European Policy Analysis Volume 2, Number 1, Spring 2016 | Page 41

European Policy Analysis

in the remit of individual member states.
In general, pension policy—including
tax treatment—counts among the latter.
Yet in as much cross-border movements
or substantial investment vehicles come
into play, the former become ever more
relevant. As will become apparent, some
European actors actively try to frame
the issue as one of consumer protection
(falling under Article 153 of the Treaty
of the European Union) in order to
overcome this conflict.

Ever since the World Bank’s
(1994) report on “Averting the old age
crisis,” complementing public pensions
with capital-based occupational and/or
private pensions has been the received
wisdom of policymakers concerned
with future pensioners’ living standards.
Under pressure from demographics
and globalization (as filtered by party
competition), 1st pillar replacement rates1
have been cut throughout the developed
world; the expansion of occupational
and private schemes was noticeable, but
more uneven (Ebbinghaus 2015; Wolf,
Zohlnhöfer, and Wenzelburger 2014).
Underperformance of the latter, 2nd and
3rd pillars, is especially dangerous for
those earning less than average, or with
working biographies interspersed with

phases of unemployment.2 Since it is
highly unlikely that they could afford to
compensate for lower returns by increasing
their contribution sustainedly,3 they are
not only facing falling living standards,
but straight-out poverty. Some studies
suggest a need for doubling contributions
for a 40-year old facing a drop of two
percentage points in real interest.4

Providers of private pension
plans—especially insurance corporations
and pension funds—receive less public
attention than banks; yet, they contain
a similar amount of systemic risks for
financial markets (cf., e.g., Shin 2013).
The creation of EIOPA as one of the three
new European supervisory authorities,
which were part of the crisis-induced
2010 “supervision package” of EU
legislation (Buckley and Howarth 2011),
bears witness to European policymaker’s
awareness of these risks. While the specific
impact of EIOPA and her sisters, and
foremost their mode of interaction with
national institutions in member states,
remained open at the time, there were
already suspicions that the big players
might be able to use at least parts of the
rearranged playing field to their advantage
(Buckley and Howarth 2011). Regarding
occupational and private pension plans,

1

Replacement rates refer to the percentage of former earnings which pensioners receive once they
retire.
2
Kluth and Gasche (2013) highlight how actual replacement rates for these workers are significantly
lower than average figures for the so-called standard workers suggest.
3
According to Gunkel and Swyter (2011), marginal households in Germany have been quicker than
those further up the earnings scale to ta ke up the tax subsidy for private (so-called Riester) pensions.
Yet, Necker and Ziegelmeyer (2014) found that households taking a hit to their savings in the crisis
were most likely to change their investment behavior afterward—toward safer products with even
lower yields.
4
Minimum pensions have so far been adapted only in a small minority of OECD member states (cf.
Wolf, Zohlnhöfer, and Wenzelburger 2014).

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