PensionReforms’ summary and comments

AGE is an umbrella group representing the interests of 133 European organisations.  It has taken a look at the impact of the 2008 global economic crisis on private and public pension arrangements.

AGE thinks it’s a good opportunity to see how the various systems have fared and what risks EU countries might be facing.  The recent move by countries from Defined Benefit schemes into Defined Contribution arrangements where investment returns matter might have been poorly timed.

“The crisis shows that neither banks nor economists nor governments can prevent stock market instability and collapse, with its harmful effects on pension funds and jobs.  However, the crisis provides an opportunity to review the efficiency and goals of pension systems and gives a clear warning against unconditional reliance on funded pension schemes.”

According to the report, pre-funded private schemes “...cannot replace the security and fairness provided by state-regulated pensions.”  PensionReforms notes the apparent distinction between ‘state-provided’ and ‘state-regulated’.  Private arrangements cannot “...guarantee adequate and secure old-age income for all, including women and those with broken career histories.”

There is a long list of recommendations in respect of the various aspects of both public and private provision.  In summary, the report would like to see:

• Better regulation of share markets;
• More oversight of pension schemes’ investment strategies;
• Pension adequacy, a decent level of minimum income for all pensioners;
• Safeguards for workers’ savings and pensioners’ provisions and
• Possibilities to extend working lives.

All these need “substantial improvement ... to restore confidence in national social protection systems and the EU social model.”

“AGE considers social protection to be essential for social cohesion and adequate pensions to be necessary for the very large majority of the EU population.  Pension reforms should re-establish the responsibility of public authorities to ensure a decent standard of living for people of all age cohorts, based on greater solidarity between and within generations.”

PensionReforms suggests that all this may be quite estimable (if not particularly detailed) but misses some fundamental points.

First, why does the state have a role in providing income support of any kind, in this case, for all retired citizens at Tier 1?  That is not necessarily about continuing what happens now but establishing some basic principles about what the state will pay for.  Having decided the ‘what?’ and the ‘when?’, the answer to the ‘how?’ is that the state should pay for that inevitably Defined Benefit arrangement on a PAYG basis: no need then to worry about share market returns.

Next, does the state have any sort of a role in encouraging or requiring its citizens or their employers to do more than that at Tier 2 and/or Tier 3?  Justifying that extra involvement may raise questions about preliminary decisions at Tier 1.  The state could easily conclude that it did not need to put its hand in taxpayers’ pockets at Tiers 2 and/or 3.  That would eliminate the need for some of the report’s suggested “safeguards” and would reduce the need for others.

 Finally, is there an information/education/regulatory role for the state touching, if necessary, on all three Tiers?  PensionReforms suspects that the answer to that will be ‘yes, nearly always’.

 PensionReforms concludes that the report would prefer things to be better (or more) than they have ended up after the global economic crisis, preferably at taxpayers’ expense.  It would be better, PensionReforms suggests, if the global economic crisis triggered some more fundamental questions about what European governments do for their citizens with respect to all aspects of their retirement income structures.  This approach to reform may obviate the need for suggested role of the Social Protection Committee (SPC):

“Gathering representatives of Member States, the SPC is par excellence an intergovernmental forum for debate, but it might and should also be open for exchange with representative organisations of civil society at EU level.  The issues related to securing workers’ savings and payments for pensioners, ensuring the sustainability of pension systems and promoting social inclusion must be subject to a transparent discussion among such debate.”

PensionReforms suggests that reforming pensions need not be that complicated but it does need attention in nearly all European countries. (File size 391 KB; 28 pp)  383