The EU wants more people to prepare for old age early. A second compulsory pension is planned, into which employees and employers pay automatically – what exactly the EU is planning and what the compulsory pension should look like is explained in this article.
Second compulsory pension: EU relies on automatic pension provision
The European Union is planning to introduce a second compulsory pension that will serve as private pension provision. According to Chip, the aim of this initiative is to secure more people for old age at an early stage, as the benefits of statutory pensions are not sufficient in many cases. For this purpose, employees and employers should automatically be included in an additional one Pension system deposit. If you do not want to participate, you can actively deregister, as the system provides an opt-out rule.
Background and motivation
As the European Commission reports, the use of company and private pension schemes in the EU has so far been low: only around 20 percent of citizens have a company pension plan and 18 percent have a private pension plan. The planned opt-out procedure is intended to ensure that significantly more people automatically pay into a supplementary pension system. Experience from countries such as the United Kingdom, New Zealand, Ireland, Italy and Poland shows that participants tend to stay in the system long-term after registration.
Structure and implementation of the compulsory pension
Various investment products should be available for private retirement provision. As Chip explains, these include stocks, bonds or funds. The exact design depends on the member states; the EU only provides recommendations and guidelines. Countries such as Poland and Ireland or, as MSN reports, the USA are a model for such systems. The EU proposal is very similar to the 401k, which has long existed in the USA.
In addition to the new pension provision, tracking systems will also be implemented to inform citizens about their pension entitlements and expected benefits. In Germany there is already a digital pension overview, which was recently expanded to include an inflation calculator. At a policy level, pension dashboards are intended to help better assess the sustainability and adequacy of pension systems. In the long term, this could result in an EU-wide dashboard that facilitates cross-country comparisons and reforms. The European Commission reports on this on the official website.
Editorial team finanzen.net