CEA outlined the main issues that need to be addressed by policymakers such as the recognition of the differences between “Pay-as-you-go” systems and funded pension systems or to encourage long-term funded pension savings through fiscal incentives.
Pension issues to be addressed by policymakers:
· Secure pensions first — in the interest of the consumer: security is an indispensable element of reliable pensions. Following the banking crisis and due to the tremendous challenges from ageing populations in Europe, the provision of secure pension benefits is of critical importance to citizens. With new regulatory regime Solvency II coming into force in 2012, insurers will be subject to state of the art prudential requirements. The EC needs to ensure that appropriately rigorous and risk-based solvency rules are applied to all pension providers3. Consumers need a level regulatory playing field to ensure that all their pensions are adequately protected.
· Recognise the differences between PAYG (Pays as you go) and funded pension: With PAYG or state pension systems (unfunded pensions) currently active people pay pension contributions that are immediately used to finance the pension benefits of retired citizens. With funded pensions, every generation is responsible for achieving its ratio between pension contributions and benefits.
· Build on the strengths of national pension distribution systems: the way EU member states organise funded pensions has important implications for the structure of national pension distribution systems. In the ongoing debate on the forthcoming legislation of selling practices, in the context of the packaged retail investment products (PRIPs) initiative, it is important to recognise the different structures of national pension systems. Any new selling practices legislation should therefore not destabilise national pension distribution systems as it would risk excluding certain customer groups in certain EU member states from providing for their retirement.
· Develop a relative indicator for risk diversification within national: the Open Method of Coordination in the field of pensions should be complemented by the development of a relative indicator to encourage EU member states to achieve better risk diversification within the national pension systems. This indicator could be used to formulate diversification target rate objectives.
· Encourage long-term funded pension savings through fiscal incentives: within the framework of the Open Method of Coordination, national governments should be encouraged to maintain or increase effective fiscal incentives to promote long-term funded retirement savings. Consumers need to be informed about and understand the value of the tax relief available to assist them in their long-term pension goals.
· Empower individuals — financial education related to retirement provision: The insurance industry is an initiator of a number of initiatives aimed at improving citizens’ financial literacy. The Commission can add real value by organising and coordinating best practice and an exchange of information between EU member states on effective financial literacy initiatives. The CEA supports the EC’s request to member states to include financial education as a compulsory component in school education curricula5 and sufficient attention should be given to pensions issues. As a useful next step and stocktaking exercise, the CEA would welcome the inclusion of a financial/ pension literacy module in the next OECD programme for international student assessment (PISA) test.
© CEA - Comité Européen des Assurances
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