Documents considered by the Committee on 8th December 2010 - European Scrutiny Committee Contents

15 Pensions Green Paper



COM(10) 365

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Commission Green Paper: Towards adequate, sustainable and safe European pension systems

Commission staff working document: description of EU legislation concerning pensions

Legal base
Document originated7 July 2010
Deposited in Parliament14 July 2010
DepartmentWork and Pensions
Basis of considerationLetter of 22 November 2010
Previous Committee ReportHC 428-ii (2010-11), chapter 7 (15 September 2010)
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared, but further information requested


15.1 In July, the Commission published a Green Paper which was intended to launch a debate "on the key challenges facing pension systems and how the EU can support Member State efforts to deliver adequate and sustainable pensions."[68] The Green Paper invited responses from all interested parties to 14 questions which sought to clarify what role, if any, the EU should play in:

  • ensuring the adequacy and sustainability of pensions;
  • achieving a sustainable balance between time spent in work and in retirement;
  • removing obstacles to mobility within the EU;
  • ensuring safety and transparency in pension provision; and
  • improving the provision of information to enable informed choices.

15.2 The deadline for responding to the questions raised in the Green Paper was 15 November. The Minister of State for Pensions (Steve Webb) told us in his Explanatory Memorandum of 26 July that, in its response, the Government would stress that "pensions policies should generally be at national and not European level but that improved indicators, reporting and information sharing at European level could be helpful."[69] We asked the Government to send us a copy of its response to the Green Paper and decided to hold the document under scrutiny.

The Government's response to the Green Paper

15.3 On 22 November, the Minister wrote to inform us of the content of the Government's response. He says that it:

  • "reiterates that Member States are best placed to tackle the issues raised by the Commission (in particular, any new rules on pension scheme solvency would be neither necessary nor helpful);
  • "indicates how the UK is tackling the issues through its pensions policies, including forthcoming reforms; and
  • "accepts that improved information sharing could be helpful, but argues that new institutional structures for this are unnecessary."

15.4 The Minister also encloses a copy of the Government's response and of the accompanying covering letter which he sent to the Commission. His letter welcomes the Green Paper as "a timely contribution to the debate in all Member States about how pensions policy should address the challenge of an ageing society". He says that the UK has embarked on a major programme of pension reform which aims for both sustainability and adequacy, adding:

    "It includes a commitment to increase the basic State Pension each year by the greater of prices, earnings or 2.5%. In addition, we have announced our intention to raise the State Pension age for women to 65 by November 2018 and then to 66 for both men and women by April 2020."

15.5 While the Minister emphasises that Member States are responsible for pension provision, he also foresees "an important role" for the Commission in "informing Member States' pension reforms in the context of the agreed Europe 2020 strategy and the Stability and Growth Pact." He says:

    "Effective exchange of information will be of key importance during this period so that Member States can share best practice and learn from one another. We will continue to participate fully and actively in the existing coordination structures."

15.6 The Minister also emphasises the importance of the Commission's role in "removing obstacles to the functioning of the single market, including mobility of workers" and says that the Government looks forward to working closely with the Commission on strengthening the single market for pensions. He adds:

    "In particular, the UK Government supports further work on portability of pensions and the divergence in approaches to the treatment of institutions wishing to undertake cross-border activity which are significant issues. We would welcome further discussion here, including on how best to stimulate savings whilst obtaining the benefits of increased portability."

15.7 The Minister alludes to the Government's launch of the National Employment Savings Trust (NEST) which is intended to encourage pensions savings. He explains that NEST "prevents the movement of contributions until 2017 in order to allow the scheme funds to accumulate and also to let it complement rather than compete with other pension schemes" but believes such a restriction to be justified.

15.8 The Minister expresses the Government's support for the objectives of the Solvency II Directive which, he says, seek to create "a robust and sustainable single market for insurance across the EU", but he reiterates "well known concerns about the significant adverse effects which could result from applying Solvency II type capital requirements to employer-sponsored schemes." He continues:

    "These schemes, which are an important part of pension provision in the UK, are of a different nature to pension funds provided by insurance companies. Crucially, the employer remains liable for funding and, in the event of an employer insolvency, a statutory Pension Protection Fund provides compensation for members should there be any shortfall. If the rules applicable to insurance companies were to be applied to these schemes, it would be to the detriment of scheme members as the likely reaction of employers to such an increase in funding costs would be to close the schemes. We do not believe a one-size-fits-all approach to capital rules would be sensitive enough to take account of existing Member States' regulatory and legislative frameworks, and that equivalent outcomes can be achieved without focusing solely on capital requirements."

15.9 The Government's response to the Green Paper amplifies many of these points. It sets out the Government's belief that the definition of an adequate retirement income and the setting of pensionable ages are both matters of national prerogative which depend on political choices to be made in each Member State. The Government does not see a need for further regulation at EU level and considers that:

    "current EU legislation is sufficient, striking the right balance between EU and national social and labour laws. It provides the necessary flexibility for Member States to respond in a timely and proportionate way to developments in their national pension systems, and has thus allowed the UK to develop a strong pension protection system for both occupational and personal pensions, both in terms of prudential rules and compensation arrangements."[70]

15.10 The Government's response does, however, emphasise the value of developing common indicators in certain areas, strengthening joint analysis and policy exchanges between Member States, and exchanging best practice in areas such as information disclosure and risk-sharing so that the right balance can be struck between encouraging employer provision of pensions and ensuring adequate protection of members of a pension scheme.

15.11 The Government also expresses strong support for EU policies which seek to extend working lives and encourage flexible working but says that further action to facilitate pension mobility "must also pay due regard to the risks associated with it. For example, the UK has additional rules around the quality of advice on personal pensions and pension transfers which are essential to the delivery of acceptable pension outcomes for consumers in the UK pensions market."[71]

15.12 The Government's response concludes by endorsing the Commission's assessment that there is no "one size fits all" solution for pension provision, but adds the following cautionary note:

    "Pension systems are a competence of individual Member States and the Commission should respect the principle of subsidiarity. Given the diversity of national pension systems, the UK believes it would be difficult to create new frameworks without having detrimental effects on pensioners in some Member States. The UK will not support any proposals that have a negative impact on pensioners in the UK or in other Member States.

    "The best way of creating a coordinated framework to support Member States is through the Open Method of Coordination for sharing information and good practice. The UK has extensive experience of pension reforms and we are keen to share this with the Commission and other Member States. We believe that other Member States, including the UK, can learn a lot from each other and this is the way in which frameworks should be strengthened rather than through further policies, regulations or legislation." [72]


15.13 We thank the Minister for sending us the Government's response to the Commission's Green Paper. We agree with the Minister that the Green Paper has stimulated a necessary debate about the need for pension reform to ensure adequate and sustainable pensions in light of the dual challenges of an ageing society and pressure on public finances. The Government's response highlights the diversity of pension provision in the UK and cautions against the use of regulation to impose a "one size fits all" approach when the underlying demographic, economic, social and political factors vary so much between Member States. We think that the Government is right to emphasise the need for a cautionary approach. Now that we have seen the Government's response, we are content to clear the Green Paper from scrutiny but, in so doing, we ask the Government to keep us informed of any further developments.

68   Introduction to the Green Paper, fifth paragraph (page 3).  Back

69   Paragraph 9 of the Minister's Explanatory Memorandum. Back

70   See the Government's response to question 8. Back

71   See Government's response to question 6. Back

72   See Government's response to question 14. Back

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