Generation The future of the Pension Scheme of EU Officials

Transcription

1 Generation 2004 The future of the Pension Scheme of EU Officials 1

2 Budget persp. Cashflow (1) Pension contributions taken off our salaries each month are an income for the EU budget, for the year when they are paid. "Transfers-in" of national pension rights are also an income for the EU budget. Pensions paid to retired staff each month are an expense for the EU budget for the year when they are paid. 2

3 Billions Budget persp. Cashflow (2) pension expenditure staff contribution to pensions

4 Budget persp. Cashflow (3) Average cost of pension currently ~ 70k/year (and will remain high for the next decade Camel back distribution of salaries ). Number of pensioners rapidly increasing. Salaries stagnating and even decreasing. Number of active staff decreasing. 4

5 Budget persp. Cashflow (4) 80% pension expenditure/ salaries of fonctionnaires + TA (heading 5) 70% 60% 50% 40% 30% 20% 10% 0% (Assuming stagnating salaries: optimistic assumption because of "camel back") 5

6 Budget persp. The stock (1) When staff save 1 for future pensions, MS are supposed to save 2. In practice, MS spend the money saved by staff during the same year (EU budget) and do not save any money on their side. As a counterpart, MS promise to pay future pensions ("notional" fund VIRTUAL). 6

7 Budget persp. The stock (2) Pension liability as of 1 Jan 2013 (amount that should have been saved in order to have a fully funded pension scheme): 40 billion 90% of this liability is owed to pre-2004 staff. 7

8 Collective Pension scheme (1) On average, staff contributes 1/3. Indivually, pre-2004 staff contribute less than 1/3, post-2004 more than 1/3 and post-2014 much more than 1/3 (retirement age, accrual rate ranging from 2% to 1.8%, etc.). Remember the early retirement scheme with no pension reduction, at the age of 55? Newcomers will retire at the age of 66. 8

9 Collective Pension scheme (2) Impact of 2004 reform on pensions estimated by ESTAT: ~ -30% pension rights (larger than impact of 2004 reform on salaries). 25 billion saved over the next 50 years. Impact of 2014 reform not yet quantified. ESTAT graph 9

10 Collective Pension scheme (3) Staff contributions to the pension scheme decreased last year from 11.6% down to 10.6% of salary. Explanation: reduced accumulation of pension rights for newcomers/young staff smaller collective contribution of staff. Reduced contribution rate benefitted more the high salaries (AD14 saved ~ 100/month, GFI saved ~17 /month). 10

11 Collective Pension scheme (4) MS collectively guarantee payment of pensions. Poland paid ~ 250 million between through its contribution to EU budget. Virtually no pension paid to Polish citizen during that period. Over the years, PL will pay ~ 3% (assuming constant GNI) of the 90% liability owed to pre officials (i.e. ~ 1 billion). 11

12 CA/TA (1) Pension scheme designed in the 1950/1960s Intended for permanent "fonctionnaires". Change contract in EU institutions: loose seniority in the scheme (e.g. accrual rate of 1.8%/yr like any new recruit). Problem of former TAs recruited as CAs in Agencies or as AST1/AD5 officials in the institutions: contributed too much to the pension scheme. 12

13 CA/TA (2) If work less than 10 yr for EU, can transfer out to private scheme. But under stringent conditions ("reversion", no possibility to touch the pension capital, no pension before the age of 60). Several MS have no private scheme in place to carry out transfers out (e.g. FR). 13

14 CA/TA (3) After 10 yr in service, transfer out of pension rights possible only if you find another job (what happens if you do not find a job after termination of your contract?). Conditions for transfer out not transparent (what one gets in exchange for capital transferred out unknown until transfer out is carried out). 14

15 CA/TA (4) In countries with an "annuity" pension scheme (e.g. FR), risk that no additional pension rights can be collected after leaving the EU institutions (not enough "annuities" to get a national pension). Radio-silence on this issue from DG HR/PMO so far. 15

16 Transfers in 1 st step: Transfer in a capital. 2 nd step: Convert capital into seniority in pension scheme of EU officials via conversion coefficient. New coefficient introduced on 1 Jan 2009 about - 30% in terms of seniority for the same capital (i.e. someone who would have got 3 years on 31 Dec 2008 got 2 years on 1 Jan 2009 for the same transferred capital. Is is still worth it to transfer in? 16

17 MS proposals in 2013 (1) Calculation of pensions according to the average wage during entire career Disaster for post-2004 colleagues. Accrual rate of 1.75% (option 1) and 1.5% (option 2) Disaster for young colleagues. Annual pension adjustment disconnected from annual salary adjustment disaster for young colleagues. + Slow down/cap carreers at AD9 smaller pensions. 17

18 MS proposals in 2013 (2) Staff contribution of 40% (option 1) and 50% (option 2), which is in line with actual practice and with trends in other relevant international organisations One could argue that this option is already in place for post Pension age = 67 yr. Pensions subject to special levy. 18

19 2012 Commission report on pensions Possible creation of an actual pension fund. 4 possibilities [or scenarios] Scenario n 1: Transfer of the value of the notional fund to the actual fund. unrealistic (where to find the 40b?) Scenario n 2: Newly recruited staff would be covered by the real pension fund, while current staff would continue to be covered by the current pension scheme. Basis for discussion? Scenario n 3: New pension rights would be covered by the real pension fund, while past pension rights would be covered by the notional fund. Basis for discussion? Scenario n 4: Real fund covering 1/3 of all newly acquired rights, i.e. contributions of the staff. Individualised scheme? 19

20 Generation 2004's proposals We do not necessarily want another reform. However, art. 113 of the 2014 SR calls for a report on the functioning of these regulations (there was no such article in the previous regulations). Revision of actuarial balance scheduled for Brexit? Grexit? How to fund a 2 nd pillar? (not all eggs in same basket). Special levy applied to pensions (consistent with applying "method" to pensions)? Transfers in put on 2 nd pillar rather than spent in EU budget? 20

21 Thank you See also more on pensions here 21