The increased attention being devoted to sustainability and adequacy of pension systems in the EU has been welcomed by the Groupe Consultatif Actuariel Européen (Groupe Consultatif) in its Position Paper on Sustainability of Pension Systems in Europe – the Demographic Challenge
The impact of ageing on national social security schemes is a matter of considerable concern in terms of financial sustainability. One aspect of addressing financial sustainability may be the need to raise retirement age. However, to maintain the old-age dependency ratio in 2050 at levels similar to that in 2010 is likely to require the retirement age to rise by as much as 10 years in some countries.
The shift from defined benefit to defined contribution structures, both in the private funded sector of pensions and in national social security schemes with the introduction of Notional Defined Contribution, improves incentives to contribute for longer and to retire later. It also enables part of the cost of financing benefits up to an increasingly high average age to which people are expected to live to be passed on to the recipients of the pension benefits. However, defined contribution passes most of the risk to the members, which creates more uncertainty about retirement income and may e perceived as unfair.
Private funded pension arrangements provide an important diversification of structure and of risk. These are more developed in some countries than others, but are generally considered to be part of a balanced approach to reforming pension systems although they have their own challenges of governance, affordability and fairness.
Actuaries have a unique level of expertise relating to understanding future risk and uncertainty, taking a long-term perspective on financing issues, analysing and projecting mortality trends and designing retirement income systems which will meet the objectives of the stakeholders. The actuarial profession in Europe, represented by the Groupe Consultatif looks forward to contributing further to analysis and discussion of these issues.
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