General comments
The Swedish Insurance Federation welcomes the Green Paper as an initiative to focus on the varying aspects of the future of the Members States’ pension systems. However, the diversity of schemes indicates that the underlying social security systems and cultures play a major role in defining an adequate retirement income. Therefore, any efforts on the part of the EU must acknowledge each Member State’s prerogative regarding the construction of pension schemes and social insurance schemes. The federation believes that the open method of coordination is the best way forward in this area.
In Sweden, life insurance is the basis for most occupational pension schemes. These are based on collective agreements between the labour market parties and encompass more than 95 per cent of the Swedish labour force. Most schemes are today defined contribution (DC) schemes. Within the schemes, employees have a choice of either guaranteed products or unit-linked products. As regards the state pension, the Swedish system underwent a major reform a decade ago and is now better equipped to handle the demographic changes that will occur in the future. In principle it is constructed as a DC scheme. The reform also made the state pension autonomous from the public finances. It can be argued that the principles of life insurance, in the form of DC schemes, has a role to play not just in the second and third pillar but also in the first pillar.
(1) How can the EU support Member States’ efforts to strengthen the adequacy of pension systems? Should the EU seek to define better what an adequate retirement income might entail?
This answer covers questions 1-3.
The Federation observes that the Green Paper focuses on pension funds and ignores insurance as a pension vehicle. Bearing the features of the Swedish pension system in mind, this pinpoints the difficulty of discussing and regulating at the EU level, as the schemes include the participation by such diverse bodies.
From our point of view we would welcome a debate that does not exclude the insurance sector as providers of pension whether in the first, second or third pillar. Unfortunately, the Green Paper focuses only on pension funds and tends to leave life insurance out of the pension scope. The Federation believes that life insurance with its unique combination of long-term savings and annuities is an essential vehicle if the EU wants to ensure sustainable and adequate pensions.
However, no progress can be made at EU level if the Member States do not share a common definition of what constitutes a “pension”. Therefore, as the Commission suggests in the Green Paper, a definite effort must be made to define “pension”.
Once the main content and the definition of what constitutes a “pension” have been decided, it would be appropriate to set down some principles at EU level regarding social and fiscal incentives. The public systems will not be sufficient in the future and occupational and individual solutions must step in to a greater extent. To achieve this, the incentive structure must be clear to the consumers.
The Green Paper also highlights the need for a pension information centre at EU-level. Sweden has a very good experience from the web-site www.minpension.se which is a public-private cooperation. We believe that each Member State could analyse the possibility to establish this kind of consumer service. Experience shows, however, that the complexity of pension systems, cultural differences etc. would be a severe obstacle to an initiative at the EU level.
(2) Is the existing pension framework at the EU level sufficient to ensure sustainable public finances?
See Q1.
(3) How can higher effective retirement ages best be achieved and how could increases in pensionable ages contribute? Should automatic adjustment mechanisms related to demographic changes be introduced in pension systems in order to balance the time spent in work and in retirement? What role could the EU level play in this regard?
See Q1.
(4) How can the implementation of the Europe 2020 strategy be used to promote longer employment, its benefits to business and to address age discrimination in the labour market?
(5) In which way should the IORP Directive be amended to improve the conditions for cross-border activity?
Our first remark relates to the whole set of IORP questions (Q5 – 13). Sweden has chosen the possibility to opt in under the IORP Directive as regards occupational pension schemes safeguarded through life insurance. As has already been stressed under Q1, such a solution covers a lion´s share of the market for occupational pensions in Sweden. At present, it is difficult to foresee what the legal environment will be like for this solution, as there have yet been no indications as to whether this option will still remain when Solvency II comes into force. Obviously, we are in favour of a level playing field between insurance solutions and pensions safeguarded through IORPs, where relevant (differences between DB and DC schemes may need to be taken into account, see Q8 and 10). Our comments on Q5 – 13 should be read in light of this latter objective, but also with due notice taken to the legal uncertainties just explained.
On possible amendments to improve the conditions for cross-border activities, the specificities of labour and social law in the Member States still have to be considered, as the circumstances vary to a great extent and the IORP Directive is not where that particular situation should be remedied. However, there are some elements of “gold-plating” in the present IORP Directive, especially as regards the host Member States right to impose further investment rules. Such rules seem out of place, particularly in light of Solvency II. We see no reason why a “pure” prudent person regime should not apply to all IORPs as well, irrespective of where they are operating.
(6) What should be the scope of schemes covered by EU level action on removing obstacles for mobility?
Basically there should be no limit to the scope of schemes, but one has to take into account the existence of collective agreements.
(7) Should the EU look again at the issue of transfers or would minimum standards on acquisition and preservation plus a tracking service for all types of pension rights be a better solution?
Of course, the Federation acknowledges that the issue of transfer rights is very important in relation to mobility. But pension systems vary enormously in content across the EU, due to local conditions on the labour markets, not least the involvement of the social partners. For example, pensions may be safeguarded through book reserves, traditional life insurance, unit-linked insurance etc. The conditions for transfer rights simply differ too much to allow for a single standard. Instead, the focus should remain on standards on acquisition and preservation. Information is of course key, and in Sweden such information is already provided within all three pillars.
(8) Does current EU legislation need reviewing to ensure a consistent regulation and supervision of funded (i.e. backed by a fund of assets) pension schemes and products? If so, which elements?
As a starting-point, the principle of same risks, same rules should apply. In Sweden, DB schemes are normally backed by a fund of assets, be it through life insurance or other kinds of safeguarding. As regards DC schemes, one has to have in mind that the mere fact that a scheme is DC does not automatically have to lead to the assumption that DC schemes equal no guarantees. In a member-directed occupational pension scheme, contributions can be directed into for example a traditional life insurance with such guarantees. In other words, DC schemes can also be “funded”.
(9) How could European regulation or a code of good practice help Member States achieve a better balance for pension savers and pension providers between risks, security and affordability?
See Q8 above. But also, this seems like an area perfectly suited for the open method of coordination, as conditions vary substantially between jurisdictions.
(10) What should an equivalent solvency regime for pension funds look like?
See Q8 above. Same risks should be treated the same, but the differences between DB and DC schemes will need to be addressed.
(11) Should the protection provided by EU legislation in the case of the insolvency of pension sponsoring employers be enhanced and if so, how?
We agree with the Commission that pension rights should be safeguarded against effects from insolvency of the pension sponsoring employers. To begin with, a requirement to ring-fence pension assets from the assets of the sponsoring undertaking is a crucial starting point. In Sweden, employer contributions to occupational pension schemes are normally strictly regulated by collective agreements, and following from these agreements funds are allocated into separate legal vehicles. The use of book reserves is also allowed in some instances, but this will require an obligation to safeguard the corresponding pension liabilities through credit insurance. Credit insurance is already subject to the current legal insurance framework, and we thus see no need for further regulation in this area. N.B. that the IORP Directive is about the activities of pension funds, not about the choice of safeguarding pensions per se. Member States must be able to address the issue of the employer´s insolvency differently depending on what level of protection the safeguarding method offers.
(12) Is there a case for modernising the current minimum information disclosure requirements for pension products (e.g. in terms of comparability, standardisation and clarity)?
As the choice and risk is more and more shifting to the individual, it becomes increasingly more vital that he/she can make an informed choice. The information given by the employer/pension institute is therefore of outmost importance for the consumer and should be standardized to some extent.
However, any overview undertaken should concentrate on quality of information rather than quantity. Also, the information requirements should mirror the risk they represent.
But then again, it is important to have in mind that an occupational pension scheme normally involves three stakeholders: the employer, the employee and the function chosen for safeguarding the pension liabilities (e.g. and insurance company). Such circumstances need to be taken into account.
Financial education is also key. No matter how good the information, without the underlying knowledge about different options information will never be enough. Therefore, an aim for the Member States should be that financial education is a part of the school curriculum.
(13) Should the EU develop a common approach for default options about participation and investment choice?
A common approach would be desirable, but given the differences between the markets in the EU Member States this topic should ideally be developed through the open method of coordination.
However, the Federation does not believe, from a Swedish perspective, that an EU initiative could contribute in this area. The participation of the work-force in Sweden in occupational pension schemes is very high (over 95%). Within the schemes there are also default options if the individual does not make any investment choice.
(14) Should the policy coordination framework at EU level be strengthened? If so, which elements need strengthening in order to improve the design and implementation of pension policy through an integrated approach? Would the creation of a platform for monitoring all aspects of pension policy in an integrated manner be part of the way forward?
As the Federation understands it, the question actually formulates the open method of coordination with a defined mandate. From this point of view, a platform could be successful in that it creates an arena for different stakeholders to inter-act as long as the platform is given a very clear mandate.
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