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Portability of pensions

European Commission - MEMO/05/384   20/10/2005

Other available languages: DE

MEMO/05/384

Brussels, 20 October 2005

Portability of pensions

Why do we need this now?

Labour mobility helps labour markets by making it possible to put the right skills with the right jobs as well as increasing workers' career and development opportunities. This mobility is hindered without protection for the social security rights of migrant workers and their families. Eliminating these barriers to mobility is part of the EU's plans to raise growth and employment.

What have pensions got to do with worker's moving countries and jobs?

If people believe that changing jobs and moving will entail costs - in terms of their social security rights – this will act as a disincentive to using their right of free movement.

Protection of statutory (or state) pensions when moving jobs or countries already exists. But the effectiveness of this protection is being undermined by Member States' tendency to increasingly rely on supplementary pensions - which are not covered by these rules.

Why a directive?

A less binding instrument, such as a code of conduct, would have little chance of securing the desired result. Discussions which have taken place for over 15 years at European level have failed to produce this type of voluntary initiative. Furthermore, many elements on which the supplementary pension schemes are based are governed by the laws of the Member States.

On the other hand, a more binding instrument, such as a regulation, would not offer the flexibility needed to take due account of the vast diversity of supplementary pension schemes and the fact that they are often voluntary.

Is this not already covered by another Directive?

For the moment there is only one legal instrument at European level on the free movement of persons in relation to supplementary pensions, Directive 1998/49/CE. This Directive mainly establishes a principle of equal treatment between those workers moving within the country and those moving across borders. It does not however address the main obstacles to mobility.

Was everyone consulted?

Two consultations of the social partners (employers and employees' organisations) showedn that, despite their recognition of the need to take action at Community level, there would be no negotiations between them at EU level. Therefore, after more than a decade of discussions on this matter, the current proposal for a directive was prepared. The proposed measures have been formulated after extensive consultations with all parties concerned and on the basis of an impact assessment.

Isn't this harmonisation by the back door?

The proposal does not seek to harmonise and respects the diversity of supplementary pension provision in the Member States. It concentrates on the most important obstacles to mobility. These relate to three areas: acquisition conditions, the preservation of dormant rights and the transferability of rights.

What is portability?

"Portability" is the possibility of acquiring and keeping pension entitlements in the event of professional mobility. "Transferability" refers to one specific way of achieving portability, namely by transferring a capital representing the acquired pension entitlements from one scheme to another.

Why not cover the self-employed?

Covering the self-employed would have meant adding a third legal base (Article 308). In any case, Regulation 1408/71 already covers a significant number of schemes for the self-employed.

Why not restrict the Directive to the cross-border cases?

The Directive aims to improve not only worker mobility from one Member State to another but also occupational mobility within countries – both of these benefit the labour market.

Obstacles to mobility in both these scenarios are often associated. For instance, it is impossible in practice to apply different acquisition conditions depending on whether the mobile worker moves to another Member State or whether she/he stays within the same country. This would lead to difficulties for the funds, raising the administrative costs.

What types of schemes are covered by the Directive?

The Directive covers all schemes that are based on an employment relationship, the so-called "second pillar", or "occupational" pension schemes. Only those schemes are exempted that fall under the Regulation 1408/71 (for instance AGIRC/ARRCO in France). The Directive covers both capitalised and non-capitalised schemes, even if in the latter case an exemption is foreseen for the transferability requirement.

In principle, no distinction is made between these two types of schemes. However the implementing measures will of course differ according to the nature of the scheme, in particular on preservation of dormant rights and transferability.

What will be the measures proposed?

Besides taxation, an issue that will not be dealt with by this proposal, three main groups of obstacles to mobility linked to supplementary pension have been identified. The proposal will address these obstacles in the following way:

Acquisition conditions

In order to enable mobile workers to build up sufficient supplementary pension rights throughout their career, the proposal foresees some ceilings for acquisition conditions. Concretely this means that where one should have reached a certain age to acquire rights, this age can not exceed 21 years.

Where one has to be in the job for a certain period in order to become member of the pension scheme, this (waiting) period cannot be longer than one year. Finally, where a worker should be member of the scheme for a specific period before acquiring rights, this (vesting) period can not be longer than two years.

Preservation of dormant rights

In case a worker leaves his/her rights behind in the scheme linked to the former employer, Member States should ensure that these rights are adjusted in order not to penalise the mobile worker.

Transferability

A worker has the choice to maintain the rights in the former scheme (unless these rights are so small that this would lead to excessive administrative costs) or to transfer the rights to another scheme.

The proposal here takes into account the specific situation of unfunded schemes, like bookreserve schemes. Member States can exclude these types of schemes from the requirement to transfer in order to preserve their financial sustainability. Ten years after the entering into force of the Directive, the Commission will re-examine the situation with a view to making also these schemes as compatible as possible with the requirements of an increasing mobile labour force.

Finally, the proposal also foresees that workers should be well informed about the consequences of leaving the undertaking for their supplementary pension rights.


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