03 December 2021

IPE: EU could fund DC transition by issuing debt, says Bernardino

He suggested the EU give financial support to member states who opt to develop second pillar retirement savings by reducing social security contributions, and where the transition in funding would create economic difficulties.

Bernardino, who is now chair of the management board of CMVM, the Portuguese securities markets commission, was speaking at a panel discussion on the future of defined contribution (DC) pensions organised by EFAMA, the European asset management trade body, as part of its European Retirement Week programme of events.

Addressing the issue of how to create a thriving DC market in Europe in the face of obstacles such as lack of education, risk aversion and mistrust, Bernardino pointed to EIOPA’s mission to promote awareness by its support for tools such as pension dashboards and national tracking systems, on which it published advice for the European Commission (EC) this week.

He said 20 EU member states still had no tracking systems and this had to be dealt with, but he was happy the EC had taken the step of calling for advice.

Turning to the question of whether auto-enrolment was the answer to increasing pensions coverage, Bernardino said: “It can be an important mechanism in increasing participation, but any level of compulsion is very political.”

One problem, he said, was that in countries where contributions into the social security system are relatively high, reducing these so that individuals could afford to pay into an auto-enrolment scheme would create a funding issue for governments, at least in the short term.

He continued: “This needs to be tackled, and I think there should be a role for Europe in this. It’s very difficult for individual countries to carry out these reforms without support at community level, and it could be done by making pension provision and adequacy a central basis of the EU’s economic governance.”

One approach, he suggested, was for the EU to issue debt, as it has done for the post-COVID 19 recovery plan, which would significantly lower the costs of funding for countries which could not afford further economic difficulty.

Pablo Antolin, head of the private pension unit at the Organisation for Economic Co-operation and Development (OECD), agreed that implementing auto-enrolment needed care.

He said: “We all agree it is good, but in some countries [the UK model] might be unconstitutional, because it is voluntary for individuals but mandatory for employers. So in some other countries, it will only be possible through collective agreements.”

But he said the OECD did not believe that reducing social security contributions was the way to go, as it was the most expensive route towards increasing private pension provision....

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