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One Europe, one pension

Last month, the European Financial Services Roundtable produced a report entitled, One Europe, One Pension – Affording the Future.

The report is only 30 pages long and can be found at the EFR&#39s website The EFR is a group of chairmen and chief executives from many of Europe&#39s biggest insurance companies and banks. It includes, for example, the chiefs of Aviva (formerly CGNU), Royal Bank of Scotland, Axa and Allianz as well as my own parent company Aegon.

I was one of the contributors to this report, which is addressed to the European Commission and member states, concerning a single European market for pensions.

The report starts by outlining the European pension crisis. An outline is all that is needed because most European decision-makers are already familiar with the demographics.

The current EU ratio of 2.6 workers for each pensioner is due to fall to only 1.4 workers for each pensioner by 2040. The European Commission already argues in favour of more private pension provision to address this and, not surprisingly, the EFR report agrees. We then go on to argue that a single market for pensions would make a considerable contribution to the solution.

Key to a single market for pensions is the differences in national taxation systems. No two are the same and we are not so idealistic as to suggest that they should be unified. But we do suggest that they should work towards taxation on the EET model, where pension contributions are Exempt (E), funds are Exempt (E) during the accumulation stage and the proceeds of pension funds are taxed (T) during the consumption (retirement) stage.

In addition, we propose that there should be no discriminatory tax penalties on investing or consuming pension savings in other EU member states and there should be a requirement that all new

EU member states put in place a taxation system on pensions compatible with an EU-wide system.

We make a number of specific recommendations to encourage greater take-up of funded pension provision. Member states should adopt rules that respect the individual&#39s right to change jobs, move to another country and change providers.

For example, at the moment, some member states allow very long vesting periods, which means that people would lose all accrued pension entitlement if they change job. You cannot transfer benefits on changing job if there are no benefits to transfer.

Also, we recommend that individuals should be provided with information updates on their prospective retirement income thereby empowering them to take steps to make sufficient provision. In the UK context, this might translate as composite benefit statements, which the Government is already pursuing, albeit over a very long timeframe.

We further recommend independent regulatory standards encompassing The Prudent Person Principle, which means that fund managers must behave in a manner consistent with how a prudent person would manage his or her own assets and liabilities, consistent with balancing risks and returns.

Here, we seem to be pushing at an open door, as this has to a large extent now been accepted for the EU draft pension directive.

We also suggest a standard that optimises the combination of security, efficiency, flexibility, transparency, information provision, portability, mobility and user-friendliness. Some of these elements may be in conflict with each other, for example, efficiency will suffer if there is huge flexibility – hence the reference to optimising the combination.

The benefits of a single European market for pensions will increase the efficiency of pension plans by bringing economies of scale, widening the range of products on offer and facilitating the implementation of welfare reforms.

Also, the consequent bigger volume of long-term savings will provide greater resources for the economy and will improve the efficiency of the financial market as a whole.

Our report is a call to action for the European Commission and for EU member states. Creating a single European market for pensions will help encourage private pension provision which in turn will help address the ageing population problem.

It will take quite a long time, so the sooner we start, the better.


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