OVERVIEW OF THE PRIVATELY MANAGED PENSION FUNDS

SECOND AND THIRD PILLAR IN THE EU MEMBER STATES

Prof. dr. Yves Stevens

institute for social lawPresident Belgian occupational pension board

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Overview

1. Is there no three pillar model?

2. Privately managed pension funds in the EU

3. Conclusions

I.

IS THERE NO THREE PILLAR MODEL ?

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“Three pillars”

A model that does not exist

Different approachesAnglo saxon and worldbankContinental “old” EuropeA common European vision ?

Main advantage

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The three pillar pension systemThe world bank vision

1. Social secu

rity

2. Mad

atory fun

ded

system

s

3. Volu

ntary su

pp

lemen

talb

enefits

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The three pillar pension systemThe continental “old” European vision

1. Social security benefits

3. Voluntary supplementary benefits

2. Mandatory industry sector pensionsCompany sponsored benefits

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Example Bulgaria

1st PillarState social securityFlows of finance are controlled by public institutions.

2nd Pillar ObligatoryIndividual accountsFunded

3rd PillarWORLDBANK

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Example Belgium

1st PillarState social securityFlows of finance are controlled by public institutions.

2nd Pillar Occupational and work-related characterMainly voluntary character (for employer, not for employee)Flows of finance controlled by social partners or employers, outsourced to pension funds and/or financial institutions.

3rd PillarFlows of finance controlled by private institutionsPrivate individual character - voluntary individual choice to take part.

“OLD” CONTINENTAL EUROPE

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The three pillar pension systemWhat some critics say

1. Social secu

rity

2. Mad

atory fun

ded

system

s

3. Volu

ntary su

pp

lemen

talb

enefits

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The three pillar pension systemWhat some critics say

1. The social security benefits

3. Voluntary supplementary benefits

2. Mandatory industry sector pensions Company sponsored benefits

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How difficult to define ? Europe’s quilt

affiliation voluntary obligatory mixed

level national industry-wide company individual

actors

booking

coverage

fiscal

control

participation

risk/cost

finance

government

funds insurers banks

internal external mixed

overall categories individual

prudent man strict state supervision

EEE ETT ETE EET TTTTEETET ETE TTE

organising supervising managing none

indvidual employer society

repartition open – closed capitalisation mixed

organising regulating managing controling

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What exists …

An integrated pillar coordinated view on every pension system

Everything is linked to everything

II.

PRIVATELY MANAGED PENSION FUNDS

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Privately managed pension funds

Factsstrong increases in the last 10 years in Europeincreasing number of individual accountsincreasing number of DC plans with further deterioration of DB plans

Shift towards the “anglo-saxon model” ?Directive 2003/41Proposal of directive on portability

Does the World bank model prevail in the new member states ?

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Privately managed pension funds

Some examples: what happens in …FranceGermanyItalyIrelandSwedenUK…

III.

CONCLUSIONS

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Conclusions

The proportion between state and additional pensions determines the degree of solidarity of the system.

The bigger the portion of the state pension, the higher the income redistribution.

The bigger the additional component, the more the distribution follows the hierarchy of salaries.

The GDP percentage for pensions (state + additional) is almost the same everywhere in the EU, BUT the smaller the role of the state pension, the bigger the income inequality is.

On macro-economical level, all pillars constitute a whole. Save in the 1th pillar and leave the additional pensions free, is no solution. All pillars should be regarded together (including tax benefits to the third pillar).

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Conclusions

Budget and political constraints limit the possibilities for the development of the first pillar.The role of other pillars becomes more important.Pension policy is part of a global social policy including health care for the elderly, dependency, poverty exclusion measures, ...Every Euro spent in whatever pillar remains a cost that needs to be gained through the economy.Economic prosperity and growth is a prerequisite for a sound social system.