14. PENSIONS
(24116)
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Commission Communication on a draft report on adequate and sustainable pensions.
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| Legal base: | —
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| Department: | Work and Pensions
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| Basis of consideration: | EM of 19 December 2002
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| Previous Committee Report: | None
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| To be discussed in Council: | 6-7 March 2003
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| Committee's assessment: | Politically important
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| Committee's decision: | Cleared
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Background
14.1 The Lisbon European Council of March 2000 charged
the Social Protection Committee and Economic Policy Committee[42]
to work jointly, through voluntary co-operation between Member
States, to establish whether pension systems were evolving in
a financially and socially sustainable way. Subsequent European
Councils:
- applied to pensions the so-called open method of coordination,
that is, a structured but voluntary exchange of information and
best practice;
- adopted three guiding principles for modernizing pension systems:
- "safeguarding the capacity of systems to meet their social
objectives";
- "maintaining their financial sustainability"; and
- "meeting changing societal needs"; and
- agreed 11 common objectives for pension systems, grouped under
the three guidelines:
- 1. preventing social exclusion;
- 2. enabling people to maintain living standards;
- 3. "promoting solidarity";
- 4. raising employment levels;
- 5. extending working lives;
- 6. making pension systems sustainable in a context of sound
public finances;
- 7. adjusting benefits and contributions in a balanced way;
- 8. ensuring that private pension provision is adequate and
financially sound;
- 9. adapting to more flexible employment and career patterns;
- 10. meeting the aspirations for greater equality of women
and men; and
- 11. demonstrating the ability of pension systems to meet the
challenges.
The document
14.2 The Commission was asked to prepare a draft Joint
Report (from the Council and the Commission) on adequate and sustainable
pensions for the Spring 2003 European Council. The document is
that draft and is based on a synthesis of National Strategy Reports
submitted by each Member State supplemented by other information
sources, including EUROSTAT data, pension expenditure projections
by the Ageing Working Group of the Economic Policy Committee and
a Eurobarometer survey.
14.3 The draft report has sections on the challenge of
population ageing, pension adequacy, financial sustainability
of pension systems, and modernization in response to changing
needs. It shows the performance of, and issues arising from, Member
States' pensions schemes. It notes and comments on strengths and
weaknesses against the 11 common objectives. An annex to the document
summarises the main features of each Member State's system. The
document's conclusion suggests how the process of voluntary coordination
of pensions policies should be continued over the next few years,
noting especially the need to involve the new Member States in
the process.
14.4 The document is to be discussed by the Social Protection
and Economic Policy Committees prior to adoption by the Council
in time for the Spring 2003 European Council.
The Government's view
14.5 The Parliamentary Under-Secretary of State, Department
for Work and Pensions (Malcolm Wicks) tells us:
"Conclusions expressed in this Commission draft — or
in the final agreed Joint Report — are not legally binding.
There will, therefore, be no direct implications for UK policies
arising out of this process.
"The Government welcomes the draft Report's conclusion that
ageing will have a major impact on the viability of pension systems
across Europe and its emphasis on continued reform to secure the
financial sustainability necessary to underpin adequacy. The draft
provides a broadly accurate description of the UK position on
pensions, although there are some inaccuracies.
"The UK's public pension system is assessed as financially
sustainable; it is recognised as a high achiever on employment
rates. The EUROSTAT data used in the draft place the UK broadly
in the middle on 'at risk of poverty' rates (i.e. relative low
income) and notes the progress made in the UK position. The key
challenge identified for the UK is to increase savings in private
pensions.
"The UK will be seeking changes to the draft to improve consistency
across the different sections of the Report and to address inaccuracies:
- the draft Report tends to consider each Objective separately,
whereas they are highly interdependent. Pension systems are analysed
on the extent to which pension systems enable today's pensioners
to maintain their relative living standards in retirement, (Objective
2) separately from any assessment of the extent to which these
relative replacement rates are sustainable for future generations
(Objective 6). Similarly, if taxes and contributions have to rise
to pay for increases in public pension spending, this could impact
on efforts to raise the employment rate (Objective 4+5). Rigorous
application of this analysis might lead to an even greater emphasis
on the need for continued reform.
- the draft Report acknowledges that private provision is set
to play an increasing role in most Member States. However it covers
the risks associated with private provision, but focuses less
on the risks which go along with the generation of large unfunded
future liabilities within public pension systems.
- the draft's references to UK policy needs to be updated in
the light of the Green Paper which addresses the need to encourage
a higher level of savings and thus reinforces the already high
rating of the sustainability of UK provision. Inaccuracies of
detail also need to be addressed."
Conclusion
14.6 This draft report gives an interesting comparative
background to the ongoing debate on pension policy and its place
in the wider economic and social context. But we note that the
document has no binding application and are content to clear it.
42 The
Social Protection Committee, comprising representatives of national
social affairs ministries and the Commission, and the Economic
Policy Committee, comprising representatives of national ministries
of finance, economics, central banks, the Commission and the European
Central Bank, were established to advise the Council on social
and economic policies. Back
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