ACCA: Pensions reform in the EU - striking the right balance for the overall financial well-being of 21st century society
18 November 2010
Employers should be encouraged to offer collective schemes. ACCA’s preferred option is however not obligatory introduction of measures guaranteeing benefits in full on employer insolvency, since they would impose potentially enormous liabilities on states.
The global accountancy body welcomes the EU Commission’s ongoing initiative to undertake a wide-ranging analysis of the nature of the pension challenges which face Europe, arguing that these challenges are inextricably linked to issues in the wider economy and wider society. "We need a joined-up, strategic approach at government level which takes into account all the relevant dynamics and tries to forge a pragmatic way forward. This pragmatic approach needs to involve communicating the message to all concerned, including individual citizens, that pension provision can no longer be taken for granted and needs to be planned and financed," John Davies, ACCA 's Head of Technical says. ACCA supports fully the proposed EU approach to link the three elements of the strategy agreed at the 2001 Stockholm Council, namely to reduce public debt, raise employment rates and productivity and reform pension, health care and long-term care systems.
John Davies adds: "It is clear that some Member States' budget deficits are unsustainable in the long term. If they continue, they will make it increasingly difficult to pay for pensions. Also, the ability of any pension scheme, whether private or public, to fund retirement benefits will depend to a great extent on the participation of its citizens in the workforce: it is only by generating an income for themselves that will they be in a position to pay contributions into the system."
The welfare burden is a cause for concern. The EU's high unemployment rates, especially amongst young people which now exceeds 40% in some EU countries, exacerbates the long-term financial pressures on governments, and increases the prospect of pensioner poverty in the future.
John Davies continues: "As long as we have very high levels of youth unemployment, the individuals concerned will not be contributing to the financing of their own or other people's pensions. On the societal level, this situation also risks causing long-term problems for social cohesion and for public support for the funding of state pensions. Key to the EU strategy on pensions must therefore be to address this problem and to interlink the pensions strategy with efforts to create jobs"
"It is also essential that all unjustifiable legal and practical barriers to the participation of older workers in the workforce are dismantled, otherwise those workers will be forced to rely on state welfare benefits where those are available," continues John Davies. " Statutory intervention should not be the only means for ensuring it since it is not always the most effective. There is a big role here for voluntary action. Employers should also be encouraged - rather than obliged - to make reasonable adjustments to premises or working practices to cater for the needs of older worker and to value their participation," he adds.
ACCA is aware that this process will necessitate a certain degree of cultural and attitude change on the part of employers and their younger workforces, but that efforts should concentrate on persuading employers of the business case for that change.
Importantly, ACCA believes it is vital that people are suitably reassured about the safety and security of the assets held by their pension fund and that their benefits, in due course, will in fact be paid. "We need to address gaps in regulatory protections, especially in the case of pension providers operating across-border. However, any additional regulation of schemes must be very careful not to add to the disincentives which already exist for employers, and on the contrary, should strive to encourage the continuing involvement of employers in in the framework of supplementary pension provision," warned John Davies. Confidence could also be engendered through risk sharing, the global accountancy body argues.
"Employers should be encouraged to offer collective schemes. These have great potential for lowering scheme costs. Legal guarantees for supplementary pension benefits where an employer has become insolvent could also play a vital role. ACCA’s preferred option is however not obligatory introduction of measures guaranteeing benefits in full on employer insolvency since they would impose potentially enormous liabilities on states," concludes John Davies.
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