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Commission européenne 1 -1- European Pension reforms International Forum on Pension Reform: Exploring the Link to Labour and Financial Market Reforms Bled.

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Presentation on theme: "Commission européenne 1 -1- European Pension reforms International Forum on Pension Reform: Exploring the Link to Labour and Financial Market Reforms Bled."— Presentation transcript:

1 Commission européenne 1 -1- European Pension reforms International Forum on Pension Reform: Exploring the Link to Labour and Financial Market Reforms Bled - Slovenija 7-9 May 2007 O. Bontout, G. Fischer European Commission Employment, Social Affairs & Equal Opportunities DG

2 Commission européenne 2 -2- Pension reforms ➢ A common challenge and approach in EU ➢ Main developments in current reforms ➢ Recent developments : labour market and pension prospects ➢ Some outstanding issues

3 Commission européenne 3 -3- I - A common pension challenge: adjustments needed Increase in life expectancy and dependency ratios Decline in effective retirement ages … reversal in recent years Contribution rates – further increases ?

4 Commission européenne 4 -4-

5 5 -5-

6 6 -6- Life expectancy at 60 and activity rates 55-64 Source Eurostat for Life expectancy and ILO (ES and SE 1970-2000, FR 1968-2000, IT 1971-2000, UK 1971-1991)

7 Commission européenne 7 -7- 40%25%18%Ratio 70+ /20-69 58%39%27%Ratio 65+ /20-64 80%58%39%Ratio 60+ /20-59 205020252004 Note : EU25. Source : Eurostat 2005 demographic projections. 7 Projected evolution of dependency ratios

8 Commission européenne 8 -8- A common challenge All systems are concerned: DB, DC, NDC, PAYG, funded, Member States are not interdependent: –public finance, –mobility, –common social rights and objectives,

9 Commission européenne 9 -9- Common European Approach Pension systems to be reformed to ensure: Adequate benefits: poverty and income replacement Financial sustainability Adaptation to societal/ labour market change Adequacy and Sustainability are mutually reinforcing : virtuous or vicious circle

10 Commission européenne 10 -10- European Action: the OMC Open Method of Coordination: National Strategy Reports 2005, Social Protection Committee to review progress und prepare for Council, Recently issued synthesis report (2006) New objectives adopted in Spring 2006

11 Commission européenne 11 -11- II - Key elements arising from current pension reforms Strengthening incentives for working longer Developing a life-cycle approach and strengthening the link between contributions and benefits while reducing access to early paths out of employment

12 Commission européenne 12 -12- Key elements arising from current pension reforms Making pension systems more adaptable to structural changes in society Develop secure private pensions complementing and partially replacing public pension provision

13 Commission européenne 13 -13- Commission européenne 13 -13- III - Recent developments Labour market - a recent reversal Benefits - the key channel of working longer

14 Commission européenne 14 -14- Recent increase in employment of older workers, but huge potential Source : LFS

15 Commission européenne 15 -15- Older workers employment (55-64)

16 Commission européenne 16 -16- Older workers employment (55-59)

17 Commission européenne 17 -17- Older workers employment (60-64)

18 Commission européenne 18 -18- Part time employment (55-64)

19 Commission européenne 19 -19- Part time employment (55-64)

20 Commission européenne 20 -20- Commission européenne 20 -20- Between MSs ? Men / Women ? Less / medium and high skilled ? Some risks of divergence ?

21 Commission européenne 21 -21- Average standard deviation of employment rates 55-64 and 25-54 Commission européenne 21 -21- Non convergence between MSs? Source : LFS – Note : Total for all Member States available, EU* for a group of Member States where are available all the period long (BE, DK, DE, IE, EL, FR, IT, LU, NL, UK)

22 Commission européenne 22 -22- Average standard deviation of employment rates 55-59 and 60-64 Commission européenne 22 -22- Non convergence between MSs? Source : LFS – Note : Total for all Member States available, EU* for a group of Member States where are available all the period long (BE, DK, DE, IE, EL, FR, IT, LU, NL, UK)

23 Commission européenne 23 -23- Commission européenne 23 -23- Slow convergence between Genders ? Employment rates by gender for 55-64 in EU

24 Commission européenne 24 -24- Commission européenne 24 -24- Divergence between skill levels? Employment rate of men 55-64 in EU25

25 Commission européenne 25 -25- Commission européenne 25 -25- Projected long term trends Adequacy : theoretical replacement rates Sustainability : expenditures projections

26 Commission européenne 26 -26- Trend of replacement rates : effect of enacted reforms at a given retirement age 2005-2050 A trend toward a decline in most statutory schemes Source : Stylised illustration from ISG results on gross replacement rates

27 Commission européenne 27 -27- How to compensate for this decline ? Working longer and private pensions Source : Stylised illustration from ISG results on gross replacement rates

28 Commission européenne 28 -28- Trends of future pension expenditures Source : AWG projections

29 Commission européenne 29 -29- Commission européenne 29 -29- IV - Some key issues  Concerns about equity and poverty  Compulsion vs. incentives : private pensions and working longer  How to fully restore social and financial sustainability ?

30 Commission européenne 30 -30- Commission européenne 30 -30- Key issues (1)  Concerns about equity and poverty Risks related to inadequate pension provision A revival of minimum income provision

31 Commission européenne 31 -31- Commission européenne 31 -31-  How to strengthen the role of minimum pensions and solidarity in pension systems ? –Poverty risk among elderly remains generally higher than overall population –Links between level of benefits, degree of means-test, incentives and indexation rules –A need for appropriate monitoring tools

32 Commission européenne 32 -32- Commission européenne 32 -32- Poverty risk among elderly Source Eurostat, income data

33 Commission européenne 33 -33- Theoretical replacement rates : effect of indexation 10 years after retirement (2005-2015) Source : ISG results on gross replacement rates

34 Commission européenne 34 -34- Commission européenne 34 -34- Key issues (2)  Compulsion vs. incentives : private pensions and working longer –Choice, incentives for earlier / deferred retirement, partial retirement –Importance to review incentives structures: are incentives strong enough? –But pension reform can not do everything

35 Commission européenne 35 -35- Retirement: incentives and behaviour Source : Illustration from SPC report on flexible age of retirement (forthcoming), Replacement calculations from EU Commission-OECD project ‘’Modelling pension entitlements'

36 Commission européenne 36 -36- Commission européenne 36 -36- Key issues (3)  How to fully restore social and financial sustainability ? –Importance of an integrated approach –Development of automatic and semi – automatic adjustment mechanisms: automatic mechanisms vs. regular reviews –Importance of transparency

37 Commission européenne 37 -37- Conclusion Pension reform in progress Working longer: breakthrough needed Promoting longer working lives involves not only pension reform Improve transparency and governance to allow policy decisions on priorities

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