Background

The question of how to reform Europe's generous pension systems is growing in importance as Europe's population continues to age.

According to the European Commission, "as the number of pensioners in Europe rises, and the relative number of people of working age declines, further reforms are needed if adequate pensions are to remain sustainable".

As EurActiv reported, (EurActiv 27/08/08), from 2015 onwards, deaths are projected to outnumber births in the EU so that, by 2060, one in three Europeans will be aged over 65, putting a huge burden on the economy and public finances.

While pension reform is still ultimately decided at national level, the EU - through the open method of coordination – aims to support, monitor and assess the impact and implementation of national reforms.

Mandate

The office of the president of the European Commission, José Manuel Barroso, sent out an invitation in early June to eight commissioners to meet for the first time in a special group dedicated to pensions.

The group's mandate is to "focus on adequacy as well as long-term sustainability" of pensions at EU level. The group "should also explore how pension funds could be used more effectively as an important source for (long-term) investment in future growth," reads the text of the mandate, obtained by EurActiv.

Social Affairs Commissioner László Andor will chair the group, which will also feature Economic Affairs Commissioner Olli Rehn, Internal Market Commissioner Michel Barnier, Fundamental Rights Commissioner Viviane Reding and Industry Commissioner Antonio Tajani.

Green Paper on pensions

The first task of the new group will be to agree on a Green Paper on pension reform, aimed at triggering a public debate on necessary interventions. The Green Paper is due to be published by the end of June, but the group is likely to reach an agreement on the issue at a meeting this week.

In the draft paper, obtained by EurActiv, the Commission clearly underlined the need to raise the retirement age throughout Europe. Under the current scenario, Brussels stresses that people live longer and often access pensions earlier than when they turn 65. "On present trends it is clear that the situation is not tenable," reads the draft paper.

"Unless people [...] stay longer in employment, either pension adequacy is likely to suffer or an unsustainable rise in pension expenditure may occur," warns the draft document.

Brussels is also concerned by the financial adequacy of pension levels, which could turn out to be much lower than expected by workers when they retire. To tackle this risk, the Commission insists on favouring access to "supplementary pension schemes".

EU ministers and pensions

The EU Council is well aware of the issues at stake. On the side of adequacy, EU social affairs ministers agreed to act on "minimum pensions" for older people in order to prevent them from slipping below the poverty line after retiring.

Moreover, in a joint report adopted  in Luxembourg by the Social Protection Committee (SPC) and Economic Policy Committee (EPC), the 27 member states outlined their progress to date in bringing about pension reform.

The comprehensive interim report was presented to both EU finance ministers and social and employment ministers. Its key message was that member states must act now to ensure that public finances remain sustainable, while at the same time ensuring that future generations of older Europeans have adequate pension provisions.

The report emphasised that while progress had been made in some countries, the challenges "remain very real" and would require additional reform in others. It also cautioned that ongoing reforms in many places do not go far enough and "might bear considerable risks in terms of both adequacy and sustainability".

Next steps for special group on pensions

After agreeing on the Green Paper, the extraordinary group of commissioners should focus on developing "possible future scenarios for different pension systems – including their internal organisation, combining pay-as-you-go, funded schemes and private pension provisions," reads the group's mandate.

The group is also called upon to examine "areas where legal initiatives could be warranted in order to ensure that the EU adds value and that pension reforms are consistent with the Europe 2020 strategy," concludes the text.

The group's mandate will last until summer 2012. 

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