The European Commission has finally released its long awaited white paper on pensions, which comes with a string of proposals both for national and EU-wide changes to the pension landscape.
The paper addresses the issue of longevity and its effect on the sustainability of pensions, particularly within the deteriorating economic situation prevalent across Europe. The EC recognise that it is not the old-age ration that is key and insists that it is the overall economic dependency ratio (the number of people working versus the unemployed / pensioner contingent) that is vital to ensuring that pensions are supportable in old age.
Indeed it notes that if the European Union’s own goal of 75% employment across the Union for the 20-64 age group is achieved, the economic dependency ratio will only increase from 65% to 75% by the year 2050, far less than the 50% increase in the old age dependency ratio that is usually quoted.
However, it then leaves that ratio aside, perhaps from lack of confidence in the EU’s growth strategy, and focuses on ways to reduce the old-age dependency ratio. This is to be achieved, primarily, by raising state pension ages in order to reduce the amount of time people spend in retirement and by blocking access to early retirement opportunities.
For the private pension pillar, the Commission is proposing a combination of regulatory initiatives and voluntary ‘best practice’ codes in order to achieve their aim of increasing stability in pensions.
The regulations include a proposal for a new directive on the portability of pensions, which will encompass an investigation into tax and contract law harmonisation to prevent differing fiscal and legal environments inhibiting pensioners from moving across borders. This will be accompanied by the establishment of pension tracking services, initially at a national level but later to be extended to a cross-border service.
New proposals, building on the Packaged Retail Investment Product’s (PRIP) directive due to be finalised in 2012, will encourage the standardisation of disclosure rules for investment and pension products. The idea of an EU-wide certification scheme for pension products is floated as a possibility and is a harbinger of much tighter control over product design.
Along with these directives, there are a number of areas of where the Commission are proposing voluntary ‘best practice’ codes including in the provision of annual pension statements in different member states. Details of how these are to be brought about will emerge over the next few months.
Overall, it is clear from the white paper that the EC sees itself taking a more interventionist role in the regulation of pensions across member states. This should be a good thing and will mean a less fragmented market for consumers and suppliers to the industry. As always, the devil will be in the detail and we won’t know this until the draft directives emerge later this year.