A new study released by the European Commission in October confirms the trend towards more private pension provision in the EU but highlights the need for inclusive coverage and adequate pension levels. The study identifies variations in coverage and contribution levels between EU countries, reflecting the diversity of schemes in place. The analysis will help EU countries learn from different national experiences under the ‘open method of coordination’.

The report confirms the trend towards an increased role for privately funded pension provisions in EU countries and the importance of analysing its impact on future pension levels. Depending on their role within the overall system, low coverage in supplementary pensions (together with breaks in contributions) can become a cause of concern for future pension levels, in particular for those most at risk (women, the young, lower educated, low-paid, long term unemployed).

Other key findings:

•    the increasing shift of risks (employment, longevity and financial risks) from the pension provider (employer or State) to the individual means there is a need for better financial education;
•    the greater link between a person’s actual pension contributions and pension benefits means that the impact of career breaks on pension levels needs careful consideration;
•    it is vital to avoid rules which allow pension savings to be accessed too early or used up too quickly if pension levels are to remain adequate throughout retirement;
•    management charges for private provision make a big difference to final pension benefits (for instance a 1% annual charge over 40 years of contributions would represent 18% of total contributions by the time of retirement). So charges need to be kept low to help make sure pensions are adequate and to encourage take-up.