EU: Commission issues revised pensions draft
In October 2007, the European Commission submitted a revised version of its draft Directive on supplementary pension rights. In line with the wishes of the European parliament and council, the new proposal drops any attempt to improve the transferability of occupational pension rights when workers move within and between member states. Instead it focuses only on the acquisition of pension rights, the preservation of dormant rights and enhanced information for workers.
On this page:
Background
Amended proposal
Scope
Acquisition of rights
Preservation of dormant rights
Information
Implementation
Next steps
Key points
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Background
The commission issued its initial proposal for a Directive on "improving the portability of supplementary pension rights" in October 2005. The aim was to help increase labour mobility both between and within member states by removing obstacles to such mobility and to workers' career development opportunities that arise from provisions in employment-based supplementary (ie occupational) pension schemes. The proposal focused on three areas: the conditions of acquisition of pension rights; the conditions of preservation of dormant pension rights; and the transferability of acquired rights.
The draft Directive was debated by the employment, social policy, health and consumer affairs council on several occasions, with progress made on a number of points. Member states broadly agreed that supplementary pension schemes across the EU are so diverse that the obligatory transferability of pension rights (ie enabling workers to take their acquired rights to a new job, including jobs in another member state) cannot realistically be achieved, at least for the foreseeable future, and that the draft Directive should therefore not deal with this issue. However, a number of substantial questions remained unresolved, in particular that of the extent of possible exemptions from the scope of the Directive.
The council most recently discussed the proposal on 30-31 May 2007, seeking agreement on a "general approach". However, it concluded, "given the impossibility of reaching a compromise that would satisfy all the delegations", that "at this stage, the council was not yet in a position to agree on a text, as the required unanimity was not achieved". The council agreed that it would explore “the possibility of resuming work” after the European parliament (EP) had given the draft Directive a first reading and the commission has issued an amended proposal.
The EP gave its first reading on 20 June 2007, proposing 34 amendments to the draft Directive. Notably, taking the same approach as the council took, it called for the focus of the proposal to be shifted away from the transferability of pension rights to the acquisition of rights and the preservation of dormant rights. The EP argued that the introduction of a compulsory transfer scheme would, at present, place too great a burden on some supplementary pension schemes and would cause considerable technical difficulties.
Amended proposal
The commission expressed some disappointment that the EP (and council) wanted to remove the transferability provisions from the draft Directive. Vladimír Špidla, the EU commissioner for employment, social affairs and equal opportunities, said "the commission had made a much more ambitious proposal which would have enabled workers to enjoy true portability of their pensions." However, the commission bowed to the will of the other institutions and on 9 October issued an amended proposal containing no provisions on transferability, except a commitment that the commission will re-examine the issue five years after the Directive enters into force. The title of the proposal has been changed to the draft Directive "on the minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary pension rights".
In its amended proposal (PDF format, 96K) (on the European Commission website), the commission also takes on board a majority of the EP's other proposed amendments, considering that they "maintain the aims and political viability of the proposal and in many cases enhance the original drafting". The new version focuses on setting minimum requirements for: better access to supplementary pension rights; clearer preservation rights so that mobile workers' pensions are treated fairly; and improved access to useful and timely information. The aim is to ensure that workers are not penalised because of mobility. Further, in the interest of "ensuring ongoing sustainability", pension schemes will be given more time to accommodate the Directive's new requirements.
Špidla commented 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 added 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."
The main points of the amended proposal are set out below.
Scope
The draft Directive aims to facilitate the exercise of the right of workers to freedom of movement and to facilitate occupational mobility, by reducing the obstacles created by certain rules concerning supplementary pension schemes linked to an employment relationship. It covers supplementary pension schemes, defined as occupational retirement pension schemes established in conformity with national legislation and practice and linked to an employment relationship, intended to provide a supplementary pension for employed persons. State schemes covered by EU social security Regulation (EEC) no.1408/71 are excluded, as are:
- supplementary pension schemes that, on the date of entry into force of the Directive, no longer accept new active members and remain closed to them;
- supplementary pension schemes that are subject to measures involving the intervention of public administrative bodies or judicial authorities that are intended to preserve or restore their financial situation, including winding-up proceedings. This exclusion would not extend beyond the end of the intervention; and
- insolvency guarantee schemes, compensation schemes and national reserve funds.
Acquisition of rights
The draft Directive would require member states to take all necessary steps to ensure that:
- where access to active membership of a supplementary pension scheme is conditional on a period of employment, this period shall not exceed one year;
- where a minimum age is stipulated for the accrual by an active scheme member of "vested rights" (ie entitlement to a supplementary pension), this age shall not exceed 21 years;
- where a "vesting period" (a period of active membership of a scheme that is required in order to trigger entitlement to a supplementary pension) is applied, this shall under no circumstances exceed one year for active scheme members over the age of 25. For active scheme members below this age, vesting periods shall not exceed five years; and
- where an "outgoing worker" (an active scheme member whose current employment relationship ends for reasons other than becoming eligible for a supplementary pension) has not yet acquired vested pension rights when the employment relationship is terminated, the supplementary pension scheme shall reimburse the contributions paid by the outgoing worker, or paid on the worker’s behalf, and, where the outgoing worker bears the investment risk, the investment value arising from these contributions.
Member states would have the option of allowing the social partners to lay down by collective agreement different provisions in these areas, as long as those provisions provide at least equivalent protection for the rights of workers and active scheme members.
Preservation of dormant rights
"Dormant pension rights" are vested pension rights retained within a scheme in which they have been accrued by a "deferred beneficiary" - that is, a former active scheme member who has vested pension rights in a supplementary pension scheme, but is no longer an active member of that scheme and is not yet in receipt of a supplementary pension from the scheme.
The draft Directive would require member states to adopt the measures necessary to ensure that the vested pension rights of outgoing workers can remain in the supplementary pension scheme in which they are vested. The initial value of these rights for the purposes should be calculated at the point when an outgoing worker's current employment relationship terminates.
Member states would also be obliged to adopt the measures necessary to ensure that dormant pension rights or their values are treated in line with the value of the rights of active scheme members, or the development of pension benefits currently in payment, or by other means that are considered "fair treatment". Examples of such fair means include:
- setting the pension rights in the supplementary pension scheme as a nominal sum;
- ensuring that the deferred beneficiary continues to benefit from a rate of interest built into the pension scheme, or from the return on investments derived by the supplementary pension provider; or
- adjusting the value of the dormant pension rights in accordance with the inflation rate or salary levels. This may be subject to a "proportionate" limit set by national legislation or agreed by the social partners.
Member states could allow supplementary pension schemes not to retain the vested rights of an outgoing worker but instead to pay the outgoing worker a capital sum equivalent to the value of the vested pension rights. However, the value of the vested pension rights could not exceed a threshold established by the member state concerned.
Member states would have the option of allowing the social partners to lay down by collective agreement different provisions in these areas, as long as those provisions provide at least equivalent protection for the rights of outgoing workers and deferred beneficiaries.
Information
The draft Directive would require member states to adopt the measures necessary to ensure that active pension scheme members can obtain on request information on how termination of employment would affect their supplementary pension rights. This information should cover:
- the conditions governing the acquisition of supplementary pension rights and the effects of applying them when employment is terminated;
- the value of their vested rights or an assessment of the vested pension rights carried out no more than 12 months preceding the date of the request; and
- the conditions governing the future treatment of
dormant pension rights.
Deferred beneficiaries would be entitled, on request, to information about:
- the value of their dormant rights, or an assessment of the dormant pension rights carried out no more than 12 months preceding the date of the request; and
- the conditions governing the treatment of dormant
pension rights.
The information for active pension scheme members and deferred beneficiaries should be provided "clearly and within a reasonable period of time".
Implementation
Following adoption, the member states would have two years to adopt the laws, regulations and administrative provisions necessary to comply with the Directive, or to ensure that the social partners introduce the required provisions by way of agreement. However, member states would, where necessary, have an additional five years after the deadline to implement the provisions relating to the acquisition of pension rights and the preservation of dormant rights.
Every five years after the implementation deadline, the commission would draw up a report on the Directive’s application. The first report would contain a review of the conditions of transferring workers' supplementary pension rights. On the basis of this first report, the commission would, if appropriate, examine options for a proposal containing any amendments to the Directive or other instruments that "prove necessary in order to further reduce obstacles to the mobility of workers created by certain rules concerning supplementary pension provision".
Next steps
On the basis of the commission's revised proposal, the current Portuguese presidency of the council is expected to seek unanimity among the member states on a common position on the draft Directive. The next meeting of the employment, social policy, health and consumer affairs council will be held on 5 and 6 December. The proposal, which is subject to the co-decision procedure, will then go to the EP for a second reading, leading, if all goes well, to an agreement between the EP and council on a final text. Given that the commission appears to have taken account of the main issues raised by the council and EP, the prospects for relatively speedy adoption seem good. The Directive will, however, be considerably less ambitious than the commission had originally intended, with the key issue of transferability of occupational pension rights shelved for the present.
This article was written by Mark Carley, editor, European Employment Review.
European Employment Review 406 (EER 406) contents
