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CONTENTS • Future in Balance - A new corporate design for EAPSPI 3

• EAPSPI’s first presentation in Argentina 4

• German “Riester” aid partially infringes European law 7

• Position of the German Social Security Association:

The social objectives of the EU - A step forward or a step back? 8

• EAPSPI's conference 2009 in Berlin 12

• Social security scheme in Argentina facing the crisis 15

www.eapspi.eu

 

 

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EDITORIAL With this first 2010 issue, the outer appearance of the EPB has undergone aradical change, as our regular readers will certainly have noticed. The oldlogo and the stylised map of Europe have disappeared, along with theFrench and German acronyms AEIRSP and EVVÖD. The new presentationof EAPSPI is resolutely timeless and discreet, in keeping with the require-ments of modern corporate design. The visual redesign of the EPB is only apart of our project, the main focus being our website that has been totallyrevamped, as you will see by visiting our pages at www.eapspi.eu.

This issue places significant emphasis on pension schemes in Argentina, acountry that made the headlines recently, even in Europe, due to the nation-alisation of privately managed pension funds. Irrespective of whether thisnationalisation was the right decision or not, it is noteworthy that, to a certainextent, it was well accepted by the population, due to the fact that the fundedschemes had not met the expectations of members. This reaction gives usfood for thought, given that in Europe also, the funded schemes in somecountries are currently in a difficult position.

Against the backdrop of the financial crisis and the ensuring problematicsituation of financial markets, the debate on the reasons for the crisis and onpossible remedies has focused, at national and European level, on fundedpension schemes. The state pay-as-you-go schemes have therefore taken aback seat, with the result that relatively little attention is being paid to thework of the European Commission on the future organisation of first-pillarsocial protection. Wrongly so, because last year the Commission (re)definedthe core elements of its vision of a European social model and of the break-down of national and European responsibilities. In doing so, it has definedsome noteworthy focal points that are presented and commented on in thisissue of the EPB.

Kind regards,

Hagen Hügelschäffer

 

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What does a lady walking a tightrope have to do with the pensions of civil servants and public ser-vice employees? If we want to be heard among the host of experts at European level, it is not only technical skill that counts, but also presentation. Since 1998, EAPSPI has established its presence in Europe and ex-presses its opinion on European Union legislative projects, as it did recently with Solvency II. Our presentation, however, did not reflect this role. That is why EAPSPI has opted for a corporate design that gives the Association a professional, clear and timeless image. The first step is to do away with the acronym EAPSPI – AEIRSP – EVVÖD in three languages

and to keep only the English acronym in the future. Given that the letters EAPSPI do not speak for themselves, it was decided to add the sentence “Pensions for the Public Sector” to the logo. More-over, the design is intended to be simple and dis-creet, given that the purpose of EAPSPI is to represent the interests of European civil service members and pensioners. The target groups of our communication are not so-called end customers, but the representatives of European institutions, ministries and other associations. All this does not answer the question about the lady on the tightrope. With other images of gym-nasts and the claim “Future in Balance”, the lady is intended to represent the dynamics and the neces-sary capacity for balance in an association. The

FUTURE IN BALANCE - A NEW CORPORATE DESIGN FOR EAPSPI

 

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idea is also for our EAPSPI web pages and docu-ments to be a pleasure for the eyes of users and readers. Other European associations like to illu-strate their sites with European designs such as the circle of stars or photographs of European insti-tutions. EAPSPI has intentionally moved away from this European unison and has established its own identity. You are very welcome to come and see for yourselves, by visiting our web pages at www.eapspi.eu. In the “Members” section, you will find the EAPSPI members with a presentation and a map of Europe showing the location. By clicking on the map, you will have direct access to the different institutions. In the new “EAPSpedia” section, you will find a knowledge pool concerning public sector pension schemes for all the countries represented within EAPSPI. EAPSpedia provides information on old age pension institutions, including survivor and disability pensions, on possibilities of voluntary additional contributions and on portability. Other fields concern financing, governance and addition-al issues.

EAPSPI had the chance to participate through Marisol Brandolini (INPDAP – Italy) in the “II Encu-entro Latinoamericano de Dirigentes de Regímenes de Seguridad Social para Servidores Públicos”, (“Second Latin American Meeting of Directors of Social Security Institutions for Public Servants”), which was held in Buenos Aires in Oc-tober 2009. The invitation to make a presentation at the Argentinean conference had come from the Chairman of the Federal Social Security Council of the Argentinean Republic (COFEPRES – Consejo Federal de Previsión Social de la República Argen-tina), Daniel Antonio Elias, and the Social Security Secretary of the Ministry of Labour, Employment and Social Security of the Nation (Secretario de Seguridad Social Ministerio de Trabajo, Empleo y de Seguridad Social de la Nación), Walter Arrighi,

EAPSPI intends to give interested readers the broadest possible view of public sector pension schemes. For the moment, only PDF documents can be consulted. The next step will be the crea-tion of a genuine data base, allowing systematic searches based on keywords and countries.  The website is currently available in English only. The German and French versions will be available soon. Eva Kiwit, AKA/ BVK

within the framework of contacts started with the Argentinean colleagues who work in the field of social security for public servants. EAPSPI had been asked to participate in the conference with a presentation about: “Social security for public sec-tor employees in the European countries”. This was EAPSPI’s first presentation in Latin America and as such it was an opportunity for both sides to explore differences in our mutual realities and conditions. Delegates at the conference, about 70-80 people, consisted mainly of Argentineans, executives of the various pension funds operating at the local level and a substantial delegation of colleagues from Brazil, from CONAPREV, a Brazil-ian confederation similar to Argentina’s COFEPRES. During the three days (7-9 October)

EAPSPI’S FIRST PRESENTATION IN ARGENTINA

 

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speakers included, in addition to EAPSPI, repre-sentatives from the Ibero-American Social Security Organization (OISS - Organización Iberoamericana de Seguridad Social), the Ibero-American Social Security Confederation (CISS - Confederación Iberoamericana de Seguridad Social), and Qua-train–Américas, ILO (International Labour Organi-zation). Over the past few years Argentina has been grow-ing at a fast pace. The financial crisis of 2008 caused the GDP to slow down, though the growth rate was still a respectable 6 % - 7 %. Unemploy-ment accounts for approximately 9 % of the popu-lation, monthly salaries amount, on average, to around EUR 400 - 500 and apartment rents for about EUR 300 a month. In terms of social security, insurance coverage is still insufficient. The inadequacy of social insurance is a problem that concerns Latin America as a whole and, unless there is a major change, by 2015 only 1/3 of the total population is expected to have some form of social protection. Thus, as ex-plained by Alejandro Bonilla-García Chief advisor at the International Labour Organisation (ILO), the ILO launched the “20 in 10” campaign, with the objective to increase social insurance coverage in the Latin American continent by 20% in 10 years. Recently, the UN Labour Agency announced a programme to guarantee a basic pension for all, which would represent a universal social security net, because the welfare state is necessary to economic development, especially during a crisis. In more recent decades, the Argentinean pension system underwent - in the 1990s - a significant overhaul and lately an actual revolution. In fact, the multiple partial pay-as-you-go and partial funded regimes that were in place until 1993 were changed, in that year, to a Chile-like model and a single privatized national system (AFJPs) was introduced, with the creation of individual savings accounts managed by private pension funds. In 2008, with the beginning of the global financial crisis, the failure of this model and the resulting negative social consequences - and following a reform process begun in 2003 - Cristina Kirchner’s

government, in agreement with all the political par-ties and with a social consensus, re-nationalized the pension system, returning to a pay-as-you-go system with the creation of an Argentinean Inte-grated Social Security System (SIPA - Sistema Integrado Previsional Argentino). The 1993 sys-tem, at a time when the peso was pegged to the dollar, was in fact inefficient in terms of operating costs and transparency, and was unable to im-prove insurance coverage and benefits. However, also in the new situation there is still a problem of insurance coverage and the existence of rules that vary among sectors and geographical areas in the country. Thus, not only the pension treatment of workers differs between the public sector and the private sector but, within the public sector, funds managed at the local level have dif-ferent requirements for their members, depending on the place where they are located, and may give rise to problems for the portability of pension rights. This introduction – which addressed in broad terms Argentina’s socio-economic situation and social security system – was necessary to understand the meaning of the debate that took place at the confe-rence in Buenos Aires and to pinpoint the issues of greater interest for that audience. And while such issues are specific to Argentina, they are mostly applicable also to the rest of Latin America and, to a surprising extent, raise issues for Europe itself. Three questions attracted most attention by the participants in the conference These were: • the replacement rate, i.e. the ratio of the first

pension payment to the last salary received; • the portability of pension rights and • the harmonization or coordination dilemma

among pension systems, which took up most of the debate.

In reality, these three questions are closely related, because the adequacy (actually, the inadequacy) of the replacement rate raises fears that any coor-dination or harmonization might lead to a genera-lized lowering of standards, thus to a deterioration of the situation for those who currently enjoy better

 

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benefits. On the other hand, the portability of pension benefits is complicated by the existence of different pension regimes. Ultimately, everything revolves around social con-sensus - that is the ability to manage highly sensi-tive reform processes which affect the quality of life in old age with the consent of the parties directly concerned. Shifting the focus on Latin America and on the American continent as a whole, it was remarked that the replacement rates of pensions should be reassessed in terms of adequacy and measure-ment, the latter being the result of the effects of different pillars. In essence, the situation in Europe is not very different, given that the reforms in the 1990s and those that took place subsequently reduced considerably first pillar pension benefits, fostering the development of the second pillar, i.e. supplementary funded pensions. Concerning the portability problem, it was noted that in the transition from one job to another pension credits may be lost (and this is the case of Mexico, at least in the public sector). Speaking of portability between countries, attention is called to the “Convenio Multilateral Iberoamericano de Se-guridad Social” (Multilateral Ibero-American Agreement on Social Security), promoted by the OISS, and the information computerization process that is taking place among the Mercosur countries. To this end, one is reminded of the Implementing Regulation of Regulation (EC) No 883/2004 and the construction of an EU-wide IT network, for the paperless transmission of data between member countries. Lastly, there is still the question of coordina-tion/harmonization of pension regimes. Showing an interest in the European experience, the Argenti-neans attending the conference stressed the no-velty for them of the Italian reform. In fact, Italy is perhaps the only country, in Europe, that draws a distinction between the public and private sector and that has carried out, with the pension reform of 1995, the full harmonization of rules for all workers. Even INPDAP, as sole manager of the pensions for all public sector employees, is virtually a unique

institution (there are similarities with the Portu-guese institution CGA). Our Argentinean colleagues are beginning to recognize that their system made of many funds and varying rules throughout the country has prob-lems in terms of social equity, solidarity and finan-cial sustainability. They are concerned and often only talk about coordination among funds, more than harmonization, but the issue is part of the debate now. Thus, they are very interested in building a social consensus around a reform pro-posal. There were many questions on how Italy was able to harmonize public and private sectors without excessive social costs and by managing social conflicts; on how the Italian trade unions could, on that occasion, manage a worker consul-tation phase, mobilizing them in a transparent and democratic process and obtaining their consent. These were the salient points of the Argentinean conference. It was for EAPSPI the start of an interaction to explore issues in their merits with such an important reality outside Europe and, for our Argentinean colleagues, it was an opportunity to start to pursue the ambition to create an associ-ation similar to EAPSPI in Latin America. Elena Marisol Brandolini, INPDAP

 

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In principle, the Riester pension savings model supported by the German state complies with Eu-ropean law, but the same cannot be said of all its regulatory provisions. This was observed by the European Court of Justice (ECJ) in its ruling of 10 September 2009. The German lawmaker must also allow cross-border commuters to benefit from the Riester pension savings system. Moreover, moving to another country will no longer compel workers to refund the allocated aid. The German Federal Government is currently analysing the ruling of the Court in order to propose the required tax law amendments. What does “Riester” state aid consist of? “Riester” state aid consists of tax breaks and state subsidies during the savings phase and postponed taxation in the pension payment phase. The sys-tem was created in 2002, following the pension reform of 2001, as part of the occupational or pri-vate pension system, and is intended to cushion the impact of future drops in first-pillar pensions by creating a funded pension system. The system was named after then Minister of Labour Walter Riester. Since the creation of the system, over 12.5 million people have taken out a “Riester” contract in Germany. In 2008, the amount of state aid reached 1.4 Billion Euros. These contracts are particularly worthwhile for employees with low or average income and therefore contribute to pre-venting poverty in old age. Detailed observations • Cross-border commuters

The opinion of the ECJ is that excluding cross-border commuters from “Riester” pension sav-ings aid infringes European law. At the present time, people who work in Germany, but who do not have unlimited tax liability in Germany for income tax purposes and who live in another Member State of the European Union cannot

benefit from “Riester” aid. Generally, bilateral agreements against double taxation regulate the taxation of cross-border commuter income, by stipulating taxation in the state of residence of the commuter. Therefore, a cross-border commuter cannot opt for unlimited tax liability in Germany, which prevents him from having access to tax breaks in Germany. The opinion of the ECJ is that this comes down to imposing residence in Germany as a prerequisite for “Riester” aid. For the Court, this constitutes dis-crimination against cross-border commuters and non-compliance with the free movement of persons rooted in the EC Treaty. Just like the employees who live and work in Germany and have unlimited tax liability in Germany, cross-border commuters are members of the statutory pension scheme and are concerned by the 2001 pension reform. According to the ECJ, it is therefore not justifiable to exclude them from the aid.

• Move to another country

The ECJ also opposed the fact that up to now, moving to another country could cancel the right to receive aid. Legal provisions currently require “Riester” members to refund state aid and the tax breaks obtained by virtue of a “Riester” pension savings contract if they move to another country and abandon unlimited tax liability in Germany. This clause is significant for pensioners who wish to move to another Euro-pean Union country during their retirement. This therefore concerns, on the one hand, citizens who wish to retire “in the sunnier states” and, on the other hand, European citizens who return to their home country at the end of their profes-sional career in Germany. The negative tax ef-fect of a move prevented a certain number of people from benefiting from a “Riester” scheme as a supplementary pension system. This clause, therefore, does not comply with free choice of employment and residence and, in

GERMAN “RIESTER” AID PARTIALLY INFRINGES EUROPEAN LAW

 

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particular, prevents German employees them-selves from exercising their right to free move-ment and to settle in another Member State.

• Purchase of real-estate property abroad

The Ruling of the Court is also important with regard to use of the capital built up thanks to state aid to purchase a house or a flat. Accord-ing to the currently applicable rules, the capital built up thanks to a “Riester” contract can be used only for a real-estate purchase in Germa-ny. The opinion of the ECJ is that it is precisely foreign cross-border commuters who would be interested in buying a house or flat in another country. They are therefore treated less favour-ably than employees in Germany. This clause therefore constitutes an indirect discrimination on grounds of nationality.

1. Commission communications within the framework of “renewal of the social agenda” Last year, within the framework of “renewal of the social agenda”, the European Commission, in two key documents, defined the points it considers to be important for a European social model, as well as the breakdown of national and European re-sponsibilities to achieve that model. It is regrettable that the path taken is that of a qualitatively re-stricted European social policy for the future, as this means that we lose opportunities to acknowl-edge and foster the intrinsic value and stabilising role of well-developed state social systems. These key documents are: • the Communication of July 2, 2008 "A renewed

commitment to social Europe: Reinforcing the Open Method of Coordination for Social Protec-tion and Social Inclusion" [COM(2008) 418 fi-nal].

Consequences for occupational pension schemes

Granting “Riester” aid to cross-border commuters also and offering the possibility of moving to another country concern both occupational and private pension schemes, while granting the right to use the capital for a real-estate purchase abroad concerns only the private pension scheme. For the time being, there is therefore no change to existing contracts in occupational pension schemes. Con-cerning tax law, the required changes are yet to come. After the ECJ ruling, however, the German lawmaker will have no choice but to modify the “Riester” aid system. We do not yet know how the ECJ ruling will be transposed, but, in any event, the ruling is a clear sign in favour of free movement within the European Union. Eva Kiwit, AKA/ BVK

• the Commission document “Efficiency and Ef-fectiveness of Social Spending” SEC (2008) 2153 (accompanying document to the Commission Communication of July 2, 2008 on the renewed social agenda).

The two documents are not the first of their kind and the political paths and objectives presented at European level are not expressed by the Commis-sion only, but also by other stakeholders. In their current form, they therefore bring together key factors of policies already formulated in the past, identify a common denominator and link them to a vision. What makes these documents particularly explo-sive is that the Commission takes the liberty of intervening at the very core of the social systems of the member states, on the one hand focusing on supposedly higher “European” objectives, and, on the other hand, challenging these systems insofar

POSITION OF THE GERMAN SOCIAL SECURITY ASSOCIATION: THE SOCIAL OBJECTIVES OF THE EU – A STEP FORWARD OR A STEP BACK?

 

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as they are not compatible with these objectives or do not effectively contribute to achieving these objectives. • The Communication on “Reinforcing the Open

Method of Coordination” (OMC) very clearly suggests moving from a rather informal ex-change of experience and voluntary learning from each other to a joint obligation to achieve quantitative objectives on the basis of a list of common indicators. Although the member states would still be able to set national objec-tives, such objectives would be restricted to constituting different paths towards the common objective.

• The Communication on “efficiency of social spending” aims at focusing the social spending of the member states on “priorities” defined at European level, in particular employability, re-ducing poverty and fighting social inequality – whilst reducing expenditure in non-priority areas or for social protection objectives that exceed such priorities.

Both documents provide significant insight on Eu-ropean priorities as seen by the Commission. First of all, they attach great importance to strict align-ment with the objectives of the Lisbon strategy “growth and employment”. The benefits paid by pension, unemployment and invalidity schemes would therefore be primarily targeted at maintain-ing fitness to work by means of vocational training and rehabilitation measures and would focus on this objective. The same would apply to health; the focus is on a measurable improvement of public health with a view to developing active participation in the labour market and to extending professional life. Alongside that, the fight against poverty, in particular poverty of the elderly, represents another part of the thought process, by means of a “mini-mum income” for senior citizens. At the same time, the documents identify less im-portant or non-priority areas, for which member states should reduce their public expenditure. This concerns, in particular, “old age pensions” as well as salary replacement benefits in the event of un-employment, considered to be too generous. This

means that any social spending aimed at objec-tives that are more ambitious than providing in-come on the poverty threshold is on trial. In short, the viewpoint of the German Social Secu-rity Association is that the Commission documents again confirm two gradual trends in the establish-ment of a European social policy: • Firstly, an increasingly tight grip of Europe on

competencies that were up to now exclusively national, regarding social policy;

• Secondly, the design of a rudimentary welfare model, the content of which would be restricted to the fight against poverty and the promotion of employment at any cost.

Recently, the outbreak of the financial and eco-nomic crisis and the huge additional pressure on the financing of social protection systems in the medium term led the German Social Security As-sociation to turn to the public. This primarily con-cerns a criticism of the content of the Commission strategy, and less the issue of establishing whether a European competency exists in this field. 2. The Commission strategy: a “one size fits all” European social model, with no ambitions In the field of pensions, the focus on the fight against poverty is a source of concern. Even at European level, maintaining the standard of living during retirement is an acknowledged objective, but it appears that no more public resources should be used for this objective because, accord-ing to the reasoning of the Commission, there are more urgent needs elsewhere. This means that not only are statutory schemes on a pay-as-you-go basis criticized as lacking sustainability, but that there are increasing signs indicating that from a European, and even global viewpoint, tax breaks for second- and third-pillar pensions are no longer considered to be appropriate. The background to this sneaking and perhaps sur-prising change in position is to be found in older Commission documents. This is well worth a trip back to the year 2003. At the time, in its communi-

 

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cation of December 30 entitled “Modernising Social Protection for More and Better Jobs, a comprehen-sive approach contributing to making work pay” [COM(2003)842final], the European Commission established the foundations of a social model where “retirement” and “old-age pensions” no longer have their place. In this Communication, the Commission said that in the future, people would (and should) work beyond the statutory retirement age in order to have an appropriate overall income, in addition to their old-age pension, as the case may be. This means that it will be necessary to remain professionally active way beyond the age of 65. In its reply of October 2004, the European So-cial Insurance Platform (ESIP) energetically op-posed this viewpoint and expressed in detail why it is impossible to abandon the right of older workers to retire with a fair old-age pension once they have reached a defined age limit. Given that the paper published by the Commission was not really contested in the public debate or perhaps simply went unnoticed, the Commission went a step further a little later in its Green Paper of March 16, 2005 entitled “Confronting demo-graphic change: a new solidarity between the gen-erations” [COM(2005)94]. In this paper, it com-pletely redefined the role of “older people” or “the elderly” in society and on the labour market. It de-signed a “life cycle" model requiring each person to work until an advanced age, depending on his/her state of health (the age of 80 was even men-tioned), any health-related reduction in profession-al income being possibly compensated by social benefits. The concept of a legal retirement age was explicitly challenged, just like the difference be-tween “old age pension” and “dependency bene-fits”, which is understandable if the age limit is 80. Clearly, in this model, the concept of a retirement defined (only) by age no longer applies. Again, in its reply of October 2005, the European Social Insurance Platform (ESIP) opposed these viewpoints energetically and in detail by referring to more flexible transition solutions. This reply, as well as the positions of other organisations, may be one of the reasons for which the concept of a gen-eration of professionally active older workers aged 65 to 80, defined as “employable”, has not been

explicitly repeated to date. The Commission, however, has not by any means abandoned its vision, as shown by its recent de-scription of expenditure for age-defined old-age pensions as “non-priority spending”. For this rea-son, the German Social Security Association has decided to express its position again (see “key points” below). The approach of the Commission concerns not only old-age pensions, but also invalidity and par-tial disability pensions. In most countries, their objective is not merely to guarantee a minimum level of subsistence, but to ensure, sometimes combined with professional income, that an appro-priate standard of living is maintained. Even more than old-age insurance, invalidity insurance needs a continuous and reliable inflow of funds, by means of a pay-as-you-go system. The current financial crisis offers an opportunity to identify the limits of funded systems. The current amount of benefits cannot depend on the situation at the stock ex-change or on the success or failure of capital in-vestment strategies. If the benefits paid to disabled people are reduced, they cannot compensate that drop in benefits by professional activities, given that they are excluded from such activities precise-ly because of their disability. For that reason, the German Social Security Association has expressed a strong opinion against any attempt to privatise the risk of invalidity insurance. Such attempts have recently been observed precisely in the field of work-related injury insurance. The conditions described above with respect to the approach of the Commission are confirmed by its positions on health policy. Here again, the objec-tives of the policy are unduly focused on maintain-ing or restoring employability and on eliminating “inequalities”. Spending beyond this objective or considered to be inadequate in terms of productivi-ty gains or not contributing quantifiably to reducing health-related inequalities can quickly be described as “excessive” and feature on the list of expenses to be discontinued. The German Social Security Association objects that restricting public health systems to worker employability is compatible nei-ther with human dignity nor with the well-founded

 

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expectations of citizens. Although eliminating in-equalities is an important objective, it is by no means the only or the decisive objective. Reducing health care in “wealthy” member states for “elderly” people who have left professional life and are therefore “non-productive” as understood by the Lisbon strategy could, in the worst case scenario, result in reduced life expectancy in those countries, thereby contributing to greater “equality” among member states. This sort of result cannot and must not be considered as a European success. On the contrary, health is a value in itself and is of great importance for the quality of life of citizens. Citi-zens are entitled to expect universal access to high-quality health services, irrespective of their age, gender or social status. For this reason, the European Social Insurance Platform (ESIP), among others, categorically re-fused the idea of a common obligation of member states to take steps towards a quantifiable reduc-tion of health-related inequalities. 3. Key points for a social Europe (extract) • The vision of social protection must not be re-

stricted to reaching supposedly superior Euro-pean objectives, with the consequence that public spending to achieve other objectives or higher standards is referred to as “ineffective”.

• The use of public resources for old-age pensions must not focus on or be restricted to the sole objective of avoiding poverty among the elderly. The purpose of this spending is to ensure a standard of living, combined with the 2nd and 3rd pillars, as the case may be.

• The primary purpose of invalidity and partial disability pensions is not to guarantee a mini-mum level of subsistence, but to maintain an adequate standard of living. Even more than old-age insurance, invalidity insurance needs a continuous and reliable inflow of funds, through a pay-as-you-go system. The German Social Security Association therefore expresses a clear opinion against any attempt to privatise the risk of invalidity insurance.

• Contrary to the opinion of the Commission, the objectives of a health policy cannot focus only on professional integration and on eliminating “inequalities”. Health is a value in itself and has great importance for the quality of life of citi-zens.

• The additional pressure on consolidation of

public finances due to the financial crisis must not be handled to the detriment of state social protection systems. It is precisely during the cri-sis that these systems have proved their worth as automatic stabilising factors. It would there-fore be a mistake to take advantage of the fi-nancial crisis to call for additional reductions in state social protection schemes funded on a pay-as-you-go basis, on the pretext that they are not “sustainable”.

• The German Social Security Association asks

the Commission to respect the assignment of responsibilities between the member states and the European Union and to come back to the “fundamental philosophy” of the Open Method of Coordination as voluntary learning from each other. In that sense, the coordination process has shown its many advantages. This should not be jeopardized by an obligation to achieve quantifiable objectives.

Dr. Wolfgang Schulz-Weidner, German Social Security Association

 

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During the morning of October 16, 2009, a confe-rence took place after the EAPSPI’s annual Gen-eral Assembly. There were held three speeches dealing with different subjects. After the financial turmoil in 2008 the keynote-speech was about the current situation of the global market and possible consequences. Dr. Jens Ehrhardt is a well-known asset manager in Germany, head of DJE Capital. He is a person much in demand by newspapers and TV stations and an expert for feeling the stock markets` mood. 1. Life goes on – pension funds still (?) in the crisis. Global Market Outlook (Dr. Jens Ehr-hardt, DJE Kapital AG, Germany) The presentation was divided in three parts: 1.1 Fundamental factors In this part some figures were given showing the difference of some key indicators between China and the U.S.A., as well as their evolution: GDP growth rate, C.P.I., budget/current account bal-ance, exchange rate. It was shown that the market debt of China, as compared with that of the U.S.A., and as a proportion of the GDP, has a great growth capacity, which reasonably implies that China growth will promote Asian growth due to the fact that China’s trade is Asia’s biased. After the former idea was reasoned, Dr. Ehrhardt moved to the evolution of the effect of new debt on economic growth, savings rate, bank lending, household debt, bank lending, real GDP growth, unemployment, consumer confidence. He sug-gested that the future economic growth does not seem to depend on the U.S.A. or Europe, but on Asia. Nevertheless some more data and studies are needed before reaching such a conclusion.

1.2 Monetary factors As before, some data were analysed and then a possible conclusion was reached: looking at the money supply and comparing it with the stock mar-kets, investments from mutual funds, money mar-ket funds, monetary situation of stock markets. It seems the situation in the U.S.A. or Europe is not favourable for their financial markets. 1.3 Market-technical factors More data and graphs were displayed with the evolution of emerging stock markets, investors’ positions regarding European stock markets, U.S.A. investors’ sentiment, market technique U.S.A./Europe. As a conclusion, some ideas could be proposed: • U.S.A. stock market seems to be overvalued. • Europe stock market seems to be underva-

lued. • Asia, and China in particular, could be the

markets to invest in the near future, if eco-nomic fundamentals are considered.

• China is reaching an economic position were it could counterbalance the weight of the tradi-tional developed economies (U.S.A. and Eu-rope).

2. New developments in Argentina (Dr. Daniel Antonio Elías, Caja de Jubilaciones y Pen-siones de Entre Ríos, Argentina) Given the fact that EAPSPI is a platform to share experiences, best practices and to learn from each other, the second speech led the audience to South America. The speaker, Dr. Daniel Elias, is the president of a pension institution in the prov-ince of Entre Rios in Argentina.

EAPSPI’S CONFERENCE 2009 IN BERLIN

 

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He reported about developments concerning the social security system in Argentina. The Social Security was established in Argentina more than a hundred years ago (1904), with differ-ent schemes for different sectors and being based on “individual savings” among groups of workers. These schemes covered retirement, disability and death, and had a national basis. From 1950 onwards there were several changes in the system, and only after this date was there a significant coverage of the federal states and local administration workers, provided by the Provinces (Argentinean political entity, similar to Counties). The reform consisted in a change to a PAYG sys-tem, with no deficit at the time, and incorporating several other failed reforms at the time of unifying the different provincial schemes. Until 1993, Argentina had several Social Security schemes - PAYG, collective capitalization or PAYG with partial funding - managed at national, provin-cial or local level, as well as other schemes for professional self-employed workers. In 1993 there was an important reform to the Na-tional Scheme, introduced with the purpose of fol-lowing the Chilean reform and its partial privatisa-tion, which lasted until 2001. The system changed into a mixed one after negotiations, with “individual savings accounts”, managed by Private Pension Funds Administrators (AFJPs) and a PAYG sys-tem. Workers needed to choose between the new and the old system, or were automatically allocated to the new - private - scheme, and the AFJPs re-ceived most of the contributions made by the workers. Employers’ contributions financed the public component of the benefits paid. One of the aims of the reform was to alleviate the fiscal deficit, another being the promotion of the national capital market 11 federal schemes were transferred into the national one, while 13 provinces and 26 local districts kept their schemes as they were. In 2001 Argentina suffered a financial crisis (Corra-lito and abandonment of the peg, 1 ARS = 1 USD) and the national debt had to be renegotiated, with the AFJPs holding a big proportion of the total

stock of government bonds, being them the ones who paid most of the cost of the devaluation. At that time, added to the big financial and employ-ment problems, management commissions were very high - up 30% of contributions - to and the resulting coverage ratio was low (55%). In 2004 successive reforms took place, with the State increasing its control of the Social Security scheme. They started with a re-launch of the state PAYG scheme and finished up with the total natio-nalisation of the system at the end of 2008, elimi-nating the AFJPs and creating the SIPA (Inte-grated Social Security Argentinean System). Argentina made the most of the 2008 crisis in terms of deepening in the reform process, and due to the fact that the fund administration was recov-ered by the State, many people could obtain re-tirement benefits and health care coverage, though at a cost for future contributors, while workers saw the movement as a guarantee for their contribu-tions. There was no significant political resistance against the reform, except to dispute the way it was implemented, The Argentinean courts approved the reform as they stated the rights accrued were not private property but expected rights, but only for mandato-ry contributions; therefore, a controversial case law arises. Once the reform took place, the funds held in indi-vidual capitalization accounts, as well as the total flow of contributions, were transferred to the Social Security National Administration (ANSes). As a result of it, no management commissions are charged any more. Some of the funds are invested in funds and trusts with the particular purpose of investing in public works and in the Argentinean real state sector. The ANSes is self governed, and is assisted by an executive consulting committee of four members, controlled at the same time by a Bicameral (Senate and Congress) commission made up by six senators and six deputies. In a few words, the intended Chilean-style 1993 reform was unsuccessful for several reasons, and in 2003 the government changed its social view

 

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and turned back again to a PAYG system, with the funds being administered, managed and invested by the central government. 3. Overcoming Obstacles to the mobility of Researchers due to Supplementary Pensions – EU-and German activities (Dr. Gerhard Duda, HRK, Germany) The last part of this year`s conference dealt with the subject “researchers and mobility – the cross border challenge for pensions”. Europe, its mem-ber states and citizens cannot maintain economic prosperity, welfare and social security without science and research. Research institutions and universities need to attract highly qualified and motivated researchers from all over the world. That is why the European Commission took the initiative to propose measures for facilitating exchange and mobility of researchers. These measures have been adopted by the EU-Competitiveness Council in October 2008 as so called “European Partner-ship for Researchers”. This initiative comprises different aspects to achieve the purpose. Even social security and supplementary pensions have been identified as core issues for researchers` mobility. That is why these questions are on top of the political agenda these days. One of the ideas the European Com-mission is considering is to establish a Pan-European pension fund for researchers. University staff and many scientists and research-ers often are working in public institutions and are therefore members of public sector pension schemes, whether as civil servants or as public sector employee. Due to the fact that many EAPSPI members are concerned the topic was set on the agenda of the conference. In Germany al-most all researchers working in public institutions are with VBL. Since last year there has been an exchange between VBL and the German Rectors` conference (HRK). Dr. Duda is an expert who is in charge for research in Europe. He is the head of the HRK- office in Brussels and takes part in sev-eral working groups and committees on national and European level.

The German rector’s conference gathers the politi-cal representation for 256 German Universities. As a general data, the German Higher Education Sec-tor employs around 518,000 employees (2006 figure), 175,000 of them being researchers in a broad sense. Researchers in general, but in Germany in particu-lar, have some characteristics that differentiate their job situation from that of the “usual” worker, at least in their early employment years of training and career selection: • Low level of employment security. • Relatively, low wage. • Usual change of social security status: em-

ployment, grant/scholarship holder. • Contracts are usually fixed term. • International mobility is a must. Why international mobility? • German higher education regulations enforce

mobility first within Germany. • International academic culture sees mobility

as one of its cornerstones. • Foreign staff is essential to ensure the compe-

titiveness of top universities and research in-stitutions.

Following the Lisbon Agenda of 2000, around 700,000 researchers are needed in order to fulfil the European research and innovation system, and some measures have already been adopted by the Commission and the European Council with this aim in mind. Following all these ideas, mobile researchers do have the need of meeting social security and sup-plementary pension schemes requirements. In order to accomplish these requirements, some actions must be taken: • Specifically-based information supply for re-

searchers: some researchers, though they hold PhDs in several areas, do not understand the information they receive.

 

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• Definition of acquisition/preservation/transfer of supplementary pension rights suited for re-searchers, as well as for other mobile work-ers.

• Easing of mobile workers supplementary pension rights transfers.

• Maybe pan-European pension schemes? Some action has already been taken following the adopted European Partnership for researchers: • Steering Group for Human Resources and

Mobility within the EU member and associated states.

• Preparation of national action plans by au-tumn 2009, and yearly progress reports.

• Feasibility study of a pan-European supple-mentary pension fund for EU researchers with the following three aims: • Census and analysis of a pan European

pension fund; • Analysis of the employers/employees in-

terests, governance structure; • Detailed operational conclusions on if

and how to set up such a fund.

Argentina’s pension system through the times Social Security in Argentina is over 100 years old and it started with the first laws passed at the end of the 19th century, early 20th century when the first social security laws for public servants, railway workers, bank employees and other workers came into effect. During the early years the systems were based on the specialty of each activity, broken down accord-ing to the labor activity performed and based on collective capitalization, i.e., based somehow on “individual savings” among groups of workers which collectively contributed in order to obtain benefits derived from those contributions or sav-ings after fulfilling requirements of old age, disabili-ty or death.

Up to this date, the German rector’s conference has been active on the subject: • Set up of a working group on pension issues

in 2006. • Organisation of expert hearings. • Organisation on an International Bologna

Conference in 2008 -“Penalized for being mo-bile?”- which influenced the Communication of the Conference of 46 European Ministers re-sponsible for Higher Education in Leuven 28-29 April 2009 (Bologna Process).

• Presentation of living examples, with exam-ples from real life.

Aitor Emaldi, Elkarkidetza Claudia Wegner-Wahnschaffe, VBL

Such systems continued to be in effect during the first half of the last century, until 1950 approximate-ly, and were based on a national basis. Certain circumstances arose during the first half of last century that forced the State to help in the financing of the benefits. At this point in time the “Pension plans for Provincial and local public ser-vants” covering public servants from the federal states was introduced. Despite the fact that certain pension schemes had been created during the first years of the century, only after 1950 was there a significant progress in the Provinces to provide coverage for workers from the Federal States and local administrations. In this way, within the Social Security System in Argentina there coexisted a national pension

SOCIAL SECURITY SCHEME IN ARGENTINIA FACING THE CRISIS

 

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scheme for private workers under a labor contract, self-employed workers and national public servants under a single National scheme, and at the same time, each Federal State would have its own social security system for their employees and other workers employed in the districts. Until the year 1993, Argentina had several social security schemes which based its financing on a pure pay-as-you-go basis, collective capitalization, and pay-as-you-go with partial funding. Even though the cases mentioned before were all ma-naged by the State, at national, provincial or local level there were also other schemes for the profes-sional self employed workers. During 1993 there was introduced a very important reform of the National Scheme that changed com-pletely its structure turning it into a mixed one with the creation of the “individual savings accounts” managed by private pension funds administrators (AFJPs). The workers had to opt between the two schemes. In case they did not choose they were automatically assigned to the private scheme. As a consequence the new pension funds administra-tors would receive most of the mandatory contribu-tions made by workers. In addition to that, 11 federal districts transferred their own public servants schemes to the National Scheme while other 13 provinces and 26 local districts kept their own public servants pension schemes. Under these economic conditions, Argentina faced its 2001 crisis and a few years later, renegotiated its government bonds, where the AFJPs had a very important share of the total stock of government bonds. As of 2004, Argentina started a process of succes-sive reforms that increased the State participation regaining somehow the State control on the Social Security scheme; this process lead us to the “na-tionalization” at the end of 2008 of the system eli-minating the individual savings scheme (AFJPs) creating the “Sistema Integrado Previsonal Argen-tino” (SIPA).

Partial privatization The partial privatization of the national pension scheme tried to follow the basis of the 1981 Chi-lean reform introducing individual saving accounts with private management of mandatory pension funds. The fund was constituted only by the work-ers’ contributions leaving the employer contribution to finance the public component of benefits. The purpose of the reform was to reduce the fiscal deficit while energizing the local capital market arguing that it will lead to a more transparent and efficient pension scheme due to private manage-ment. It was also argued that the capitalization of contribution will result in higher pension amounts, allowing each worker to follow up their balance accounts. The private scheme beneficiaries also receive two State Benefits financed as it was mentioned before by employers’ contributions (16%). A basic univer-sal benefit was paid to every pensioner with at least 30 years of contributions; as a compensation for periods of contributions before the reform another benefits was paid (compensatory pension) Up to the year 1993, the State collected both em-ployers and workers mandatory contributions in-cluding self-employed contributions which financed the benefits. During the periods that these incomes were not enough, the State had to finance the dif-ference with specific taxes. After the 1993 reform, most workers either by op-tion or because they did not opt for any of the schemes were in the private scheme. For the managing of the funds the AFJP’s charged very high commissions that were over 30% of contribu-tions. Besides as they had a higher number of contribu-tors than beneficiaries, they received a higher amount of contributions than what they have to pay as benefits investing this difference mostly in Na-tional State Government Bonds.

 

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The first crisis of 2001 At the end of 2001 Argentina faced a deep social, political and economical crisis, leading to the end of the peso-dollar peg. This crisis had important effects in the labour market increasing the unem-ployment and the “informal” labor rates. These events impact directly in the finances of the pension scheme, increasing even more the financ-ing needs of the State. The state forced AFJPs to invest in bonds which were later “defaulted” impos-ing on the funds part of the cost of such devalua-tion. Besides the reformed scheme coverage, both indi-vidual savings accounts (AFJPs) and the PAYG scheme was very low, resulting on a pension cov-erage rate of 55% for senior citizens, i.e. persons of 65 years of age and more. Relaunch of the pay-as-you-go (state-run) schemes and re-nationalisation As of 2003 the Argentinean government attempted to recover the Social Security System focusing on increases in the minimum pension benefits which had been “frozen” for almost ten years. These measures had a strong impact in the recovery process of the beneficiary’s purchasing power. In 2007 an important reform allowed workers free-dom of choice between the existing schemes per-mitting them to come back to the pay-as-you-go system. It is worthwhile mentioning that up to the time the reform took place those workers who had chosen AFJPs scheme would not be able to change to the pay-as-you-go option later on. In this situation, Argentina faced the crisis of the year 2008, having adopted as of the year 2003 a series of measures to recover the social security system and regain control of its administration and guaranteed benefits. Close to 70% of the retire-ment pension funds were invested in government bonds which yielded low profitability. During those years, Argentina promoted certain measures which enabled the possibility for elderly people to obtain social security pensions without totally fulfilling the requisites for contributing years demanded by law

by using “moratorias” (facilities to pay for debts) to make up for the years without contributions and at the same time become eligible for a full set of ben-efits such as family benefits and health care cover-age. The crisis became a unique opportunity for Argen-tina to deepen the reform process and complete the re-nationalisation started back in 2003 through the early reforms. The peak of the crisis forced Argentina to accelerate the timing of debate and adoption of the reforms to limit the inherent risks imposed on the social security system handled by private funds administrators. Public reactions to the re-nationalisation Private pension funds administrators (AFJPs) were seen in a negative light by citizens in general and even more so by contributing active workers, a sense of mistrust had taken over all workers as the AFJPs were not able to guarantee the integrity of the funds or a safe profitability margin. Most specialists agree on recognizing that the AFJPs were doomed (from the beginning) and became an obvious failure both in terms of results and objectives. High operating costs, lack of trans-parency in handling the funds, limited access to information by workers who were unable to retrieve information on their accounts, lack of transparency in handling accounts, low profitability rates and low coverage (were contributing factors which deter-mined this failure). All the factors mentioned before led to the build up of a strong current in favor of the elimination of the AFJPs and the re-nationalisation of the funds. In this way, Argentina faced the 2008 crisis and the re-nationalisation became a huge measure with a view to regain control of the fund administration and bring about more (sense of) security. The so-cial inclusion process allowed approximately 1.800.000 people to obtain retirement benefits and health care coverage (when none existed before). Active workers accepted the impact of re-nationalisation as a necessary consequence to insure the accumulated funding. The Argentinean

 

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Government moved forward in the elimination of the AFJPs by having the state take over adminis-tration of the funds (public since December 2008), contributions collections, investments and adminis-tration and, finally, guaranteeing that the State would assume the obligation to pay for the benefits as a whole. The elimination of the private adminis-trators and the trespassing of the funds were not significantly questioned by the active contributing workforce. The cases that were brought to court were minimal in comparison to the amount of workers and funds handled. Argentina decided to face the crisis recovering the pension funds and (providing a proper) administration of the social security system. Implementation of the re-nationalisation After the reform, the pension funds held in the indi-vidual capitalization accounts as well as the total flow of contributions were transferred to the Social Security National Administration (ANSes). The fund transfer resulted in the creation of the Sustainability and guaranty fund (FGS) of a signifi-cant size representing approximately 10% of Ar-gentina’s GDP. This fund kept the same guidelines and restrictions imposed on the AFJPs with the exception of the possibility of investing abroad. The FGS enables the possibility to fall back on a buffer at a time of crisis. Government administration through the Social Security National Administration made the state responsible for guaranteeing that SIPA resources were utilized for retirement benefits. The Govern-ment limited the ability to invest in the funds recov-ered from the AFJPs. Certain limits are similar to those imposed on private administrators with some exceptions. First, the Government understood this way as an opportunity to for the creation of public works and home building industry investing in funds and trusts with this particular purpose. It is also worthwhile to mention the fact that com-missions charged to workers by the AFJPs were totally eliminated. These commissions represented over 30% of the amounts contributed by workers. The limits and guarantees mentioned before en-

sure the sustainability of the funds recovered by the government. This will be a new challenge in the administration of resources, and how to make a better distribution of these funds. This is a major challenge, to make investments in order to guaran-tee the sustainability but, at the same time, Argen-tina faces the challenge of low value benefits and the fact that the senior citizen population is not satisfied with the benefits received. The most im-portant decision was to recover the administration of the funds. Supervision In order to deal with the previously mentioned chal-lenge, ANSES created a consulting executive committee formed by four members, in addition to the technical experts that this organization already had in place. Furthermore, such committee will be supervised and controlled by a two-chamber com-mission formed by six senators and six deputies who will have ample competences to verify that the objectives for which the fund was created are car-ried out, what kind of investments that can be al-lowed and the profitability and distribution of the funds. Conclusions Since the year 1993, Argentina went through a structural reform that did not result in clear bene-fits. The former systems were unable to improve coverage and benefits. Commissions charged by AFJPs were excessive, workers did not have clear information on the destination of their funds, the deficit generated by the system and the AFJPs deviation of funds was not handled by the govern-ment. As of 2003, the Government started down the path of regaining a relevant role on Social Security poli-cies. The reforms introduced have the objective to take back social security administration by the Government, eliminating the twisted laws and, ultimately, during the peak of the crisis, Argentina decided to come back to a pay-as-you-go system recovering the funds administered by the AFJPs. In this way, Argentina faced the international crisis and the huge challenge of keeping a sustainability

 

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fund through good and solid investments and how to make the best of these funds and at the same time recover the population from “stagnation” after an “unreal” ten year dollar-peso peg, which gener-ated a loss in purchasing power that cannot be eliminated, despite several increases in benefits. This is the greatest challenge. Dr. Walter Arrighi; State-Secretary for Social Security; Argentinian Ministry of Employment and Social Security Dr. Daniel Antonio Elias; President of the Federal Council of Social Security of the Republic of Argentina; President of the supplementary pension institution of the Province of Entre Rios