Safe and sustainable pensions: supporting national strategies through a European approach

The Commission invites the Council to endorse a series of objectives and working methods with a view to guaranteeing safe and sustainable pensions in EU Member States. This policy paper proposes formalising and strengthening cooperation between Member States in relation to pension systems in view of their ageing populations.

ACT

Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee - Supporting national strategies for safe and sustainable pensions through an integrated approach [COM(2001) 362 final – Not published in the Official Journal].

SUMMARY

The European Commission is proposing a whole series of common objectives to adapt pension systems to the main trends in society, namely population ageing, continued low fertility rates and increases in life expectancy.

In the light of these challenges, the Commission believes it necessary to use the open method of coordination (OMC) to set common objectives and translate them into national policy strategies. The OMC has a number of advantages, such as promoting exchanges of experience based on good practice.

Adequacy of pensions

Pension systems should take account of the risks of poverty and social exclusion among older people. They should ensure a decent standard of living during retirement and provide access for all individuals to appropriate pension arrangements.

Through the combination of the three pillars (statutory social security, occupational pension schemes and personal pension schemes), pension systems should offer each individual the opportunity to maintain, as far as reasonable, their standard of living after retirement or in the event of permanent incapacity.

Financial sustainability of public and private pension schemes

The Commission believes that Member States should pursue their efforts in the framework of the European employment strategy so as to strike an even balance between the number of active and retired persons. In the years to come, employment participation should rise, through longer labour market participation in particular, in order to guarantee the funding of pensions in an ageing society.

The Commission believes that the use of early retirement schemes should be limited and workers encouraged to stay in the labour market beyond the standard retirement age.

In addition, to ensure the sustainability of public finances, the Commission believes that public spending on pensions should be maintained at a level (in terms of percentage of GDP) that is compatible with the Stability and Growth Pact. Sound management of public finances and the reduction of public debt will considerably ease the constraints on public finances.

The Commission also believes that pension systems should be able to rely on the contribution of second and third pillar schemes (occupational and personal pension schemes). An appropriate regulatory framework at Member State and EU level is therefore needed.

Modernising pension systems

Pension systems fail to cater well for the needs of increasing numbers of people, considering in particular new family patterns, the changing roles of men and women in households and on the labour market, etc.

Pension systems should be modernised to take account of changes in society and to make sure that they cater well for the needs of a more mobile and flexible workforce. I.e., non-standard employment forms do not result in undue losses of pension entitlements and self-employment is not discouraged by pension systems.

Towards a comprehensive approach

Progress towards the objectives presented above should be measured using appropriate indicators. They should aim at providing comparable information on the major economic, financial and demographic trends affecting the sustainability of pensions. The list of commonly agreed indicators should make it possible to measure trends and policy developments.

The future of pension systems depends on policies in different areas including employment, public finances and social protection. As a result, comprehensive and integrated policy strategies are required that include these areas. It is also necessary to ensure that these policies are consistent and complementary.

Background

This communication is the Commission’s second policy paper on pension systems and follows on from the communication “The Future Evolution of Social Protection from a Long-Term Point of View: Safe and Sustainable Pensions". The strategy it sets out is based on that adopted at the Stockholm European Council on 23 and 24 March 2001.

RELATED ACTS

Green paper of 7 July 2010 towards adequate, sustainable and safe European pension systems [COM(2010) 365 final - Not published in the Official Journal]. In the context of the economic crisis which has disrupted the stability of public finances, it is now necessary more than ever to reform pension systems and increase employment rates in Europe. The green paper proposes ways to improve coordination of initiatives taken by EU countries, in the context of the Stockholm strategy and in accordance with the new Europe 2020 strategy. To this end, the Commission consults with interested parties on how the EU can:

• increase social justice in pension systems, particularly concerning access to supplementary schemes, the crediting of periods of forced inactivity (unemployment, illness or family responsibilities), short-term contracts and atypical contracts. The EU can also contribute towards the sustainability of public finances, limiting spending, increasing economic growth and employment for older workers;
• extend working lives while taking account of the specific features of occupations, labour market entry ages, workers’ health and the needs of older workers. It can also contribute to reducing inequality and differences in pay between men and women on the labour market;
• promote cross-border activities and workers’ mobility, particularly by strengthening the internal market for pensions and exploiting the internal market to generate new sources of income for pensions;
• increase legal certainty, accessibility and transparency of pension schemes and institutions, particularly for funded schemes, but also for the solvency of pension funds and occupational pension schemes in the event of insolvency of undertakings. Information for workers on the different pension products available should also be improved;
• strengthen coordination between EU countries in the design and implementation of policies, particularly by creating common statistical tools.

Council Conclusions on "Sustainable social security systems achieving adequate pensions and social inclusion objectives", Brussels, 7 June 2010.

Council Conclusions of 20 October 2003 on open coordination for adequate and sustainable pensions [OJ C 260 of 29.10.2003].

Joint report by the Commission and the Council of 6 March 2003 on adequate and sustainable pensions.

Joint report of the Social Protection Committee (SPC) and the Economic Policy Committee (EPC) of November 2001 on objectives and working methods in the area of pensions: applying the open method of coordination.

Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - The future evolution of social protection from a long-term point of view: safe and sustainable pensions [COM(2000) 622 final – Not published in the Official Journal].

Last updated: 03.09.2010