PROJECT M
 

Paradigm lost

“Old Europe” ist getting even older and “new Europe”, those former communist countries to the east, is aging even faster. The 27 nations of the European Union, plus the go-it-alones such as Norway and Switzerland, are at the forefront of severe global aging. Europeans will feel the change

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Paradigm lost

“Old Europe” ist getting even older and “new Europe”, those former communist countries to the east, is aging even faster. The 27 nations of the European Union, plus the go-it-alones such as Norway and Switzerland, are at the forefront of severe global aging. Europeans will feel the change

Turner Reports

As chairman of the Pensions Commission (2003-2006), Lord Turner oversaw a report that ignited intense discussion on retirement income in the United Kingdom. Now chairman of the Financial Services Authority, he notes that indexation rule changes have been a dominant feature in European reforms. It can deliver significant long-term savings, he argues. “But, I suggest that the way the reforms have occurred have involved doing things, such as changing indexation, that people don’t really understand. As they begin to realize what has occurred, tensions will arise within the political process. Turner concludes, “The challenge will be to see if politicians will stick to it when the consequences slowly become more apparent to people.”

European Old-Age Provision at a glance

  • Pre-tax public pensions range from a replacement rate as low as 30% for today’s average earners in the United Kingdom, to a high of 96% in Greece.
  • On average, nearly 50% of an average earner’s pay is covered by public pensions. Mandatory private pensions bring the average replacement rates closer to 65%.
  • In comparison, US workers with an average income receive a replacement rate of 40% from Social Security.
  • Nine of the EU-17 countries have established reserve funds to partially fund the public pillar; these are crucial players in the financial markets.
  • Pension reserve funds are driving and strengthening a trend toward socially responsible investing (SRI).
  • DC is often mandatory. In central and eastern Europe, in particular, privately managed retirement savings similar to 401(k)s are a standard feature.
  • Italy and the United Kingdom are both introducing auto-enrollment.
  • 60 million workers (25%) participate in a DC plan.
  • European DC accounts hold over a trillion US dollars in assets.

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