Portability of supplementary pensions

An increasing number of people recognise that the State alone can no longer shoulder responsibility for their financial future in their old age. Part of the shortfall, which has arisen as a result of declining state contributions, can be made up by private provision, but that is not enough.  

That is why occupational pension schemes are becoming increasingly important as a second pillar supplementing private and state provision. This represents a responsibility for employers but also a major opportunity that forward-looking companies should seize. In the past, many companies aimed to offer employees a supplementary occupational pension scheme, tie them to the firm for a long period and thereby ensure that the pension fund paid its way.

Occupational pension schemes are now seen as an increasingly prominent part of the remuneration system. For that reason, a distinction is drawn between work pensions in terms of whether the employee funds the pension payments from his or her salary or whether they are covered by the employer.

Contributions can also be split between the employer and the employee. This arrangement is particularly to be found in employment situations governed by collective agreements, so that in the Netherlands, for instance, 90% of all employees are entitled to an occupational pension scheme. In Germany, however, where it is mainly only employers who pay the contributions, 10% of employees can draw an occupational pension.

It is necessary to ensure that the rules governing the operation of these schemes do not hamper the mobility of workers and reduce the opportunities for mobile workers to build up sufficient pension rights by the end of their careers; otherwise the flexibility and effectiveness of the labour market would be reduced. Even if there are many factors which can determine the choice of any person to change jobs, it is clear that the fact that any such person could stand to lose a substantial part of his supplementary pension rights may make that person seriously think again about wanting to change jobs. Accordingly, it is not only a matter of securing mobility between Member States but also within them.

The Commission therefore made the portability of pension rights the focus of its proposal. Nevertheless, the diversity and heterogeneity of business models in the Member States has not made it possible thus far to guarantee portability. The Committee on Employment and Social Affairs has attempted, therefore, to allow workers' mobility by ensuring that the vested pension rights of outgoing employees remain within the company, and therefore within the same supplementary pension scheme, but that these pension rights are kept in line with economic growth and protected from insolvency. In order to ensure that the conditions for acquiring supplementary pension rights do not undermine the exercise of the right of workers to freedom of movement within the European Union, limits must be established concerning the conditions governing the acquisition of such rights so that workers, when they exercise their right to freedom of movement or move within a Member State, can receive a satisfactory pension at the end of their career.

In order to accommodate employers' desire for a longer period of employment, a five-year vesting period for pension rights has been established for employees under 25. The setting of a higher minimum age would, however, penalise young workers if a change of job before the minimum age resulted in the loss of pension rights for the period prior to reaching this age.

It was a controversial point within the committee as to whether the directive should also apply to pre-existing commitments. The rapporteur felt that it would be financially unviable to tamper with existing schemes, as they would not be able to adapt to the new circumstances and rules, and called for the directive to apply from the date of entry into force and not, therefore, to pre-existing commitments. She was, however, unable to enforce this point of view. As the Council had also been unable to agree on the date of entry into force, the Commission's proposal for a directive fell in Council, meaning that it is now a question of waiting to see to what extent the Presidency-in-Office of the Council will submit new compromise proposals so that the right to freedom of movement - one of the Community's basic freedoms - is enforced and the operation of the internal market improved.

The proposal adopted by Parliament can therefore only be seen as a first, albeit significant, step towards achieving freedom of movement and mobility, as the portability of supplementary pension rights has been removed from the Commission proposal, not being financially viable at the present time. At a later date, portability should be guaranteed so that workers can enjoy unrestricted mobility. Parliament has therefore called on the Commission to present a proposal on this matter in five years' time that includes rules freeing companies from their responsibility for acquired pension rights by providing for the potential transfer of these rights to another pension scheme.   

Klaus Kellersmann