Sustaining Pension Systems. Robbing Peter to Pay Paul? Theo Langejan, Chairman of the Social Protection Committee of the European Union

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1 Sustaining Pension Systems and Ensuring Adequacy: Is it Robbing Peter to Pay Paul? Theo Langejan, Chairman of the Social Protection Committee of the European Union

2 EU-Level Cooperation on Pensions: A New Development Similar challenges opportunities for mutual learning Successes or failures in one country can affect others (common currency, pension rights of migrant workers) Common values regarding social protection of older people in spite of diverse pension systems

3 A Comprehensive Approach to the Challenge of Ageing Social and financial aspects cannot be separated: We need to avoid poverty among the elderly but future adequacy cannot be achieved through public borrowing Policy strategies that reconcile adequacy and sustainability are needed More employment longer working lives Sound public finances

4 Common objectives on pensions Adequacy (meeting the social objectives) Financial Sustainability (making sure that we can afford it) Modernisation (adapting to changing needs)

5 Common objectives (I) Adequate Ensure a decent living standard so as to Pensions prevent poverty and social exclusion in old age; allow the elderly to share in the economic well-being of their country and to participate in public, social and cultural life Provide access to appropriate pension arrangements necessary to maintain one s living standard Promote solidarity between and within generations

6 Common objectives (II) Financial Sustainability Employment Sound Public Finances Pension Systems Achieve a high level of employment Offer effective incentives for labour market participation of older workers Ensure sustainability of public finances Strike a fair balance between the active and the retired Ensure the financial sustainability of private pension schemes

7 Common objectives (III) Modernisation of pension systems Ensure compatibility with labour market flexibility and mobility Abolish sex discrimination Increase transparency and predictability of pension systems and their capacity to adapt to changing circumstances

8 Redistribution: Is it the Main Purpose of Pension Systems? Most people are economically self-sufficient sufficient but incomes earned between 20 and 60 need to last until 80 and beyond Pension schemes combine savings and insurance functions invalidity risk longevity risk risk of losing the main income provider in the household

9 Why States are Important in Pension Provision Pension schemes operate in historic timeframes Pension provision has to be mandatory to ensure that people acquire sufficient pension rights Public pensions are cheap to provide

10 Pay-as as-you-go: Who Pays Really? History matters: Pay-as as-you-go is a fair way of sharing resources in a growing economy No gift to the first pensioner generation as it replaces older forms of solidarity But is it financially sound in an ageing society?

11 Coping With Ageing Two aspects of ageing: the baby-boom boom cohort effect and rising life expectancy Pension schemes pay-as as-you-go or funded share current resources between the active and the retired

12 Increasing Longevity: Enabling People to Adapt How important is more leisure after 60 or 65? More choices for individuals: make more provision for old age retire later But choice only works if there are realy opportunities (health status, skills,, jobs) Solidarity will remain important, but it won't be robbery!