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Pensions: Commission welcomes OECD report on value of recent reforms to face future challenges

European Commission - MEMO/13/1067   28/11/2013

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European Commission

MEMO

Brussels, 28 November 2013

Pensions: Commission welcomes OECD report on value of recent reforms to face future challenges

Recent reforms of pension systems have helped to contain the rise in future cost resulting from ageing populations and increasing life expectancy. These are the findings of the new OECD report Pensions at a Glance 2013. The study presented today in Brussels confirms the European Commission's recommendations set out in the February 2012 White Paper on adequate, safe and sustainable pensions (see IP/12/140 and MEMO/12/108).

"The OECD observations confirm our analysis" said European Commissioner for Employment, Social Affairs and Inclusion, László Andor. "The recent reforms aimed at strengthening the sustainability of pension systems needs to be accompanied by changes in work places and labour markets that enable women and men to work longer. Moreover, as the pensionable age and contribution years for a full pension go up, countries must pay careful attention to those who, because of arduous work, care duties or exposure to unemployment and sickness, are unable to meet the new requirements."

Governments now need to do more to encourage people to work longer and save more for their retirement, to ensure that benefits are adequate enough to prevent poverty and maintain living standards in old age. Policy action is also needed to limit rises in inequality among retirees and to avoid pensioner poverty.

Working longer

According to the report, most OECD countries will have pensionable ages for both women and men of at least 67 years by 2050. From current levels this implies an average increase in the pensionable age of 3.5 years for men and 4.5 years for women. Recent reforms mean that most workers entering the labour market today will get lower pensions than previous generations. Working longer may compensate for some of the reductions but overall, each year of contribution will pay out less than today. People will therefore also have to save more and governments have a role to play in the promotion of cost-effective instruments for retirement savings, including workplace based schemes (so-called "second pillar") and schemes based on personal savings (so-called "third pillar" schemes).

Lower earnings

Looking at the effects of reforms on replacement rates after a full career, the OECD report notes that low earners would receive around 70% of their former earnings in pension benefits. Middle earners would receive about 54% and thus face a larger drop in their living standards. High earners would receive only about 48% but many of these would be less vulnerable due to higher personal savings, including in the form of owner occupier housing. People who do not have full contribution careers will struggle to achieve adequate retirement incomes from public pension schemes (so-called "first pillar"), and even more so in private pension schemes which commonly do not redistribute income to poorer retirees.

Inequalities

The report shows how unequally the wealth of retirees is distributed. Differences in homeownership and financial wealth exacerbate inequality in the distribution of income from pensions. Beyond the social divide there is a marked gender divide in pension income, housing and financial wealth. Women are more exposed to the risk of poverty as they start their retirement with lower pension entitlements and fewer resources, and tend to live longer.

To put the adequacy of pension incomes into context the report also examines access to public services such as health and long-term care, which can make a big difference to the actual living standards of older people as they age and become more frail.

Background

Rising longevity, declining fertility rates, and the resulting transition to a smaller working-age population present a challenge to pension achievements in all Member States. The European Commission issued a White Paper on adequate, safe and sustainable pensions in February 2012, looking at how the EU and the Member States can tackle the major challenges that confront our pension systems. The Commission provides further policy guidance to Member States on the reform of their pension systems in its yearly Country Specific Recommendations, to ensure both adequacy and sustainability of pensions in the future. The policy guidance is underpinned by analysis such as the 2012 Ageing Report on the economic and budgetary impact of an ageing population over the long-term and the Report on Pension Adequacy in the EU 2010-2050 on the adequacy dimensions of pensions.

Further information

OECD report Pension at a glance 2013

Information on the White Paper on Pensions

László Andor's website

Follow @László AndorEU on Twitter

Subscribe to the European Commission's free e-mail newsletter on employment, social affairs and inclusion


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