EFR: Report on a Single European Market for Pensions

27 June 2002

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The European Financial Services Round Table (EFR) has today published a new report on the benefits of a single European market for pensions and how a single market can be achieved. The report demonstrates that the completion of the single market for pensions in Europe would create substantial benefits for consumers across Europe, and for economic growth. The EFR report also alerts politicians that most people remain blissfully unaware of the danger to their futures posed by the gap between what they expect to receive in retirement and what state pension systems in Europe currently expect to afford.

The report was commissioned by the EFR, the group comprised of chairmen and chief executives from leading banks and insurers in Europe. Pehr Gyllenhammar, chairman of the EFR, says: “If the EU and its member states fail to act rapidly and to prioritise change, they risk wrecking Europe’s proudly and painstakingly achieved social models by failing the pensions’ expectations of millions of Europeans.”

The report identifies the importance of closer integration of the European pensions market in encouraging more private provision. Pehr Gyllenhammar continues: “The European Commission argues in favour of more private pension provision. To help bring this about, Europe’s politicians must create a single market in pensions that will increase consumer choice, reduce costs, encourage take-up of private pensions and go some way to averting the pensions disaster Europe is facing.”

In addition, the report identifies benefits to European citizens’ freedom of movement by closer integration of the pensions market. The patchwork of national pensions systems imposes unacceptable barriers, and often severe taxation costs, when people seek to change where they work or live.

The report’s recommendations include measures to improve the taxation situation across Europe, mobility, security and transparency. Specific proposals include:

all member states to work towards taxation on an EET model, where contributions are Exempt (E); where funds are Exempt (E) during the accumulation stage; and where proceeds of pension funds are Taxed (T) during the consumption stage;

no discriminatory tax penalties on investing in or consuming pension savings in other EU member states;

a requirement that all new EU member states put in place a taxation system for pensions compatible with an EU-wide system;

the ability of a pension holder to change jobs, country of employment or country of residence or retirement on fair terms, without penalty;

no legal barrier to employees remaining in scheme membership even though they move to a different member state, whilst still employed by the same company;

the assurance that a fund will be properly managed and that sums contributed will be safeguarded;

full, frank and easily understood disclosure of the terms and provisions of a pension scheme or plan;

full, timely, accurate and user-friendly statement of the projected pension income.

The report argues that these and the other measures recommended in the report would bring significant benefits to individuals through greater choice, better information, reduced costs and improved portability; to member states through increased participation in private pensions and reduced dependence on state systems; and to employers through easier administration, greater flexibility, increased staff mobility and higher benefits at the same costs.

“The benefits of an integrated pensions market in Europe are clear,” says Pehr Gyllenhammar. “And the initiatives that need to be taken to create a more integrated pensions market and encourage greater take-up of private pension schemes are achievable. What is needed is political will and we call on politicians at European and national levels to take the initiative now before Europe’s pension nightmare comes true.”

EFR: Report on a Single European Market for Pensions

© EFR - European Financial Services Round Table