Pensions In the European Union
The EU’s equivalent of a totalization agreement is known as EULISSES as regards State pensions. But for most expats, occupational pension schemes are a much greater preoccupation. The European Commission announced grandly in October 2005 that workers switching jobs or countries would no longer have to worry about substantial loss of work pension benefits under the ‘portability of pensions’ Directive that it had proposed. Previously, changing job or country could mean losing occupational pension benefits in some Member States. But the proposal announced by the EC would mean avoiding major losses, and in many cases allowing benefits to transfer with the worker across sectors and countries in the EU.
The Directive aimed to help the growing numbers of EU workers who are switching jobs, and was designed to support the Commission’s ‘Jobs and Growth’ strategy by making it easier for workers to move jobs and countries. Vladimír Špidla, European Commissioner for Employment, Social Affairs and Equal Opportunities, explained that the adoption of the proposal would come shortly before the beginning of the 2006 European Year of Workers’ Mobility.
“If we expect workers to be mobile and flexible we cannot punish them if they change jobs. Pension rights must be fully transferable. This directive has been long overdue.”
The proposal was designed to reduce the obstacles to mobility within and between Member States caused by supplementary pension schemes provisions. These obstacles relate to: the conditions of acquisition of pension rights (such as different qualifying periods before which workers acquire rights), the conditions of preservation of dormant pension rights (such as pension rights losing value over time) and the transferability of acquired rights. The proposal also seeks to improve the information given to workers on how mobility may affect supplementary pension rights. The proposed legislation has not however had an easy ride. After the European Parliament did considerable damage to the main planks of the Directive in 2007, the European Commission announced in October, 2007, that it had adopted an amended proposal taking on the majority of the European Parliament’s amendments. It focuses on the setting of minimum requirements for better access to pension rights, clearer rights of preservation so mobile workers’ pensions are treated fairly, and improved access to useful and timely information. Its aim is now to ensure that workers are not penalised because of mobility rather than to enforce transferability, the original goal of the legislation.
Commenting on the proposal Vladimír Špidla, EU Commissioner for Employment, Social Affairs and Equal Opportunities explained that: “The amended text highlights the determination of the Parliament, the Council and the Commission to break down the barriers to workers’ mobility in Europe.” Saying that he was disappointed by the EP’s attitude, Mr Špidla nevertheless acknowledged the progress made, underlining that “achieving the right balance between reducing obstacles to mobility, while maintaining a stable and sustainable environment for the development of supplementary pension provision is one of Europe’s greatest challenges.”
He went on to add that: “Enabling workers to move freely around the EU and national labour markets without losing important occupational pension benefits is a clear example of “flexicurity” in action. The urgency of improving workers’ rights is why I was ready to accept a compromise on the issue of the transfer of supplementary rights, as well as the exclusion from the Directive of pension schemes that are already closed to new members. It is important that we take this significant step now, and not risk further delay by trying to achieve all our objectives at once.”
Provisions relating to transfers are therefore not present in the proposal. The Commission recognises the view of many that, at this time, measures for the transfer of supplementary rights are a step too far. But that was the whole point of the original Directive, surely?
The title of the proposal was amended to ‘Proposal for a directive on the minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary pension rights ‘. As of mid-2010, the Pensions Portability Directive seems to be bogged down in the Council, with Germany causing particular difficulties. Another EU Directive, 2003/41/EC, on the activities and supervision of Institutions for Occupational Retirement Provision, known colloquially as IORP, which attempts to create a Europe-wide market for pensions provision, is a framework directive, and fairly toothless at that - it has been left to individual countries to implement regulations under the Directive, and they have not done much. For the time being, therefore, hopes for a Europe-wide pensions market probably therefore rest with the European Court of Justice, which ruled in early 2007 that Denmark was in breach of European law on freedom of movement of workers and capital by not granting tax-deductions on contributions to pension contracts with foreign insurers. Swedish Finance Minister Anders Borg, whose country has a similar case pending with the ECJ, had commented at a summit in Brussels that the government would analyse the verdict and its possible implications for Sweden.
These are just two of a series of cases brought against national governments by the European Commission in recent years, which issued a communication seven years ago stating that it would sue member states that did not allow ‘reasonable’ tax treatment of mobile employees’ income. While the Commission’s work on taxation has certainly had beneficial results, it doesn’t help with fragmentation, and does not have the force of law as yet. There is also room for interpretation regarding the definition of ‘reasonable treatment’ at the moment.