Challenges Facing the European Pension .1 European Economic and Social Committee Challenges Facing

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  • 1European Economic and Social Committee

    ChallengesFacing

    the EuropeanPension Systems

    Krzysztof Pater

    2

    Dramatic DemographicChanges

    low fertility rates

    increases in life expectancy

    retirement of the baby-boom generation

    European Economic and Social Committee

  • 3

    European Populationin 2008 and 2060

    European Economic and Social Committee

    Source: Commission services

    4

    Pension Reformsare Challenging

    citizens dont accept or fully understand changes

    tendency to postpone reforms, to leave problems for the next government(s) and generations

    European Economic and Social Committee

  • 5

    Need for Pension Reforms

    more years in retirement decreasing ratio of

    people of working age to people of retirement age

    increase in pension schemes duration

    European Economic and Social Committee

    6

    Key Questions

    European Economic and Social Committee

    How to ...

    ... divide increases in longevity into work and leisure?

    ... share the costs of longer lives between and within generations?

    ... achieve balance between the number of working and

    retirement years?

  • 7

    Objectives forEU Pension Systems

    European Economic and Social Committee

    adequate retirement incomes

    reforms on the basis of consensus

    financial sustainability

    transparency

    8

    Major Trends in Reforms

    hybrid designs

    self-balancing

    mechanisms between

    liabilities and revenues

    European Economic and Social Committee

  • 9

    Most Popular Changesin the Pension Systems

    contribution period: change from best years to average life-time earnings

    extended qualifying period for a minimum pension

    equal pension age for women and men increased pensionable age strengthened bonus-malus system

    European Economic and Social Committee

    10

    Pre-funding as Policy Response to the Demographic Challenge

    new defined-contribution (DC) schemes

    expansion of existing occupational schemes

    reserve funds paying down of national debt

    European Economic and Social Committee

  • 11

    Increasing Roleof Funded Schemes

    European Economic and Social Committee

    Share of occupational and statutory

    funded pensions in total

    gross replacement rates in 2006 and 2046 in

    selected Member States

    12European Economic and Social Committee

    Valorisation and Indexation

    Variable valorisation indexationWages

    Prices and wages Prices

    Discretionary Progressive

  • 13

    Labour MarketParticipation Rates

    male workers (aged 25 to 54 years) - at around 90%

    men aged 55 to 64 years declined in the past decades, now there are signs of reversal

    women - increased over the past 25 years young people (aged 15 to 24 years) -

    declined

    European Economic and Social Committee

    14

    Changes in Theoretical Replacement Rates

    European Economic and Social Committee

  • 15

    Pension Reforms Impacton Labour Market Performance

    European Economic and Social Committee

    0

    5

    10

    15

    20

    25

    SE EE PT LT BE DK FR ES UK FI SI

    EU

    15

    EU

    27 EA

    EA

    12

    EU

    25 HU AT DE

    EU

    10 PL SK MT IT CZ

    15-64 15-71 55-64

    Estimated impact of pension reform on participation rates (2060), in percentage points (comparison of projections with and without

    incorporating recent pension reforms)

    16

    Changes inPublic Pensions / GDP Ratio

    European Economic and Social Committee

    PLEE

    ITHULVSE

    DKATFR

    PTDEEU27UKEA16BGCZFISK

    NLLTIENOBE

    MTES

    SIRO

    CYEL

    LU

    -8 -6 -4 -2 0 2 4 6 8 10 12 14 16Social Security Pension /GDP

  • 17

    Impact of Career Breakson Pension Benefits

    European Economic and Social Committee

    Accumulated difference in net

    theoretical replacement rates for an

    average earner entering the

    labour market at 25 and retiring at

    the statutory retirement age with a 1, 2 or 3

    year career break due to

    unemployment compared with no

    break

    18

    Conclusions

    European Economic and Social Committee

    1) Pension reforms are still needed.

    2) The crisis lesson must be taken into account.

    3) Pension systems must be based on synergies between various policies.

  • 19European Economic and Social Committee

    Thank You for Your Attention

    Krzysztof Pater

    kpater@gazeta.pl