Assuring the viability and quality of pensions in Europe

Brussels, 13-14 June 2001

The debate on the future of pensions at European level

1. The future of pensions, and more particularly the viability of pension schemes and the reforms that need to be implemented, is a subject that is increasingly debated. More particularly, the Economic Policy Committee (EPC) has produced a certain number of simulations that highlight the irreversible nature of the ageing population and its impact on public finances. Although these simulations have been widely covered by the media, the ETUC wishes to make a certain number of observations. First of all, we should not lose sight of the fact that they are only projections and not forecasts, which means that by nature, while they are certainly informative, they are relative. They are also very much open to criticism. In fact, they reflect a situation - apart from the employment and productivity growth data - which can be described as “all other things being equal”. For example, the possible impact of new technologies on productivity is not taken into account. In addition, 50 years is a long period and we do not have a crystal ball. Another European committee, the Social Protection Committee which is an advisory body of the “Social Affairs and Employment Committee”, is also examining the subject of the future of pensions and the reforms to be implemented. The ETUC position is to be considered in particular in the context of the work of that committee whose responsibility it is to study the long-term future of social protection, beginning with Pensions.

Assuring the viability of public pension schemes}}

2. The ETUC considers that assuring the viability and quality of pensions means, first of all, guaranteeing and improving public pension schemes, which are principally financed using the pay-as-you-go technique, which is based on the principles of equity and solidarity within and between generations to which the ETUC attaches particular importance.

The impact of the ageing population on pension schemes

3. The ETUC does not ignore the impact of the ageing population on the financing of pension schemes both public and funded ones. However, the ETUC believes that it would be a mistake and over-simplistic to base any reforms solely on the financial consequences of the ageing population. The approach adopted must not disregard the social policy objectives which pension schemes reflect and must continue to reflect.

Other factors such as changes in the world of work and family models must also be taken into consideration in the debate and in the reforms to be implemented.

Guaranteeing a high level of quality employment}}

4. In order to ensure the sustainability of pensions, the ETUC supports the objective of full employment, as defined at the Lisbon European Council - that is to say 70% of the active population and 60% for women - as well as increased productivity and economic growth. That approach, provided that the increase in employment is not accompanied by increased job insecurity, is a step towards providing a solution to the problem of financing future pensions.

5. However, a high level of employment is not guaranteed in advance and supposes that more women will work. Therefore, for the ETUC, it is essential that, in addition to employment-related measures, such as the development of child-minding facilities, care facilities for dependent persons and paid parental leave, pension rights should be guaranteed during periods of care.
Likewise, as the knowledge-based economy requires lifelong vocational training, workers must be able to preserve their pension rights during such training periods. Just like the periods of unemployment are taken into account to have the right to a Pension, the need to safeguard rights, related to career breaks, falls within the scope of social protection and we reiterate our conviction that any reforms must take it into consideration.

Combating the exclusion of older workers from the labour market

6. Guaranteeing a high level of quality employment also supposes, for the ETUC, that older workers (between 50 and the legal retirement age) can pursue their professional career. However, the ETUC notes that, at the present time, they are the most affected in terms of exclusion from the labour market.

In order to avoid older workers being systematically excluded from the labour market, the ETUC calls for a different approach to managing human resources, by introducing provisions taking into account the needs of those workers. This could include progressively reducing working hours, allowing people to work on a three-quarters time, two-thirds time or part-time basis. The ETUC calls for the principle of progressive retirement to be introduced at European level through legislation, and/or by means of an agreement between the social partners, to be subsequently implemented at national and sectoral levels.

Those ‘progressive retirement' measures must also be introduced in a flexible way. This means for example that the age of the beneficiaries can vary according to their working conditions. Likewise, thought should be given to the means of financing these measures (in certain countries, they are financed by unemployment benefits). However, in any event, in terms of financing pensions, the induced cost will be lower than the practice of exclusion.

However, the ETUC believes that early retirement provisions must remain in place for certain categories of workers, notably depending on working conditions and in certain situations, following redundancies and restructuring.

For the ETUC, an employment policy which takes into account the situation of older workers, implies reflecting on new ways of organising work in companies, facilitating flexible formulas progressively leading to retirement, reducing stress, improving working conditions and promoting anti-discriminatory practices with regard to recruitment and vocational training. In no circumstances can extending the legal age be considered as a solution to the problem of funding pensions.

Co-ordinating macro-economic policies

7. The viability of pension schemes requires the co-ordination at European and national levels of macro-economic employment, social protection and fiscal policies. Pension reforms must be seen in the context of employment, economy, fiscality and social protection.

So, for the ETUC, it is necessary to find additional sources of taxation, other than those based on earned income, in order to finance public schemes. It goes without saying that this requires fiscal co-ordination at European level to curb the erosion.

8. Other elements must be taken into account in discussions on financing pension schemes, such as the role of public finances, the reduction of debt and the interest burden, the reduction of unemployment benefits and family allowances, the shift from derived rights to direct rights, but also the preservation of pension rights during career breaks (care and vocational training), progressive retirement. Nor must we lose sight of the impact of the various measures to reduce employers' social security contributions as well as tax exemptions related to occupational pensions and the individualisation of saving. The creation of demographic reserve funds is another measure which could be envisaged.

9. In order to respond to the objectives of equity and solidarity, it is essential that pensions are linked to the evolution of prices and salaries.
For the same reasons, it is indispensable to establish at national level, but in all the Member States, a minimum pension, which in accordance with the indexation of prices and salaries must be regularly readjusted.

Occupational pension schemes accessible to everyone

10. The democratisation of occupational pension schemes, that is to say the access of all workers, is an indispensable condition for the introduction and/or preservation of occupational pensions schemes. In addition, a European or national regulatory framework must stipulate that these schemes will be the result of agreements negotiated at the appropriate level and that the social partners must be involved in the strategic choices of the pension funds set up and in controlling them.
It is pointless to introduce and preserve occupational retirement schemes if, at the same time, they do not guaranteed to take into account the rights in the case of the mobility of workers. That is why the ETUC reiterates its demand for a regulatory framework in this area. This signifies that we must guarantee the acquisition, the maintaining and the transferability of the rights of the workers concerned, the possibility of cross-border affiliation, the abolition of vesting periods required before the definitive acquisition of the rights to a pension, the re-evaluation of the paid pensions and of life annuity.

11. During the open co-ordination at European level, the ETUC will attach great importance to the indicators, concerning inter alia differences in income between pensioners, men and women, distinguishing the different component parts of income (public, occupational), the amount of benefits paid to atypical workers, the minimum pension amount as well as the percentage of workers having access to occupational retirement schemes and the preservation of rights during career breaks. These indicators contribute to clarify, at European level, the objectives of social convergence that the ETUC claims in the area of Social Protection.

12. In conclusion, the ETUC believes that in any reforms implemented, the quality of pension schemes can only be assured when they satisfy the following objectives of equity and solidarity:

- to provide retired people with a guaranteed income which replaces that which they received during their working life, taking account of their standard of living, as well as the standard of living of the population;
- to reduce differences in income, related to different pension benefits between pensioners, men and women;
- with atypical jobs, notably part-time workers;
- to preserve pension rights during career breaks.