92001E1715

WRITTEN QUESTION E-1715/01

by Erik Meijer (GUE/NGL) to the Commission

(14 June 2001)

Subject: Tension between the euro as the single currency and the increasingly different pension reserves in the various Member States

1. Is the Commission aware of the European Pension Fund Managers' Guide published on 16 May by William Mercer in London according to which the pension reserves in the Netherlands, Sweden and Denmark equal between 100 % and 162 % of gross national product while those in Germany, Austria, Belgium, Portugal, France and Spain only equal between 5 % and 13 % of GNP?

2. Can the Commission confirm that the differences in pension reserves in the various Member States have increased significantly in recent times since Member States which already had better pension provisions were able to increase their lead as a result of the increase in share prices in recent years?

3. Can the Commission also confirm that Italy and Sweden have increased pension contributions, that Germany and Spain are preparing legislation and that it would appear that France is not doing anything to create pension reserves?

4. In the Commission's opinion, what are the likely consequences of the introduction of the euro as the single currency on 1 January 2002 in eleven Member States for the future of pension reserves which already differ greatly from Member State to Member State?

5. Does the Commission expect:

(a) that very large income differences among the elderly will be accepted?

(b) that existing pension reserves will lose out as a result of the significant monetary devaluation of the euro required to create large pension reserves in other Member States?

(c) a policy to share some of the large reserves built up by certain Member States with those which have built up little or no reserves?

(d) the elimination of State pension funds and old-age pensions, leaving the provision of pensions to international private pension managers without the involvement of governments authorities subject to democratic control, trade unions or senior citizens' organizations?

Source: De Volkskrant, 17 May 2001.

Answer given by Mr Solbes Mira on behalf of the Commission

(18 September 2001)

1. The Commission is aware of the large differences in pension reserves across Member States.

2. Clearly, the value of reserves in funded pension systems, which invest in equities, is influenced by changes in share prices. However, this is not the only factor that has had affected the value of pension reserves in recent years. The reserves of funded pension systems have been growing on account of the demographic profile of labour forces, with the large post-war baby-boom cohort now approaching the statutory retirement age.

3. During the 1990's, both Italy and Sweden introduced substantial reforms to their public pension systems, of which reforms to contribution rates were just one element. Inter alia, the reforms also addressed eligibility conditions, parameters affecting entitlements and indexation rules. A substantial reform of the pension system has recently been agreed in Germany, whereas recent reforms in Spain have been more limited. France has established a reserve fund, albeit of limited size, to meet some of the additional expenditures on public pensions as a result of ageing populations: a comprehensive reform of the pension has been debated for several years but has not yet been adopted.

4. The introduction of the euro will have a number of consequences for Member States' pension systems, including funded pension systems. Firstly, it is essential that Member States are prepared to meet the budgetary consequences of an ageing population so that the requirements of the Stability and Growth Pact are respected at all times, thus facilitating the operation of the single monetary policy. Secondly, the introduction of the euro has eliminated exchange rate risk amongst the twelve participating currencies and is facilitating the development of an integrated European financial market place. The portfolios of pension funds have and will need to be rebalanced to reflect changing market conditions.

5. (a) The Commission in its Communication on safe and sustainable pensions(1) underlined the need for social as well as financial considerations to be taken into account when designing pension reforms, and identified the need to maintain the adequacy of pension income as a key principle for sound pension reform. Nonetheless, it is evident that there are large differences in the levels of pension income amongst elderly persons both within and between countries. This is especially the case with pre-funded, contributory pensions since these tend to be linked directly to past contributions. However, pensions, and especially public pensions, are only one element in overall retirement income provision, and account also needs to be taken of other income sources such as private savings and other transfers to the elderly.

(b) The Commission does not agree with the statement that the building up of large pension reserves could lead to the devaluation of the euro and to a detrimental impact on the value of existing pension reserves. In contrast, measures to improve the sustainability of pension systems, including, where appropriate, greater recourse to funding, could be expected to enhance confidence in the capacity of the euro area countries to face up to structural and demographic changes.

(c) Member States remain responsible, in accordance with the EC Treaty, for pensions policy and thus for the policies to ensure that adequate provision is made for the retirement income of their citizens. There is no scope for sharing the reserves of pension funds amongst Member States. The EC Treaty (Article 103) contains an explicit no bail out clause prohibiting one Member States from assuming the liabilities of another Member State. Moreover, it should be borne in mind, that a large percentage of pension reserves do not fall within the public sector, but rather are assets of occupational pension schemes and private savings for retirement.

(d) The challenge posed by ageing populations does not require the elimination of public pension systems and a complete move to private pension schemes finances on a funded basis. As made clear in the Commission Communication, what is required is a modernisation

of pension systems to ensure their financial sustainability and capacity to meet their social objectives, to improve the incentives provided to older workers to stay in the labour market and to cater for changes in society and the preferences of individuals. The Commission also stresses the need for broad dialogue and consensus amongst all parties concerned.

(1) COM(2000) 622 final.