Insurance Europe: Multi-pillar pension systems and PAYG can produce positive outcomes

26 April 2021 —
The European Union can play a role in supporting and promoting the efforts of member states to boost the financial (and digital) literacy of vulnerable persons. This includes raising awareness of the need to prepare for retirement and of the benefits of long-term saving, according to a paper issued by Insurance Europe.

On pensions, the industry welcomes the Commission's efforts to boost adequacy in retirement income across Europe, as demographic changes are increasingly putting statutory pension systems and public budgets under pressure. Furthermore, it is important to acknowledge the effective role that multi-pillar pension systems can play in enhancing the sustainability and adequacy of retirement provision.

Multi-pillar pension systems allow for risk diversification, since the different pillars (pay as you go -PAYG and funded pension systems) are exposed to different risks: while PAYG pension systems are highly dependent on the labor market and are exposed to demographic developments, fully funded pension systems are highly sensitive to developments on the stock and capital markets. Working in conjunction, these systems can produce positive outcomes.

Supplementary pension products give people the opportunity to select tailored solutions, depending on their own needs and preferences. This means that pension savers must be empowered to make well-informed choices, which requires high-quality financial education and increased awareness of the need to save for retirement. This is an area in which the EU has a key role to play.

As regards long-term care coverage, in order for insurers to continue to play a vital role in the provision of long-term care, it is important to ensure that the right conditions are in place. Tax incentives could, for instance, help to keep insurance products affordable and attractive. The Commission could explore ways to support member states in making insurance cover more affordable at a time when people are interested in buying long-term care cover or in encouraging access through employers at an earlier age.

Finally, Insurance Europe highlights that the Commission could support member states by promoting the value and set-up of public private partnerships (PPPs), as the exchange of information and good practices between stakeholders could contribute to addressing long-term care challenges.