A new study released by the European Commission today confirms the trend towards more private pension provision in the EU but highlights the need for inclusive coverage and adequate pension levels.

A new study released by the European Commission today confirms the trend towards more private pension provision in the EU but highlights the need for inclusive coverage and adequate pension levels. The study identifies large variations in coverage and contribution levels between EU countries, reflecting the diversity of schemes in place. The analysis aims to help EU countries learn from different national experiences under the 'open method of coordination' – the EU's system of common objectives, reporting and exchange of best practice. The release of the study coincides with a major conference, taking place in Brussels today, on how to make European pensions adequate and sustainable.

Social Affairs Commissioner, Vladimír Špidla, said: “We need to adapt Europe's pension systems to new demographic and labour market realities and make them adequate and sustainable. Privately funded schemes clearly have a major role to play in helping provide retirement incomes for the future. But we need to ensure better access for all.” He added: “We need to continue to consider whether a better legal framework is needed to ensure that workers get the best pensions.”

 

Today's report confirms the trend towards an increased role for privately funded pension provision in EU countries and the importance of analysing its impact on future pension levels. Depending on their role within the overall system, low coverage in supplementary pensions (together with breaks in contributions) can become a cause of concern for future pension levels, in particular for those most at risk (women, the young, lower educated, low-paid).

 

Other key findings include:

• the increasing shift of risks (employment, longevity and financial risks) from the pension provider (employer or State) to the individual means there is a need for better financial education;
• the greater link between a person's actual pension contributions and eventual pension benefits means that the impact of career breaks on pension levels needs careful consideration;
• it is vital to avoid rules which allow pension savings to be accessed too early or used up too quickly if pension levels are to remain adequate throughout retirement;
• management charges for private provision make a big difference to eventual pension benefits (for instance a 1% annual charge over 40 years of contributions would represent 18% of total contributions by the time of retirement). So charges need to be kept low to help make sure pensions are adequate and to encourage take-up.

On how many people are covered by the various schemes, the report finds that levels vary greatly depending on the particular Member State and the type of scheme: statutory funded, occupational or voluntary pension provision. For instance coverage of statutory funded schemes ranges between 25% (IT) and 100% (SE) with 50-70% levels typical. Coverage should approach 100% as schemes mature.

 

For occupational pension schemes, DK, NL and SE have 75% or more coverage, whilst a number have between 40% and 75% (BE, DE, IE, CY, UK) with most (IT, AT, FR, ES, FI, LU, PT, PL) having coverage below 20%.

 

Voluntary provision generally has low coverage of just a few percent, though it is more significant in some Member States (45% in CZ, lower levels in DE, UK, IE).The above findings are set out in more detail in the Commission's study:

“Privately managed pension provision and its contribution to adequate and sustainable pensions.”