OVERVIEW OF THE PRIVATELY MANAGED PENSION FUNDS SECOND AND THIRD PILLAR IN THE EU MEMBER STATES

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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

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Overview

• Is there no three pillar model?
• Privately managed pension funds in the EU
• Conclusions

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I.IS THERE NO THREE PILLAR MODEL ?
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Three pillars

• A model that does not exist
• Different approaches
• Anglo saxon and worldbank
• Continental old Europe
• A common European vision ?
• Main advantage

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The three pillar pension systemThe world bank
vision
1. Social security
2. Madatory funded systems
3. Voluntary supplemental benefits
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The three pillar pension systemThe continental
old European vision
3. Voluntary supplementary benefits
2. Mandatory industry sector pensions Company
sponsored benefits
1. Social security benefits
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Example Bulgaria

• 1st Pillar
• State social security
• Flows of finance are controlled by public
  institutions.
• 2nd Pillar
• Obligatory
• Individual accounts
• Funded
• 3rd Pillar

WORLDBANK
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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
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The three pillar pension systemWhat some critics
say
2. Madatory funded systems
3. Voluntary supplemental benefits
1. Social security
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The three pillar pension systemWhat some critics
say
3. Voluntary supplementary benefits
2. Mandatory industry sector pensions Company
sponsored benefits
1. The social security benefits
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How difficult to define ? Europes quilt
affiliation
level
actors
booking
coverage
fiscal
control
prudent man ? strict state supervision
participation
risk/cost
indvidual ? employer ? society
finance
government
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What exists

• An integrated pillar coordinated view on every
  pension system
• Everything is linked to everything

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II. PRIVATELY MANAGED PENSION FUNDS
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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 ?

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Privately managed pension funds

• Some examples what happens in
• France
• Germany
• Italy
• Ireland
• Sweden
• UK

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III.CONCLUSIONS
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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).

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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.