads/FECIF513.pdf with Annexes ARES save number (2010)221924*-Annex,
adopted by the Council of the European union, Luxembourg, 8 June 2010, available online at: www.
fecif.eu/downloads/FECIF514.pdf. The Final Joint Report is expected towards the end of 2010.
5
Article 63 ff. TFEu.
6
For an overview on the structure of Pension schemes, see Interim EPC-SPC Joint Report on
Pensions, Annex (Fn. 4) p. 5, Table 1.
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Intersentia
Towards a European Pension Policy?
investment. until recently, public opinion did not really regard private capital-funded
schemes as part of the social security system and discussion focussed on the public
systems. Private pension plans were only an issue for the better off and private pension
plans were seen not so much a means of social protection but a way to invest in order
to receive some extra money in old age. However, this point of view can no longer be
sustained.
Promoting voluntary7 and stipulating mandatory8 private pension plans as a
means of social protection in old age have changed the situation. Pension plans have
become mass phenomena. The number of contracts has exploded and people have
become reliant on the future financial returns of their pension plans. Nevertheless,
the 2008 financial crisis has shown that pension plans are not as reliable as might have
been expected. Private pension plans lost 23 per cent of their value in 2008, a drop of
almost a quarter. The estimated loss amounted to uS$ 5.4 trillion (some 4.3 trillion
€),9 a figure that exceeds the national budgets of every Member State.10 Although
pension plans recovered in 2009, they are far from coping with the previous losses. At
the end of 2009, pension funds made up 1.5 trillion €11 but there is still a huge gap left.
...
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