17 January 2002

Commission Paper on EU Pension Reform

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This paper on European Union (EU) pension reform provides an overview of the debate and, on the basis of a series of model simulations, makes an empirical assessment of the main pension policy reform options at the EU, not the Member State, level. It estimates what it would take to bring the public PAYG pension system back into equilibrium and assesses the case for a shift to funding. The main conclusion of this paper is that the EU pension system should in the very long run (i.e. over more than one generation) be fully funded, with this being achieved using a two-stage optimal transition path. Stage one of this transition process should concentrate on stabilising the PAYG system and achieving a partial shift to funding, with stage two only occurring once circumstances permit. The fully funded system, once established, should have public and private pillars, with the public system in effect replacing the old PAYG system with a similar compulsory, defined benefit, system and with the private pillar being a voluntary, defined contribution, system.

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