Commission report: Reasons for ‘privileges’ are obsolete.

In April, the EU Commission published a report on ‘Special Pensions in the EU’ as Discussion Paper 125. It was written by Commission staff members Per Eckefeldt and Anda Patatarau.

The report identifies basically two main types of special pension schemes: Those for certain categories of persons, such as those in the civil service or self-employed persons in agriculture, and special schemes or rules for persons working under particularly arduous or risky conditions. Both systems are characterised by special conditions, such as lower retirement age or higher benefits, that are more favourable than those for other insured persons. These special pension schemes exist in one form or another almost everywhere in Europe, with the exception of Sweden, Cyprus and, according to the report, the Czech Republic in the near future.

How much these special systems weigh on public finances varies.  Poland is one of the countries at the top of the list with public expenditure on special pension schemes representing up to 2.7 % of GDP. In comparison, the figure for Germany is only 0.4% of GDP, despite its special pensions for civil servants, which clearly puts it at the bottom end of the list. The significance of special pensions in Poland is also expressed by the fact that 22.3% of all pensioners are covered by such schemes.

The report notes that recent national reforms indicate that the advantages associated with special pensions are being reduced or even phased out.  It leaves no doubt that this is the right way to reduce unjustified privileges. In the Commission’s view, the reasons behind special pension schemes have become obsolete or may have even have always been a misguided approach, partly due to trade union initiatives. Work under difficult or strenuous conditions should be compensated for by higher wages, which automatically results in higher pension benefits.

The same result could be achieved by higher employer contribution rates or focusing on supplementary pension schemes for particularly arduous jobs. It is worth noting that the authors do not mention that an option would be to reduce the amount of arduous work that is dangerous to a person’s health or offer early retirement for such work. 

The report can be read here.