15 Pensions Green Paper
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12102/10
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
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| Legal base | —
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| Document originated | 7 July 2010
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| Deposited in Parliament | 14 July 2010
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| Department | Work and Pensions
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| Basis of consideration | Letter of 22 November 2010
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| Previous Committee Report | HC 428-ii (2010-11), chapter 7 (15 September 2010)
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but further information requested
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Background
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]
Conclusion
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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