Striking the right balance on pensions

accawebmaster —  23 November 2010 — Leave a comment

By Cecile Bonino, public affairs and media relations officer – EU, ACCA

The European Commission is currently undertaking a wide-ranging analysis of the nature of the pension challenges that face Europe through a public consultation entitled Towards Adequate, Sustainable and Safe European Pension Systems.

These challenges are inextricably linked to issues in the wider economy and wider society and should be tackled through a joined-up, strategic approach at government level that would take into account all the relevant dynamics and tries to forge a pragmatic way forward. This would involve communicating the message to all concerned, including individual citizens, that pension provision can no longer be taken for granted and needs to be properly planned and financed.

The EU Commission suggests that the three elements of the strategy agreed at the 2001 Stockholm Council – reducing public debt, raising employment rates, and productivity – and pension reform, health care and long-term care systems should be linked; this seems the right way to go. It is clear that some member states' budget deficits are unsustainable in the long term. If they continue, they will make it increasingly difficult to pay for pensions.

The ability of any pension scheme, whether private or public, to fund retirement benefits will depend to a great extent on the EU's high unemployment rates. In some countries, youth unemployment exceeds 40%, which exacerbates the long-term financial pressures on governments, and increases the prospect of pensioner poverty in the future.
 

This point is echoed in ACCA's response to the consultation, which stresses that the EU strategy on pensions must be interlinked with efforts to create jobs. It is also essential that all unjustifiable legal and practical barriers to the participation of older workers in the workforce are dismantled, otherwise those workers will be forced to rely on state welfare benefits where those are available rather than contribute to the economy. Statutory intervention should, however, not be the only means for ensuring it and employers should be encouraged – rather than obliged – to make reasonable adjustments to working practices.

This process will of course necessitate a certain degree of cultural and attitude change on the part of employers and their younger workforces, but efforts should be concentrated on persuading employers of the business case for that change.

It is also vital that people are suitably reassured about the safety and security of the assets held by their pension fund. Gaps in regulatory protections must be addressed – especially in the case of pension providers operating across-border. But any additional regulation of schemes must be very careful not to add to the disincentives that already exist for employers and instead should encourage the continuing involvement of employers in the framework of supplementary pension provision.

Confidence could also be engendered through risk sharing: employers should be encouraged to offer collective schemes, which have a greater potential for lowering scheme costs, while legal guarantees for supplementary pension benefits where an employer has become insolvent could also – under certain conditions – play a vital role.

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