CENTRAL/EASTERN EUROPE - Unlocking opportunities in the labour market is key to solving Europe's pension problems, according to ministers from European Union accession states.
The conclusion was one of many drawn by labour ministers from Central and Eastern Europe - 10 of which are expected to become members of the EU in May 2004 - during the recent, annual International Labour Conference, Geneva.
Discussions centred on a new study from the International Labour Organisation which tracked the changes in the national pension systems of accession states since the mid-1990s.
The report criticised the shift towards privately-managed individual savings accounts - from defined benefit, pay-as-you-go systems - which have characterised much of recent European pension reform.
“The public-private controversy has overshadowed many other, more pressing issues,” Elaine Fultz, author of the report, told IPN.
She added: “We would like to shift the focus of attention away from the public- private debate and more to the issue of how to extend social security to the people who don't have it.”
Currently, Hungary, Poland, Bulgaria, Latvia, Estonia are scaling down public, PAYG schemes and putting in place parallel commercially managed individual savings schemes. This arrangement is shifting risks that were previously borne by workers, employers, and governments collectively toworkers alone, the report said. And the Czech Republic, Slovenia, Turkey and Romania are combining adjustments in their public pension systems with the development of voluntary supplemental retirement schemes.
Typically, accession states coming out of socialist regimes had 100% coverage on book. The main challenge now is finding ways to reach people in the “grey economy” or those beyond the reach of traditional social security, or employees in firms that fail to comply with contribution requirements,added Fultz.
She pointed out that the possibilities include taxingthe output of a firm or levying some kind of charge on its input.
The report also warned of the transitional financing costs when scaling down the social insurance system and redirecting contributions to mandatory, commercially-managed individual savings accounts.
“These requirements will pose a fiscal burden for several decades in the range of 0.5-2.5% of GDP per year on societies,” it said.
In some countries, these costs are being financed by cuts in public pension benefits “that could leave a generation of workers considerably less well off then under a reform of the existing pay-as-you-go system.”
The study highlighted the need for further employment opportunities alongside any potential raising of the retirement age to avoid unemployment.
“There was quite a good consensus that these areas need to be focused on,” said Fultz.
“That is raising the national productivity, raising employment perhaps immigration, perhaps family policy - all these things outside of pensions that are key.”
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