Pension reform in Europe

toil 6 Are future pensions secured? Bruno Miguel Silva Abrantes Current Issues in economic Policy Academic year 2012-2013 Contents Are pensions secured? Understanding pensions Pensions grow to handle the transition of a person as worker to retired. So that he enjoy an income provided by the stir or a nonher institution and maintain a similar standard of living to what he had slice employed and thus have a comfortable carriage economic only in ally, until the oddment of his life.The second objective of a pension is related to the fght against poverty which is through with(p) through a redistribution of income that romotes equity, within the elderly class. 1 There is a growing concern on the subtract of the European Commission on the sustainability of pension remainss in the various countries of the European joint. The recent financial and economic crisis has revealed weaknesses that some(prenominal) countries have and bring into question the sustainability of the pensio n system. Economic ontogenesis slowed, unemployment has risen and the humans accounts ar in poor condition.One of the more sincere implications on future pensions is related to the fact that a large part of the population remains unemployed or is forced to accept Jobs where they purport lower ncomes, or work less(prenominal) time, which get out result in a lower pension. 2 Further compounding the situation is a major demographic trend towards an aging population. The increase in life expectancy over the past decades, combined with low fertility order is creating a change in the composition of the population. The number of active workers will decrease while the number of bulk who be retired will increase.Moreover, the be of old age that a person remains employed is dwindling, partly because large number start to work later, due to the m whatever years spent in education. On the other hand there is a great inclination of an orbit in obtaining early retirement ue to existi ng policies and management ot age in What argon the main systems of pension funding? the labor market. In several countries of the EIJ-27 the public sector is by and large responsible for pensions, early retirement, baulk and survivors. merely there are some differences between the various subdivisions of the European Union at the level of pensions related to occupational or hush-hush pensions.In a generalized way pensions can be classified into three lynchpins The public mixer security system, mandatory or unbidden occupational schemes and voluntary private schemes. The first, public social security system is undoubtedly largely responsible for the allocation of pensions to the population in most member states of the EIJ-27. This pillar can be characterized mainly by the Pay-as-you-go system (PAYG). In this system pensions are financed directly from taxes and social contributions that workers are paying in the present.The taxes are employ to pay pensions in the short-term i nstead of being used to create gold that may grow in the long-term and win future generations. 3 Schemes within the second pillar can be mandatory or voluntary occupational schemes. Participation in these funds is usually mandated by law and aims to provide an adequate pension to retired people harmonize to what they saved during their working life. These funds are created by a company or organization in order to provide correct pensions to their employees, which should correspond to the effort and contribution the workers exercised.Both the employee and the employer contribute to the fund, which grows with the return rates that exchange with the state of the market and the economy. The amount of the pension depends on the number of years of service and final salary of the employee. These funds are important to deliver the responsibility of the state to secure pensions in the whole population, but also because it is believed that these organizations are able to grow a fund mor e in effect than the state would. 4 The third and final pillar is characterized by private schemes. These are schemes that help people to accumulate savings for their retirement.The people who beseech to do so can choose from a wide carry of schemes who best match their needs. There are funds that are riskier provided the contribution that person does is less than the benefit you will receive if all goes well. On the other hand there are safer funds in which the benefit will match the contribution made. Typically these funds are voluntary and are complementary to government reforms that people receive from the state. 5 Looking at table 7(in appendix) we can divide public pensions, which are part of the first pillar of pensions in various sub-groups.Among which we can feel Minimum pension / social allowance, Old age, early retirement, impairment and survivors pensions. Early- retirement, old-age pensions, disability and survivors pension exist in almost all 27 member states. Ear ly retirement does not exist in the Netherlands, Malta, United realm and Norway. These schemes operate mostly in the form of earnings-related, which means that pensions are assign according to what people earned and contributed during their working life. However not all countries have adopted this scheme in the same way.In Denmark, survival and disability pensions are awarded according toa flat rate, offering a pension with a fixed value over time. This way of organizing pensions can promote greater social equity it the people who are the target of these flat-rate pensions have not worked or contributed enough to receive a ension that is sufficient to have a good quality of life in old age. However the state has to make an extra effort to fund this pension scheme, an effort that in the long run fall on taxpayers, since the people who will receive these pension contributed less than the amount of pension they will receive. Minimum pension or social allowance schemes exist in all E IJ member-state. These pensions are usually means-tested, in the sense that people are tested to understand whether they are , that is according to what the person has earned and contributed as an employee, or if they did not ork and had no and any gain if they have worked and which contributed received is not enough to access a normal pension. This type of pension is normally financed by taxes on citizens kinda than individual contributions of individuals to pension funds. In the 2nd pillar we find authorization / voluntary schemes occupation.