In 2012, the European Commission published the White Paper ‘An Agenda for Adequate, Safe and Sustainable Pensions’ (COM(2012) 55 final). The paper discusses challenges to pension policies in the context of continuing demographic change across Europe (‘Unless women and men, as they live longer, also stay longer in employment and save more for their retirement, the adequacy of pensions cannot be guaranteed as the required increase in expenditure would be unsustainable’; p. 2). It presents policy proposals and asserts in a rather self-conscious way that it is ‘now time to act and to implement in a decisive manner the actions put forward in this White Paper’ (p. 15).
What do these proposed actions entail? They include linking retirement age to increases in life expectancy, restricting access to early retirement schemes, supporting longer working lives (e.g. by means of developing employment opportunities for older workers), equalizing the pensionable age between men and women, and the development of complementary private retirement savings.
Rather than going into these proposals in depth, I would like to make some general observations regarding this White Paper. These include the framing of social policy issues as a matter of public finance, the avoidance of distributive issues, and the neglect of different interpretations of the social contract. In short, it seems that the question of adequate benefits of public pensions takes a backseat.
First, even though the paper to some extent deals with the sustainability of pension systems in order to maintain an adequate level of benefits, it frequently links public pension expenditure to the development of public finance and economic competitiveness. Even though there is undoubtedly a link between public revenues and public expenditures, the perspective the White Paper takes towards social policy is disappointing. Instead of defining which benefits are necessary, adequate or fair and then finding ways to finance them, the White Paper seeks to adjust the public expenditure side. Rather than asking how to raise revenues in order to reach specific social goals, it makes expenditures dependent on revenues. More generally, rather than defending the public role in shaping society, it often frames social policy matters in terms of being a burden to public finances, as well as an obstacle to economic success. Hence, social policy seems to be treated not so much as a matter of its own right, but subordinated to other policy fields.
From an EU point of view this is understandable as this fits rather well into the limited competencies of the EU regarding social protection. ‘Adequate, Safe and Sustainable Pensions’ in Europe however, as the White Paper claims, cannot be reached by subordinating social policy to other policy fields!
Second, and in line with the first argument that the White Paper represents an approach to social policy that is not driven by social policy concerns alone, there is one central aspect of social policy missing in the whole paper: matters of distribution. The European Commission does not seem to bother about inequality between old people or between future pensioners, nor does it seem to take an interest in the ‘classical’ question of the distribution of profits between work and capital.
This latter point is of importance, especially when it comes to the proposed development of complementary private retirement savings. While public pension schemes are often financed through taxes or through contributions from employers and employees (as stipulated by public law), private schemes are mostly individualized schemes or occupational schemes. Regarding occupational schemes the bargaining power of the social partners often determines who bears the load of contributions. Hence, the proposal to further develop private pensions may have greater distributive effects than merely being a shift from public to private pension expenditure.
The third and last point to be mentioned is the treatment (or rather lack thereof) of the social or generational contract. Reading the White Paper it seems incomprehensible to the European Commission that today’s and tomorrow’s contributors or tax-payers could be willing to pay more for today’s and tomorrow’s pensioners, given they can trust that they will be treated the same way and under the condition that there is a fair sharing of the costs. Just to give one example from German pension policies: The official retirement age will rise during the next years from 65 to 67. This move was justified by the government by referring to increasing life expectancy. It was met by fierce opposition by trade unions. What has been somewhat neglected in the public discourse is one detail of this measure: Increasing the retirement age will reduce foreseen increases in pension insurance contribution rates by 0.5 percentage points of gross wages, according to the governing coalition’s 2006 draft bill. These 0.5 percentage points are shared between employers and employees. It is merely a guess, but in the author’s opinion only few employees would object to these foreseen increases in contributions of 0.25 percent points of their gross wage to enable the older generation to exit from work two years earlier and to gain the promise to be treated the same way – especially if this ‘burden’ is shared by employers and employees.
How to summarize these arguments? The White Paper on Pension Policy is a very special example of social policy. It is neither an attempt to realize some ideals of a fair and just society by means of public involvement of social matters, nor does it take concepts such as distributive justice serious. It is a rather mechanistic exercise that tries to solve perceived problems of public expenditure. Adequate, safe and sustainable pensions have to be discussed from a social policy point of view, which includes possibilities of reformulating the social contract between generations, between employers and employees and between the rich and the poor.