Commission report on role of private pensions

20 October 2008

The study identifies large variations in coverage and contribution levels between EU countries, reflecting the diversity of schemes in place. It confirms the trend towards an increased role for privately funded pension provision in EU countries.

The Commission study identifies large variations in coverage and contribution levels between EU countries, reflecting the diversity of schemes in place.

 

The 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 can become a cause of concern for future pension levels, in particular for those most at risk.

 

The report concludes that

• the appropriate coverage and contribution levels of private schemes depend on their role in the overall pension system.
• voluntary schemes encouraged by favourable tax treatment are generally not likely to be effective in increasing savings levels for the whole population.
• charges can represent significant costs and as such significantly reduce pension levels, acting particularly negatively on lower incomes in certain circumstances. In a context of low transparency, voluntary choice and information disclosure alone is unlikely to deliver low costs.
• rates of returns tend to fluctuate significantly over time, posing significant risks. In this context, well-functioning financial supervisory bodies and effective financial regulatory frameworks are essential.
• the current design of the pay-out phase of different funded schemes is insufficient for ensuring future adequacy and further steps have to be taken, to protect against longevity, inflation and survivorship risks.
• the impact of career breaks on adequacy can be significant. Shifting risks from the State to private institutions and individuals may look financially sound, but problems can arise with the future adequacy, guaranteeing of which may once again be on the shoulders of the State. There is a need for better financial education.

 

Press release

Executive summary

Full study

 

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