EU pension bomb ticking

  • 2003-05-22
  • Jitendra Joshi

The European Union last week cleared the way for pension funds to offer their products across EU borders, in a move hailed as a major advance toward defusing a "demographic time bomb" ticking under government finances.

At a meeting in Brussels, EU finance ministers agreed to European Parliament amendments to a new law that for the first time lays down regulations for pension funds to operate EU-wide.

"The directive represents a first step on the way to an internal market for occupational retirement provision organized on a European scale," the ministers said in a statement after a decade of tough negotiations on the legislation.

The European Commission - which has warned that the EU faces a "pensions disaster" - has been pushing hard for the directive to encourage cross-border competition among pension funds and draw more workers into private schemes.

Internal Market Commissioner Fritz Bolkestein welcomed the agreement as "a major achievement" that would enable employees to benefit from safer and affordable pensions.

"The directive will also give European companies and citizens the opportunity to benefit from more efficient Pan-European pension funds, and so make an important contribution to tackling the pension time bomb," he said.

Bolkestein said the new law would allow a company like British oil giant BP to save 40 million pounds (56 million euros) a year by offering its employees a Europewide pension fund, rather than individual ones in each member state.

EU countries, along with other advanced economies, face a potential demographic crisis in the years ahead caused by rapidly aging populations - fewer and fewer workers will be around to fund the pensions of more and more retirees.

Of particular worry are unfunded liabilities promised by "pay as you go" public pension schemes, which analysts warn will crack under the strain of providing retirement benefits to much larger numbers of pensioners.

In a report in December, Brussels warned that the number of working-age people for each person over 65 in the EU would halve from four today to just two in 2050.

The EU must urgently draw more people into work, particularly women, and introduce more flexible employment arrangements to avert a "pensions disaster" caused by old-age poverty and much higher taxes, the report said.