Promoting Adequate and Sustainable Pensions through the Open Method of Co-ordination ADEQUACY, FINANCIAL SUSTAINABILITY and MODERNISATION

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Promoting Adequate and Sustainable Pensions
through the Open Method of Co-ordinationADEQUACY
, FINANCIAL SUSTAINABILITY and MODERNISATION

• European Commission

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ASSESSING ADEQUACY

• Data gathered through the European Community
  Household Panel (ECHP)
• Measurement of poverty risks, relative income
  levels, income inequality at household level
• Shortcomings
• income data for 1998
• small sample sizes
• no imputed rent (money saved by living in ones
  own accommodation or without paying rent)
• no mortgage repayments
• no wealth

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
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PENSIONS ADEQUACY
?
Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
Source Eurostat, ECHP
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PENSIONS ADEQUACY
?
Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
Source Eurostat, ECHP
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PENSIONS ADEQUACY
Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
?
Source Eurostat, ECHP
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FUTURE ADEQUACY

• Current adequacy varies among Member States
• Minimum pension guarantees to protect against
  poverty in old age
• Replacement ratios from 1st pillar schemes
  expected to fall in many Member States
• but income of older peoples households also
  depends on
• higher pensions for women due to higher female
  employment rates
• supplementary pensions
• career lengths (working longer leads to higher
  pensions)
• wealth

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
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FINANCIAL SUSTAINABILITY OF PENSIONS SYSTEMS
Common objectives

• Raise employment levels
• Extend working lives
• Make pension systems sustainable in a context of
  sound public finances
• Adjust benefit and contributions in a balanced
  way
• Ensure that private pension provision is adequate
  and financially sound

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
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EMPLOYMENT RATES AND THE LISBON AND STOCKHOLM
TARGETS (2001)
Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
Source EU-LFS, EUROSTAT
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ECONOMIC POLICY CO-ORDINATION

• Broad Economic Policy Guidelines (BEPGs)
• Multilateral surveillance of implementation
• Cardiff reports by Member States
• Stability and Growth Pact (SGP)
• Stability / convergence programmes by Member
  States
• Assessment of programmes (Commission)
• ECOFIN Council opinions

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
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EPC PROJECTIONS USAGE AND COVERAGE

• Made by the Ageing Working Group of the Economic
  Policy Committee
• Covers several age-related expenditure items
• Main purpose of EPC projections is to feed into
  the assessment of the sustainability of public
  finances as part of the Stability and Growth Pact
  and the Broad Economic Policy Guidelines
• Contribution to the assessment of the
  sustainability of public pension schemes in the
  Open Method of Coordination

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
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EPC APPROACH TO PENSION PROJECTIONS

• Common demographic scenario by EUROSTAT
• Agreement on macroeconomic assumptions
• Member States use their own models based on a no
  policy change scenario
• Peer review by the Commission and Ageing Working
  Group

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
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NEXT ROUND OF PENSION PROJECTIONS
Eurostat demographic scenario ready in mid-2004
for EU-25
Based on common assumptions and methodology
agreed in Ageing Working Group, new projections
on age-related (including pensions) expenditure
to be finalised by mid-2005
Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
Compatible with timetable for submission of
National Strategy Reports in 2005
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MODERNISATION OF PENSION SYSTEMS

• Ensure compatibility with labour market
  flexibility and mobility
• Access and portability
• Abolish gender discrimination
• Monitor pension outcomes for women and men
• Increase transparency and predictability of
  pension systems and their capacity to adapt to
  changing circumstances
• Aggregate information
• Adaptability and adjustment mechanisms
• Information to individuals

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination
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ASSESSING MODERNISATION

• Mostly qualitative assessment
• Quantitative assessment of gender impact in
  relation to adequacy
• Exchange of good practice particularly useful in
  relation to modernisation
• Special studies to be conducted

Promoting Adequate and Sustainable Pensions in
the EU The Open Method of Coordination