1. OVERVIEW OF THE PRIVATELY MANAGED PENSION FUNDS SECOND AND THIRD PILLAR IN THE EU MEMBER STATES Prof. dr. Yves Stevens institute for social law President Belgian occupational pension board

2. second and third pillar in Europe 2 Overview 1.Is there no three pillar model? 2.Privately managed pension funds in the EU 3.Conclusions

3. I. IS THERE NO THREE PILLAR MODEL ?

4. second and third pillar in Europe 4 “Three pillars” A model that does not exist Different approaches Anglo saxon and worldbank Continental “old” Europe A common European vision ? Main advantage

5. second and third pillar in Europe 5 The three pillar pension system The world bank vision 1. Social security 2. Madatory funded systems 3. Voluntary supplemental benefits

6. second and third pillar in Europe 6 The three pillar pension system The continental “old” European vision 1. Social security benefits 3. Voluntary supplementary benefits 2. Mandatory industry sector pensions Company sponsored benefits

7. second and third pillar in Europe 7 Example Bulgaria 1st Pillar State social security Flows of finance are controlled by public institutions. 2nd Pillar Obligatory Individual accounts Funded 3rd Pillar WORLDBANK

8. second and third pillar in Europe 8 Example Belgium 1st Pillar State social security Flows of finance are controlled by public institutions. 2nd Pillar Occupational and work-related character Mainly voluntary character (for employer, not for employee) Flows of finance controlled by social partners or employers, outsourced to pension funds and/or financial institutions. 3rd Pillar Flows of finance controlled by private institutions Private individual character - voluntary individual choice to take part. “OLD” CONTINENTAL EUROPE

9. second and third pillar in Europe 9 The three pillar pension system What some critics say 1. Social security 2. Madatory funded systems 3. Voluntary supplemental benefits

10. second and third pillar in Europe 10 The three pillar pension system What some critics say 1. The social security benefits 3. Voluntary supplementary benefits 2. Mandatory industry sector pensions Company sponsored benefits

11. second and third pillar in Europe 11 How difficult to define ? Europe’s quilt affiliationvoluntaryobligatorymixed levelnationalindustry-widecompanyindividual actors booking coverage fiscal control participation risk/cost finance government fundsinsurersbanks internalexternalmixed overallcategoriesindividual prudent man  strict state supervision EEEETTETEEETTTTTEETETETETTE organisingsupervisingmanagingnone indvidual  employer  society repartitionopen – closed capitalisationmixed organisingregulatingmanagingcontroling

12. second and third pillar in Europe 12 What exists … An integrated pillar coordinated view on every pension system Everything is linked to everything

13. II. PRIVATELY MANAGED PENSION FUNDS

14. second and third pillar in Europe 14 Privately managed pension funds Facts strong increases in the last 10 years in Europe increasing number of individual accounts increasing number of DC plans with further deterioration of DB plans Shift towards the “anglo-saxon model” ? Directive 2003/41 Proposal of directive on portability Does the World bank model prevail in the new member states ?

15. second and third pillar in Europe 15 Privately managed pension funds Some examples: what happens in … France Germany Italy Ireland Sweden UK …

16. III. CONCLUSIONS

17. second and third pillar in Europe 17 Conclusions The proportion between state and additional pensions determines the degree of solidarity of the system. The bigger the portion of the state pension, the higher the income redistribution. The bigger the additional component, the more the distribution follows the hierarchy of salaries. The GDP percentage for pensions (state + additional) is almost the same everywhere in the EU, BUT the smaller the role of the state pension, the bigger the income inequality is. On macro-economical level, all pillars constitute a whole. Save in the 1th pillar and leave the additional pensions free, is no solution. All pillars should be regarded together (including tax benefits to the third pillar).

18. second and third pillar in Europe 18 Conclusions Budget and political constraints limit the possibilities for the development of the first pillar. The role of other pillars becomes more important. Pension policy is part of a global social policy including health care for the elderly, dependency, poverty exclusion measures,... Every Euro spent in whatever pillar remains a cost that needs to be gained through the economy. Economic prosperity and growth is a prerequisite for a sound social system.