| Author (Person) | Chapman, Peter |
|---|---|
| Series Title | European Voice |
| Series Details | Vol.10, No.18, 20.5.04 |
| Publication Date | 20/05/2004 |
| Content Type | News |
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By Peter Chapman Date: 20/055/04 IF YOUR 40-year old co-worker hasn't got his or her own private retirement plan sorted out by now, there are two words guaranteed to send a chill down their spine, followed by denial. Try it: "State pension." Mention the same phrase to many of the pre-enlargement EU's finance ministers and the response will be similar. The reasons for the sweaty palms are well-documented: falling birth rates and longer life expectancy are taking their collective toll on the EU's public sector. In the past, there were always enough workers in the job market paying taxes to allow member state governments to pass on funds to the older generation who, in countries such as Germany, Italy and Spain, enjoyed a very nice retirement. But these lavish 'unfunded' or 'pay-as-you-go' retirement provisions are now distinctly unaffordable for all governments - not least those running budget deficits on or around the 3% of national income boundary of the EU's Stability and Growth Pact. And a glance at the data (see table) reveals an even more frightening situation in the Union's ten newest members, where fewer than two people must work, very hard no doubt, to provide one pensioner with a frugal amount by Western standards. Experts say the average pay-as-you- go pension in the new member states is around 45% of average net salary, compared to, say, 70-90% in the richer countries. Add in a few demographics and mix with a little bit of chronic unemployment and the end result could be a nightmare for anyone planning to retire on a state pension in Warsaw, Prague or Bratislava in, say, 15 or 20 years' time. Workers in the ten new member states are already poor compared to their compatriots in the 'old' 15. The risk is that they will be even poorer when they retire. But they might not be. While their counterparts in the 'old EU' have struggled to push through pension reforms to tackle the problem once and for all, rather than tinkering at the edges, governments in the 'new EU' have cheerfully gone about their business. Countries such as Poland, Hungary and the Czech Republic have led the way, says Pieter Van Meeuwen, head of continental European operations at Aon Consulting, which advises multinationals on pensions. "In France, with merely an idea of a real proposal from a politician, there is a strike and, in Germany, politicians dance around it," adds Van Meeuwen. The new member states' secret for a more sustainable pensions system is to nurture 'second pillar' occupational schemes, paid for by employees, sometimes with a little help from their companies and the government, in the form of tax relief. It isn't rocket science. The idea was pioneered decades ago in free-market Chile. And EU countries with relatively low state provision, or 'first pillar' pensions, such as the UK and Holland, have had 'fully-funded' second-pillar sectors for years. As a consequence, Van Meeuwen argues, they are relatively well placed to cope with the pension panic ahead in countries such as Italy, which has one of the Western world's lowest birth rates (not to mention the highest ratios of sons who live at home with mama and papa). "Poland has initiated one [second pillar scheme], the Czech Republic has done the same and so has Hungary," says Van Meeuwen, whose company sourced the information for the table on this page. The schemes vary. Hungary, for example, has paved the way with a system that is partly mandatory and partly voluntary. But, mostly, he says, the new member states are of the 'defined contribution' type - which merely take a set amount per week - and make no promise about the value of final pension nest eggs. Slovakia, which is bottom of the workers-per-pensioner league, plans to follow suit later this year, although well-off Slovenia has been slower to act. A positive byproduct of the frenetic pension investing is the extra liquidity it gives local markets - thanks to the billions of euro being set aside by local workers. The entry into force next year of a new EU pensions directive will do more to bolster the sector, loosening rules which currently demand a large proportion of investment in local assets. However, the new law is expected to mean more lucrative financial services sector jobs, as foreign pension fund managers and analysts move in. It will take a while. But the end result, say the experts, could make the gloomy statistics largely irrelevant - like those 'state pensions'. . . Running the pension pot dry? The ratio of workers compared to pensioners across the EU-25 Country Ratio of working to retired
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| Source Link | http://www.european-voice.com/ |
| Subject Categories | Employment and Social Affairs |
