Proposal for a Council Directive on safeguarding the supplementary pension rights of employed and self- employed persons moving within the European Union
Date: 1997-10-08
Institutions: European Commission
Subjects: European social policy, application of EU law, freedom of movement, migrant worker, supplementary pension

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 08.10.1997 
COM(97) 486  final 

97/0265 (CNS) 

Proposal for a 
COUNCIL DIRECTIVE 

on safeguarding the supplementary pension rights of employed and self-employed  persons 
moving within the European Union 

(presented by the Commission) 

EXPLANATORY MEMORANDUM 

I 

INTRODUCTION 

The European Council meeting in Amsterdam on  16-17 June  1997 reaffirmed  the importance 
the Council attaches to  a properly  functioning  Single Market  as an essential  element  of the 
overall  strategy to  promote  competitiveness,  economic growth  and  employment throughout 
the Union. 

Moreover,  the  European  Council  agreed  concrete  action  on  making  maximum  progress 
towards the final completion  of the  Single Market:  making the rules more effective,  dealing 
with  the  key  remaining  market  distortions,  avoiding  harmful  tax  competition,  removing 
the sectoral obstacles to market integration and delivering a  Single Market for the benefit  of 
all citizens. 

Furthermore, the European Council attaches paramount  importance to creating conditions in 
the Member States that would promote a skilled and adaptable workforce  and flexible labour 
markets  responsive  to  economic  change.  This  requires  active  intervention  by  the 
Member States  and  the  European  Union  in  order  to  facilitate  the  free  movement  of  this 
workforce within the Union and to help people develop their employability. 

The  purpose  of  this  Directive  is  to  provide  protection,  as  regards  supplementary  pension 
schemes (retirement, invalidity or survivors), for the pension rights of workers and members of 
their  families  who move from one Member  State  of the  European  Union to  another.  Such 
protection  covers,  in  particular,  the  preservation  of  supplementary  pension  rights  under 
supplementary  schemes, whether  membership  thereof  is optional  or  compulsory,  as well as 
cross-border payment of benefits and possible cross-border affiliation for posted workers. 

The  proposal,  therefore,  provides the  means to  remove  some  of  the  obstacles  to  the free 
movement  of workers  within the  Union.  This will  have  a  positive  effect  on  labour  market 
mobility since workers will be less hindered from going to work in another Member  State if 
they  know  that  their  supplementary  pension  rights  are  protected.  Similarly,  the  proposal 
smoothes the path for companies who wish to make the best use of their human resources by 
posting workers to other Member States. Increased labour market flexibility and mobility will, 
in themselves, provide a stimulus to employment and growth. 

As  has  been  emphasized  in  the  1997  Green  Paper  on  supplementary  pensions  in  the 
Single Market1  and  the  Commission  Communication  on  occupational  pension  schemes  of 
July 19912, supplementary pension schemes play an important role as a second pillar of social 
security which complements the protection  provided  by statutory  schemes. As many Union 
citizens turn to supplementary pension schemes as a way to guarantee a secure income in their 
retirement, the need for protection of these rights becomes more important. 

"Supplementary Pensions in the Single Market - A Green Paper" COM(97) 283 of 10 June 1997. 
"Supplementary social security schemes: the role of occupational pension schemes in the social 
protection of workers and their implications for freedom of movement", SEC(91) 1332. 

EL 

GENERAL CONSIDERATIONS 

Article  51  of  the  EC  Treaty  specifies  that  the  Council  shall,  acting  unanimously  on  a 
proposal from the Commission, adopt  such measures in the field of  social  security  as are 
necessary to provide freedom of movement for workers. 

the  Community  has  already  adopted 

legislation 
On  the  basis  of  Article  51, 
(Regulations (EEC)  No  1408/71  and  No  574/72/  which  aims  to  remove  obstacles  to 
cross-border  mobility  of workers  in the field of  statutory  pensions.  The  legislation  does 
not  interfere  with the freedom of Member  States  to  determine  the  organization  of  their 
own statutory pension schemes; what it does is to make sure that the potential mobility of 
a worker is not impeded by being penalized in moving from one Member State to another. 

The  abovementioned  Community  Regulations  do  not  apply  to  supplementary  pension 
schemes which do not emanate from legislation but from initiatives of the  private  sector. 
Most  of them  are based  on  collective  bargaining  or  agreements  concluded  between  the 
two sides of industry, others result from the initiative of employers. 

In connection with supplementary pension  schemes in the European  Union, the Commission 
Communication to the Council of Jury 1991 set out the necessary guidelines and mapped out 
the future  action to be taken by the Commission in this area. The Communication placed the 
emphasis primarily on the positive role played by supplementary pension schemes in providing 
workers with social protection. Nevertheless, it also highlighted a number of possible obstacles 
to the free movement of workers and thus to the completion of the Single Market. 

Action is needed to  remove  such obstacles in order  to  promote,  at European  level, worker 
cross-border mobility in keeping with the letter and spirit of the Treaties, while taking account 
of the specific features of supplementary pension schemes. 

The Treaty requires not only the abolition of any discrimination based on nationality but also 
the elimination of any national measure likely to impede or render less attractive the exercise by 
workers of the fundamental freedoms guaranteed  by the  Treaty  as interpreted  in successive 
judgments by the Court of Justice4. 

In  February  1996,  the  Commission  decided  to  investigate  the  issue  of  supplementary 
pensions  more  closely  before  making  specific  proposals  and,  accordingly,  requested  a 
High Level Panel of experts on free movement,  chaired by Mrs  Simone Veil, to  examine 
the dossier and to prepare a report. 

In  its  report,  presented  on  28  November  1996,  the  Panel  considers  that,  given  the 
predominance  of  contractual  rights  and  the  role  of  the  social  partners  in  this field, any 
legislative intervention by the Community should be the minimum necessary to  secure the 
preservation  of  rights.  However,  the  Panel  also  underlined  the  need  to  take  further 
initiatives to encourage the voluntary extension of  rights. 

The updated version of these Regulations is published  in OJ L 28 of 30 January  1997. Since the 
extension of the personal scope of the Regulations to self-employed  persons, the additional  legal 
basis of Article 235 of the Treaty has been required. 
See  Case  C-279/93,  Finanzamt  Kôln-Altstadt  v  Schumacher,  judgment  of  14  February  1995, 
ECR  1-225;  Case  C-19/92,  Kraus,  judgment  of  31  March  1993,  ECR  1-1663;  Case  C-80/94, 
Wielockx, judgment  of  11  August  1995,  ECR  1-2493;  Case  C-107/94,  Asscher,  judgment  of 
27 June  1996, ECR 1-3089. 

In arriving at its recommendations,  the Panel was guided by a basic principle of  Community 
law, that of "equal treatment": a European citizen who chooses to work for employers in more 
than one Member  State  should  not,  as a result,  incur a loss  of  supplementary  pension rights 
which  he  or  she  would  not  have  had  to  suffer  had  both  the  old  and  new  employer  been 
established in the same Member State. 

The  Panel,  therefore,  suggested  that  the  Commission  should,  at  least  initially,  confine 
any  proposal 
the 
following elements: 

to  a  three-pronged  approach,  encompassing 

for  a  Directive 

(a) 

preservation of acquired rights; 

(b) 

cross border payments; 

(c) 

short-term employment  in another Member  State and the possibility  of  continuing 
contributions to a supplementary pension scheme in the Member State of origin. 

In  its  recent  Communication  "Modernizing  and  Improving  Social  Protection  in  the 
European  Union"5,  the  Commission  recognized  that  the  absence  of  any  coordination  at 
Community  level  for  supplementary  pension  schemes  constitutes  a  real  problem  for 
employed  and  self-employed  persons  moving  within  the  European  Union  and  concluded 
that  there  is  a  need  for  Community  legislation  building  on  the  High  Level  Panel's 
recommendations. 

Moreover, in the recent Green Paper on Supplementary Pensions in the Single Market, the 
Commission posed a number of questions to all interested parties (including  governments, 
social partners, and supplementary pension  scheme representatives)  which are intended  to 
deepen  the  analysis  of  the  remaining  problems  which  constitute  obstacles  to  free 
movement.  This concerns in particular long vesting periods, difficulties with transferability 
of vested pension rights and tax difficulties  linked to acquiring pension rights in more than 
one Member State. 

In this context, the Commission is presenting this proposal for a Council Directive as a step 
to removing obstacles to free movement relating to  supplementary pensions, in the light  of 
the  recommendations  of  the  High  Level  Panel  experts  on  free  movement,  and  after 
consultation with all parties concerned. 

This proposal  is in line with the recent  conclusions  of the European  Council  of Amsterdam, 
which  reaffirmed  the  importance  attached  to  a  properly  fimctioning  Single  Market  as  an 
essential  element  of  the  overall  strategy  to  promote  competitiveness,  economic  growth  and 
employment throughout the Union. The Council welcomed the Commission's "Action Plan for 
the  Single  Market"6  and  endorsed  its  overall  objective.  The  four  strategic  targets  in  the 
Action Plan should form the basis for a renewed political effort to remove remaining obstacles 
so  as to  ensure that the full  potential benefit  of the  Single Market  is realized.  This proposal 
forms one of the actions set out in strategic target 4  of the Action Plan, "Delivering  a single 
market for the benefit of all citizens". 

5 
6 

COM(97) 102 final of 12 March 1997. 
CSE(97) 1 final of 4 June 1997. 

m. 

ACTION AT COMMUNITY LEVEL 

Why» Directive? 

All of the problems identified  in the  1991 Communication weigh heavily on worker mobility 
within the European Union Given that freedom of movement is a basic principle of the Treaty, 
it is essential that any worker exercising his or her right to free movement should be able to 
take up work in another Member State without fear of losing his or her right to benefits under 
a  supplementary  pension  scheme.  However,  the  Commission  has  recognized  that  this  aim 
cannot  be  achieved  by  simply  extending  existing  Community  legislation  on  statutory  social 
protection  to  cover  supplementary  pension  schemes.  Given  the  multiplicity  and  diversity  of 
supplementary pension schemes and the feet that employers are often not legally required to set 
up such schemes, it is accepted that any Community measure aimed at improving protection 
for migrant workers should allow the Member States and the social partners as much  flexibility 
as possible. Having said tnat, the only way of achieving the given aim is to make  adjustments 
to the laws of the Member States. This is why a Directive proves to be the most appropriate 
legal instrument for safeguarding rights under supplementary pension schemes. 

In keeping with its 1995-1997 Medium Term Social Action Programme7, the Communication 
on Modernizing and Improving Social Protection in the European Union, the Green Paper on 
Supplementary Pensions in the Single Market, and the Action Plan for the Single Market, the 
Commission  is presenting  this  proposal  for  a  Directive  on  safeguarding  the  supplementary 
pension rights of workers moving within the European Union. 

In the Directive under consideration here, the Commission has restricted itself* to drawing up a 
general framework setting out the broad approach to be taken. 

The legal basis 

The legal bases for the proposed Directive are Articles 51 and 235 of the Treaty. Article 51 
states that "The Council shall, acting unanimously on a proposal from the Commission, adopt 
such measures in the field of social security as are necessary to provide freedom of movement 
for  workers  ...". This Article requires that  all obstacles in the field of  social  security which 
directly or indirectly hinder freedom of movement shall be eliminated. Article 235 of the Treaty 
is necessary since Article 51 does not cover the self-employed. Article 235 had already been 
used to extend the scope of Regulation (EEC) No 1408/71 to cover self-employed persons. 

However, it should be emphasized  that there is no intention in this proposal to diminish the 
applicability  of  the  single  market  provisions  and  the  competition  rules  of  the  Treaty  to 
institutions that provide supplementary pension benefits.  This is consistent with the approach 
taken in the Green Paper on supplementary pensions in the single market. 

COM(95) 134 final of 12 April 1995. 

IV.  COMMENTS ON THE ARTICLES OF THE DIRECTIVE 

CHAPTERI 

Objective and scope 

Article 1 

This Article sets out the aim of the Directive, namely to ensure that appropriate protection is 
given  to  the  individual  rights,  acquired  or  in  the  course  of  acquisition,  of  members  of 
supplementary pension schemes - within the meaning of Article 1  of the Directive - who move 
from one Member  State to  another within the European Union.  This protection  covers not 
only members who are currently contributing to a supplementary pension scheme or on whose 
behalf  contributions  are  currently  being  made,  but  also  members  irk  respect  of  whom 
contributions  have  ceased,  and  relates  in  particular  to  the  preservation  of  rights  under 
supplementary pension schemes within the meaning of Article  1 of the Directive, irrespective 
of whether membership of such schemes is of an optional or compulsory nature. 

The references to rights "in the course of acquisition" are made in Articles 1  and 2 in order to 
cover the  situation  envisaged  by Article  6.  This provision  aims to  enable workers who  are 
posted to another Member State to continue to contribute to a supplementary pension scheme 
in the Member State of origin. 

Article 2 

This Article  relates  to  the  persons  ailing  within  the  scope  of  the  Directive.  The  Directive 
applies to  all members  of  supplementary  pension  schemes within  the  meaning  of  Article  1 
thereof who  have acquired  rights  or  are in the process  of  acquiring rights in  one  or  more 
Member States and to members of their families and their survivors. 

CHAPTERH 

Definitions 

Article 3 

Given  the  diversity  and  complexity  of  supplementary  pension  schemes  in  the  various 
Member States, it was felt  necessary to provide definitions  of some of the terms used in the 
Proposal for a Directive in order to avoid any confusion. 

(a) 

It is stated that a supplementary pension means any invalidity, retirement and survivors' 
benefits  intended  to  supplement  or  replace  those  provided  in  respect  of  the  same 
contingencies by statutory social security schemes. As fer as invalidity is concerned, the 
scope of this Directive  only covers  invalidity  if  and  in  so fer as the  supplementary 
pension schemes in question provide pension rights in the event of invalidity. 

(b) 

The definition of a supplementary pension scheme given in this paragraph corresponds 
to the more general definition of occupational or supplementary schemes in Article 2 of 
Directive 86V378/EEC8, as modified  by Directive 96/97/EC9,  on equal  treatment  for 
men and women in occupational social security schemes. 

(c) 

(d) 

(e) 

(f) 

(g) 

Within  the  meaning  of  the  Directive,  supplementary  pension  scheme  refers  to  any 
occupational pension scheme and collective arrangement serving the same aim, such as 
a group insurance contract, branch or sectoral pay-as-you-go  scheme, funded  scheme 
or  pension  promise backed  by book  reserves,  intended  to  provide  a  supplementary 
pension for employed or self-employed  persons, irrespective of whether such schemes 
are  compulsory  or  optional.  The  Directive  does  not  apply  to  the  statutory 
supplementary  pension  schemes  which  are  already  covered  by  Council.  Regulation 
(EEC) No 1408/71, such as the. Danish ATP, for example. 

This paragraph gives the definition  of an "approved  supplementary pension scheme". 
An  approved  supplementary  pension  scheme  means  a  supplementary  pension 
scheme  which,  in  the  Member  State  in  which  it  is  established,  satisfies  the 
conditions required  by that  Member  State for the granting of particular tax  reliefs 
that  are available in relation to  supplementary  pension  provision.  The purpose  of 
this paragraph is to define pension schemes which meet the particular requirements 
in  each  Member  State  for  tax-favoured  status  to  be  given.  This  is  necessary 
because Article 7 extends such tax-favoured  treatment  in a host Member  State  to 
contributions  made  by  or  on  behalf  of  a  posted  worker  to  an  approved 
supplementary pension scheme in the Member State of origin. 

"Pension rights" means  any benefits  to  which  a  scheme member  is  entitled  under  a 
supplementary pension scheme. 

"Vested  pension  rights"  means  the  rights  which  have  been  accumulated  after 
completion of the vesting period required by the rules of the supplementary scheme of 
which the worker exercising his or her right of free movement is a member. Given the 
specific nature and the diversity of supplementary schemes, the Directive does not aim 
to aggregate periods of insurance completed under different  schemes. "Vesting period" 
means  both  any  waiting  period,  required  by  the  rules  of  a  supplementary  scheme, 
which  a  worker  must  complete  in  order  to  be  admitted  to  membership  of  such  a 
scheme and any minimum period  of membership  stipulated by those rules which the 
member must complete in order to acquire pension rights.. 

This  paragraph  gives  the  definition  of  worker.  In  the  meaning  of  the  Directive, 
"worker" covers  employees  and  self-employed  persons  It  is important  to  note that 
Regulation (EEC) No 1408/71 already covers self-employed persons 

This paragraph defines "posted'' workers. A posted worker means a worker  who is 
posted  to work  in another Member  State  and  who  under  the terms  of Title  II  of 
Regulation (EEC) No  1408/71 continues to be  submitted  to the legislation  of the 
Member State  of  origin.  The aim is to  cover posted  workers as  far  as their  cross» 
border affiliation  to  a supplementary  pension  scheme i^ concerned  under the same 
terms  of  Title  II  of  Regulation  (EEC)  No  1408/71  relating  to  the  cross-border 
affiliation  of a posted  worker  to  a  statutory  scheme. For  reasons of  coherence,  the 

OIL 225,12.8.1986, p. 40. 
OJL 46, 17.2.1997 p. 20. 

duration of cross-border affiliation  to  a supplementary pension scheme should be the 
same as this allowed  by  statutory  schemes.  See also the  commentary  on  Article  6, 
below, for further information on posting under Regulation (EEC) No 1408/71. 

(h) 

This paragraph deals with the meaning of "Member State of origin". In the context of 
the Directive, the Member  State of origin is the Member  State where a worker  has 
worked  immediately  prior  to  the  posting  and  in  which  the  supplementary  pension 
scheme of which he is a member is established. 

(i) 

This paragraph defines "host Member State" as the Member State to which a worker 
is posted. 

CHAPTERffl 

Measures for protecting the supplementary pension rights 
of workers moving within the European Union 

Article 4 

Article  4  deals  with  the  preservation  of  vested  rights  of  members  who  cease  to  make 
contributions to a supplementary pension scheme when moving to another Member State. The 
aim is that  full  preservation of vested rights is guaranteed  for  members who  cease to  make 
contributions  to  a  supplementary  pension  scheme  as  a  consequence  of  moving  from  one 
Member  State  to  another  aï  least  to  the  same  extent  as  for  members  ceasing  to  make 
contributions to the scheme but remaining within the Member State in question. This provision 
reflects a basic principle of Community law, deriving from Article 48 of the Treaty, namely that 
a worker making use of his or her right of free movement shall not be treated less favourably 
than a worker remaining within the Member  State of origin. This means that  a worker  who 
ceases to make contributions to a supplementary pension scheme as a consequence of going to 
work  for  another  employer  in  another  Member  State  should  not  lose  the  rights  already 
acquired in this scheme which he or she would have preserved had he or she changed employer 
while remaining in the same Member State. 

Article 5 

This Article recalls a very important principle of Community law, namely the free movement of 
capital (Article 73b of the Treaty). Member States must ensure that in all Member States of the 
European Union benefits under supplementary pension schemes are paid to members of such 
schemes or to their dependants (members of their families or survivors). This principle applies 
in  all  cases  where  a  member  of  a  supplementary  pension  scheme  has  moved  from  one 
Member State to  another,  for  whatever  reason.  This provision, however,  is not  intended  to 
prevent  the  taxation  of  benefits  in  the  Member  State  in  which  the  supplementary  pension 
scheme is established. 

î. 

Posted workers expect to return to their Member State of origin without a break in the 
building-up of their pension  rights  Consequently, they and their employers often  prefer 
to  continue  to  make  contributions  to  the  supplementary  pension  scheme  in  the 
Member State of origjn during the posting, The aim of the proposal on this specific point 
is to enable this to take place and to aKgo the rights of a worker under a  supplementary 
pension  scheme -with  the  rights  vMdk  workers  have  in relation to  statutory  social 
security schemes under Regulation (EEC) No 1408/71. 

This-reflects, the explicit request made by sevend Member States during the consultation 
process (see section VÏÏ, below). 

Article  14(1 Xa) of Regulation (EEC) No  1408/71 provides that  a person  employed in 
the  territory  of  a  Member  State  by  an  undertaking  to  which  he  or  she  is  normally 
attached who is posted by that undertaking to the territory of another Member State to 
perform work there for that undertaking shall continue to be subject to the legislation of 
the Member State of origin, provided that the anticipated duration of that work does not 
exceed one year. By virtue of Article  14(l)(bX this period can be -extended by another 
year if the host Member State agrees to it. By virtue of Article 17 of Regulation (EEC) 
No  1408/71, however, two or more Member States may' agree to a posting which lasts 
for more than two years. On the initiative of the Advisory Committee on Social Security 
for Migrant Workers, composed of the social partners and government representatives, 
in 1984 the Administrative Commission on Social Security for Migrant Workers adopted 
Recommendation  Nol6i0.  This  aims  to  promote the  use of Article 17 in  the  case  of 
postings  of  workers  with  special  knowledge  or  skills*  or  in  order  to  meet  specific 
objectives  of  the  undertaking  which  employs  them,  on  condition  that  the  worker 
consents.  Without  saying  so  explicit^,  the  Reœmmœdatibn  is  aimed  particularly  at 
workers in multinational companies. 

At the request  of the European  Commission,  a  study was carried  out  in  1995 on the 
practical application of these provisions. The results of the study were presented during 
the second European  Conference  on  Social  Security,  held in Crete in October 199511. 
Even  though  firm  conclusions  should  be  drawn  with  caution  from  this  study12,  it 
provides a valuable picture not only of the number of persons involved, but also of the 
length of postings between Member States. In act, the study showed that in 1994 there 
were 539 169 postings on the basis of Article I4(î)(a) of Regulation (EEC) No 1408/71 
(i.e. postings of less man one year). 

Requests to  the host Member  State to  extern!  the pasting  to  up  to  two  years, under 
Article 14(lXb),  were  very  rare:  there  were  only  1  802  cases  in  1994.  The  host 
Member State  nearly  always  granted  permission  for  such  an  extension  The  study 
emphasized  in particular that where a longer period  of posting was required  from  the 
start, an Article  17 agreement was nearly always entered into immediately. Usually, the 

10 

"Recommendation  No  16  of  12  December  1984  conceirping  the  conclusion  of  agreements 
pursuant to Article 17 of Council Regulation (EEC) No 1408/71", OJ C 273, 24.10.1985. 
"The Free Movement of Workers within the European Union: Posting and the perspectives cf 
Community Coordination in the context of Regulation (EEC) Ko 1408/71." 
The  available  statistical  information  on  the  number  of  posting  was  incomplete.  SmaMer 
Member States with  a  centralized, executive  structure  had fewer difficulties  in  producing  the 
figures îiecRiesiedl than large? Member ËWm with s décentrai J.zsfi structure. 

maximum duration of a posting under Article 17 was five years. Between  1988 and 1994 
a  total  of  43 568  agreements  (12 914  of  which  in  1994  alone)  were  concluded  under 
Article 17. 

It is envisaged that Article 6  will  cover the maximum  number of  posted  workers  who 
contribute to supplementary pension schemes. The Commission will continue to monitor 
this to ensure that the aims of the Directive are met. Therefore, the Commission's report 
to the Council on the application of the Directive, referred to  in Article  12(3), will  also 
examine the application  of  Article  17 of Regulation  (EEC) No  1408/71  to  ensure that 
Member State  administrations  allow  posted  workers  who  contribute  to  supplementary 
pension schemes to make use of the provisions of this Article. 

2. 

The second paragraph of Article 6 specifies that when contributions continue to be made 
by  or  on  behalf  of  a  worker  to  a  supplementary  pension  scheme  in  his  or  her 
Member State  of  origin,  the  host  Member  State  shall  recognize  this  as  equivalent  to 
membership  of  a supplementary  pension  scheme  in that  State.  In these  circumstances, 
the host Member State will not be able to compel membership of a compulsory  scheme 
established in its territory. 

This provision is in line with the case-law of the Court of Justice.  In its judgment in the 
case  Guiot13,  the  Court  held  that  Articles  59  and  60  of  the  Treaty  preclude  a 
Member State from requiring an undertaking established  in another Member  State and 
temporarily  carrying out work  in the first-mentioned Member  State to  pay  employer's 
contributions  in  respect  of  loyalty  stamps  and  bad-weather  stamps  with  respect  to 
workers  assigned  to  carry  out  that  work,  where  that undertaking  is  already  liable  for 
comparable contributions, with respect to the same workers and for the same period  of 
work, in the State where it is established. 

Article 7 

This  Article  deals  with taxation  aspects  of  supplementary  pension  contributions  made  by 
or on behalf of a posted worker to  a comparable pension  scheme that is established  in the 
Member  State of origin.  Its scope is limited  to  situations where  contributions  continue  to 
be made to such schemes in respect of workers who are posted within the terms of Title II 
of  Regulation  (EEC)  No  1408/71.  The  treatment  that  it  provides  for  this  particular 
category  of  workers  is  without  prejudice  to  the  need  to  find  a  suitable  solution  to  the 
wider problem of the taxation of supplementary pensions within the Community. 

The purpose  of the  Article is to  remove  possible  tax  disincentives  to  posting.  In order  to 
do  this,  and  in  accordance  with  the  existing  principles  of  non-discrimination  and 
equal  treatment  established  by  the  Treaty  and  as  interpreted  by  the  case-law  of  the 
Court of Justice,  the  Article provides that the  host  Member  State  shall give  the  same  tax 
treatment to contributions that are made to an approved (i.e. tax approved)  supplementary 
scheme  in  the  Member  State  of  origin  as  it  does  to  contributions  that  are  made  to  a 
comparable approved supplementary scheme that is established in its own territory. 

This Article only applies to the extent that the host Member  State has taxing rights. It wiil 
not, therefore,  affect  the tax treatment of pension contributions where taxing rights remain 
with  the  Member  State  of  origin,  as  may  be  the  case  where  postings  are  of  very  short 
duration  and  workers  do  not  therefore  become  tax  resident  in  the  host  Member  State. 

13 

Guiot, Case C-272/94, judgment of 28 March 19%, ECR 1-1905. 

10 

Nor does the Article affect  the allocation of taxing rights between Member  States which is 
carried out by means of bilateral arrangements. 

The Article applies both to  contributions paid  by the  posted  worker  and  to  contributions 
that  are  paid  by  another  party,  such  as  his  or  her  employer.  The  tax  treatment  that  it 
provides  for  includes  deductions  or  credits  that  are  given  in  relation  to  pension 
contributions.  It  also  includes  taxation,  or  exemption,  of  the  contributions  either  in  the 
hands of the posted worker or the employer. 

In common with Article 6, this Article only applies where contributions continue to be paid to 
a supplementary pension scheme established in the Member  State in which the posted worker 
worked immediately before the start of the posting. In this way it is targeted on genuine cases 
where  a  worker  wishes to  continue  to  acquire rights during  the  period  of  posting  under  a 
supplementary pension scheme of which he or she is already a member. 

Article 8 

Members  should  be  adequately  informed  about  their  supplementary  pension  benefit rights. 
They must be given the means to assess the implications as regards their pension if they move 
to  a new job  in another Member  State,  and  should  be  provided  with  complete  information 
about  the  possible  alternatives  as,  for  example, the  transfer  value  with  which  they  will  be 
credited if they decide to transfer their pension rights (provided that this is possible under the 
scheme concerned), and the possible agreements existing between Member States, and about 
the pension benefit  amount they would receive if their rights were to be preserved within the 
same scheme. 

CHAPTER IV 

Final provisions 

Article 9 

This Article simply provides for Member States to be able to apply the provisions of Article 6 
to postings that commence on or after the date the Directive comes into force. 

Article 10 

This is a standard provision which is to be found in a number of directives concerning the  right 
of individuals to have recourse to the courts. 

Article 11 

to 

the  Communication  of 

Pursuant 
the 
European Parliament  of  3  May  1995  (COM(95)  162  final)  on  the  role  of  penalties  in 
implementing Community internal market legislation, the Directive includes a final provision 
on penalties. 

the  Council  and 

the  Commission 

to 

11 

Article 12 

This  Article  contains  the  standard  provisions  concerning  implementation  of  the  Directive. 
Member States must be given a reasonable period within which to comply with its provisions. 
As regards certain aspects of the Directive, such as the conditions governing preservation  of 
acquired rights, the social partners may, in the case of some schemes, jointly agree on and put 
in place the necessary  arrangements.  In this connection,  however,  the Member  States must 
take all necessary measures enabling them to guarantee compliance with the Directive.  In an 
effort to achieve transparency and in keeping with the spirit of the Treaty on European Union, 
the  Member  States  must  make  reference  to  the  Directive  in  any  measure  transposing  its 
provisions. As is customary, the Commission should also draw up a report for  submission to 
the Council œncerning the application  of the Directive and, where appropriate, propose any 
amendments which may prove necessary. 

Article 13 

A standard provision which states when the Directive comes into force. 

Article 14 states that the Directive is addressed to the Member States. 

Article 14 

V. 

JUSTIFICATION  OF  THE  DIRECTIVE  FROM  THE  POINT  OF  VIEW 
OF SUBSIDIARITY 

This  proposal  meets  the  two  criteria  for  determining  compliance  with  the  principle  of 
subsidiarity, namely necessity and proportionality as provided for in Article 3b of the Treaty on 
European Union. 

On the one hand,  action  at  Community  level is justified from the point  of view  of the free 
movement of workers. This basic freedom enshrined in the Treaty is one of the four pillars of 
the  single market,  as is  set  out  in  Article  48.  Whilst  the  statutory  social  security rights of 
workers taking advantage of this freedom have been protected  since  1958 under Regulations 
for  the  coordination  of  the  various  national  security  schemes,  workers'  rights  under 
supplementary  pension  schemes  enjoy  no  protection.  It  is undeniable  that  the  loss  of  such 
rights  constitutes  an  obstacle  to  a  worker's free movement.  Given  their  complementary  or 
substitutive  nature,  occupational  schemes  appear  to  be  the  counterpart  of  statutory  social 
security  schemes. However,  as has been emphasized  in the  Commission  Communication  of 
March  1997,  'Modernizing  and  improving  social  protection  in  the  European  Union",  the 
current coordination system for statutory schemes does not seem to be the appropriate system 
for supplementary schemes. The European Community therefore has a duty to adopt a specific 
instrument suitable for dealing with the matter of pension rights under supplementary schemes. 

In addition, the use of legislation (i.e. legally binding obligations) is clearly appropriate to the 
aim of bringing about freedom of movement in practice, where changes to national laws are 
necessary. In the present case, a directive is the most appropriate legal instrument and is also a 
typical example of the operation of the principle of subsidiarity in that it is restricted to setting 
out in broad terms the aims to be achieved by the Member States without going into detail as 
regards  the  organization  and  functioning  of  their  national  schemes.  The  adoption  of  the 

12 

Single European Act highlighted precisely this need to give greater importance to directives in 
bringing  about  an  "area  without  internal  frontiers"  The  Directive  thus  allows  the 
Member States  sufficient  room  for  manoeuvre, which  is just  what  is needed  in view  of the 
diversity of supplementary pension schemes. 

VL 

FINANCIAL CONSEQUENCES OF THE PROPOSAL 

Member States, pension fund administrators, employers and other supplementary pension fund 
operators should not experience any major difficulties  in adapting to the provisions of the new 
proposal for a directive. 

Through  this  proposal,  the  Commission  aims  to  improve  the  cross-border  mobility  of 
employed  and  self-employed  persons  within  the  Single  Market.  The  proposal  covers  the 
preservation  of  supplementary  pension  rights,  cross-border  payments  of  benefits  and,  as 
regards  posted  workers,  the  possibility  for  contributions  to  continue  to  be  made  to  their 
supplementary pension scheme in the State of origin. 

Article 4 provides for the preservation of acquired rights when someone moves to  another 
Member  State  only  in the  case  where,  according  to  the  rules'of  the  pension  scheme  in 
question,  the  person  would  have  preserved  these  rights  when  moving  within  the  State 
itself. As a result, the Directive does not impose any additional financial responsibility  on 
the pension  scheme concerned  than would  have been the case if the person  had  changed 
jobs within the same Member  State. In other words, the rights acquired  by the worker at 
the  time  when  he  or  she  decided  to  move  to  another  Member  State  continue  to  be 
determined  according to the rules of the supplementary pension  scheme in question.  If,  at 
that point, the worker has failed  to complete the minimum qualifying  period, there will be 
no  acquired  right  which  can  be  preserved.  In  this  respect,  the  worker's  situation  is  no 
different from that of a colleague changing jobs to another firm m the same Member State. 

The  second  pillar  of  the  proposal  is  the  guarantee  of  the  payment  of  pensions  across 
borders. This should  not produce any additional financial costs  since it  simply reflects  an 
existing  principle  of  Community  law,  the  free  movement  of  capital,  as  laid  down  in  the 
Treaty in Article 73b. This provision is purely declaratory of existing Community law. 

The third  pillar  of the proposal  concerns  workers  who  are  temporarily  posted  from  one 
Member  State  to  another.  For  an  indication  of  the  number  of  postings  under 
Regulation (EEC) No  1408/71,  please  see the commentary  on  Article  6,  above.  It  must  be 
borne in mind, however, that only a certain proportion of posted workers will be contributing 
to a supplementary pension scheme. In  1990, an estimate was made14 of the total number of 
migrant  workers  in  the  European  Union  (not  only  posted  workers)  with  supplementary 
pension rights. This estimate arrived at a figure of 256 000 for the then twelve Member States, 
which represented just over ten per cent of the total number of migrant workers. Over 50% 
came from the United Kingdom and Ireland. 

As regards workers  in international  companies, this provision  will in particular  facilitate  the 
posting  of  executive  and  managerial-level  staff  to  another  Member  State  either  within  the 
company  or to  a subsidiary.  Please  see  also the  commentary  on  Article 6,  above,  which 
examines the use of Article  17 of Regulation (EEC) No  1408/71 and Recommendation  16 
of the Administrative Commission on Social Security for Migrant Workers. 

14 

Paper presented to the "International Seminar on the future of supplementary pension schemes in 
the European Community -1992 and beyond" by J. Jolliffe, University of Bremen, 1990. 

13 

Finally, it should be noted that according to this proposal, Member States are free to limit 
the retroactive effect  of this provision on posted workers. 

Even  if  the  potential  tax  consequences  of  the  proposal  on  posting  are  difficult  to  predict 
accurately,  it  is  likely that  the  consequences  will  not  be  great,  in the  light  of  the  following 
observations. First of all, the Directive does not interfere with bilateral arrangements to allocate 
taxing rights between Member States. It only covers the treatment of continuing contributions 
to a pension scheme to the extent that the host Member State has taxing rights. In many cases, 
for example where the posting is for a short period of time, the posted worker will remain tax 
resident  in  the  Member  State  of  origin  and  will  continue  to  benefit  from  tax  reliefs  on 
contributions in that Member State. 

Secondly,  the  numbers  of  posted  workers  with  supplementary  pension  schemes  represent  a 
very small proportion of the workforce (please refer to the observations above). 

Furthermore,  the  taxation  provisions  related  to  posted  workers  are  limited  to  cases  where 
contributions  continue  to  be  made to  an approved  supplementary  pension  scheme  which  is 
established  in the Member  State in which the posted  worker worked  immediately before  the 
posting.  The precise  focus  on  continuing  contributions to  a  scheme  in the Member  State  of 
origin should prevent differences in tax rules from being exploited for tax avoidance purposes, 
and will limit the potential revenue effects of the measure. 

VIL  CONSULTATIONS  UNDERTAKEN 

A meeting between the Commission and representatives of the Member States to discuss a 
draft proposal was held on 7 March  1997.  Twelve Member States subsequently  forwarded 
more  detailed  and  technical  written  comments  to  the  Commission.  Most  of  these  have 
been taken into account in the draft proposal. 

Member  States  were  generally  supportive  of  the  broad  approach  of  the  proposal,  and 
considered that it reflected  the views of the Veil High-level  Group, particularly as regards 
the way the principle of the preservation of acquired rights is reflected in the draft text. 

The  Social  Partners  were  asked  to  comment  on  a  draft  proposal  on  30  April  1997,  and 
this was followed  up by a seminar held on 26 May  1997.  As regards the written  comments 
of  the  social  partners,  the  ETUC  was  very  supportive  of  the  proposal.  The  CEC 
(Council of European  Professional  and  Managerial  Staff)  was  also  supportive  but  would 
have liked the proposal to go further,  and underlined the problem of long vesting periods . 
This  problem  has  been  addressed  in  the  Green  Paper  "Supplementary  Pensions  in  the 
Single Market"15 presented by the Commission on  10 June  1997. 

Eurocadres  fully  supported  the  draft  proposal,  while  UNICE  also  supported  the  general 
approach  but  expressed  some  concerns  about  the  wording  of  a  number  of  provisions. 
Several of their comments have been taken into account in the current draft. 

The  CEC  and  UNICE  specifically  requested  that  the  proposal  should  also  address 
taxation issues. 

15 

Supplementary Pensions in the Single Market - A Green Paper, 10 June 1997, COM(97) 283. 

14 

Vm.  APPLICATION IN THE EEA COUNTRIES 

Free  movement  of  persons  is  one  of  the  aims  and  principles  of  the  Agreement  on  the 
European Economic Area which came into force on 1 January 1994. Articles 28,29 and 30 of 
Chapter 1  in Part m  (Free Movement of Persons, Services and Capital) deal with freedom of 
movement for workers and self-employed persons. More specifically,  Article 29 incorporates 
the principles set out in Article 51 of the EC Treaty in respect of social security for  persons 
exercising their right to free movement.  Therefore,  if adopted,  this proposal  for  a  directive 
should be incorporated into the Agreement on the European Economic Area. 

15 

Proposal for a 
COUNCIL DIRECTIVE 

on safeguarding the supplementary pension rights of employed and self>employed persons 
moving within the European Union 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Articles 51 and 235 thereof 

Having regard to the proposal from the Commission16, 

Having regard to the opinion of the European Parliament17, 

Having regard to the opinion of the Economic and Social Committee18, 

Whereas one of the fundamental freedoms of the Community is the free movement of persons; 
whereas the Treaty provides that the Council shall, acting unanimously, adopt such measures in 
the field of social security as are necessary to provide freedom of movement of workers; 

Whereas the social security of workers is assured by statutory social security schemes and by 
supplementary social security schemes; 

Whereas the legislation already adopted  by the Council with a view to protecting the social 
security rights of workers moving within the Community and of members of their family, and 
more particularly Regulations (EEC) No  1408/7119 and No  574/7220 concern only statutory 
pension schemes; 

Whereas the European  Council  meeting  in Amsterdam  on  16-17 June  1997 reaffirmed  the 
importance it attaches to a properly fimctioning Single Market  as an essential element of the 
overall  strategy to  promote competitiveness,  economic  growth  and  employment  throughout 
the Union; 

Whereas  to  this  end,  in  its  Resolution  on  Growth  and  Employment21,  the  aforesaid 
European Council has agreed on concrete action on making maximum progress with the  final 
completion  of  the  Single  Market:  making  the  rules  more  effective,  dealing  with  the  main 
remaining  market  distortions,  avoiding  harmful  tax  competition,  removing  the  sectoral 
obstacles to market integration and delivering a Single Market for the benefit of all citizens; 

16 

17 

18 

19 

21 

OJC... 
OJC... 
OJC... 
OJ L 149, 5.7.1971, p. 2; Regulation as last updated by Regulation (EC) No 118/97 (OJ L 28, 
30.1.1997, p. 1) and as last amended by Regulation (EC) No 1290/97 (OJ L 176,4.7.1997, p.  1). 
OJ  L  74,  27.3.1972,  p.  1;  Regulation  as  last  updated  by  Regulation  (EC)  No  118/97 
(see footnote 19). 
OJ C 236 of 2 August 1997, p. 3. 

16 

Whereas in its Recommendation  92/442/EEC of 27 July  Î992 on the convergence  of social 
protection  objectives  and  policies22  the  Council  recommends,  in  point  IB.5  (h),  that 
Member States  should  "promote, where necessary,  changes to  the conditions governing  the 
acquisition of pension and, especially, supplementary pension rights with a view to eliminating 
obstacles to the mobility of employed workers"; 

Whereas  this  objective  can  be  achieved  only  if  supplementary  pension  rights  are  afforded 
appropriate protection when a worker moves from one Member State to another; 

Whereas  freedom  of  movement  for  persons,  which  is  one  of  the  cornerstones  of  the 
Community, is not confined to employed persons but also extends to self-employed persons in 
the framework of the freedom of establishment and the freedom to provide services; 

Whereas, in order to enable the right to free movement to be exercised  effectively,  workers 
should have certain guarantees regarding the preservation of their vested rights deriving  from 
supplementary pension schemes; 

Whereas the Member States should take the necessary measures to ensure that benefits under 
supplementary pension schemes are paid to members and former members thereof as well as to 
members of their families or their survivors in all Member States, given that all restrictions on 
the free movement of payments and capital are now prohibited under Article 73b of the Treaty; 

Whereas in order to facilitate the exercise of the right to free movement, national regulations 
should be adjusted  in order to  enable contributions to  continue to be made to  an  approved 
supplementary pension scheme established in one Member  State by or on behalf of workers 
who are posted, for a short duration, to another Member State; 

Whereas  in  this  regard  the  Treaty  requires  not  only  the  abolition  of  any  discrimination 
based  on nationality but  also the elimination  of any national  measure likely to  impede  or 
render less attractive the exercise by workers of the fundamental freedoms guaranteed by 
the  Treaty  as  interpreted  by  the  Court  of  Justice  of  the  European  Communities  in 
successive judgments; 

Whereas  this  Directive  in  the  limited  field  of  application  of  posted  workers  is  without 
prejudice  to  the need  to find a  suitable  solution to  the  wider  problem  of the taxation  of 
supplementary pensions within the Community; 

Whereas workers exercising their right to free movement should be adequately informed by the 
managers  of  supplementary  pension  schemes,  particularly  with  regard  to  the  choices  and 
alternatives available to them; 

Wh» *,ws this  Directive  is  without  prejudice  to  the  applicability  to  supplementary  pension 
sohif **° ^r&e single market rules and the competition rales of the Treaty; 

Whereas, by reason of the diversity of supplementary social security schemes, the Community 
should lay down only a general framework of objectives, leaving the Member States to choose 
freely  what measures to adopt to implement those objectives; 

22 

OJL 245, 26.8.1992, p. 49. 

17 

Whereas the Member States, in order to attain these objectives, must adjust their national laws 
and, this being the case, a directive is the appropriate legal instrument; 

Whereas, in accordance with the  principles of  subsidiarity  and  proportionality  as  set  out  in 
Article 3b of the Treaty, the objectives of this Directive cannot be sufficiently  achieved by the 
Member States and can therefore be better achieved by the Community; whereas this Directive 
limits itself to me minimum required  for the attainment  of those objectives  and does not go 
beyond what is necessary for that purpose, 

HAS ADOPTED TfflS DIRECTIVE: 

CHAPTERI 

Objective and scope 

Article 1 

The aim of this Directive is to ensure that appropriate protection  is given to rights, whether 
vested or  in the course of acquisition, of members of  supplementary pension  schemes who 
move  from  one  Member  State  to  another.  Such  protection  refers  in  particular  to  the 
preservation  of pension rights under both voluntary  and  compulsory  supplementary  pension 
schemes, with the exception of schemes already covered by Regulation (EEC) No 1408/71. 

Article 2 

This Directive shall apply to members of supplementary pension schemes who have acquired 
or are in the process of acquiring rights in one or more Member  States, and to  members of 
their families and their survivors. 

CHAPTERÏÏ 

Definitions 

Article 3 

For tiie purpose of this Directive: 

(a) 

(b) 

(c) 

"supplementary pension" means invalidity, retirement  and survivors' benefits  intended 
to  supplement  or  replace  those  provided  in  respect  of  the  same  contingencies  by 
statutory social security schemes; 

"supplementary  pension  scheme"  means  any  occupational  pension  scheme  and 
collective  arrangement  serving  the  same  aim,  such  as  a  group  insurance  contract, 
branch or sectoral pay-as-you-go scheme, ftinded scheme or pension promise backed 
by  book  reserves,  intended  to  provide  a  supplementary  pension  fix  employed  or 
self-employed persons; 

"approved  supplementary  pension  scheme"  means  a  supplementary  pension 
scheme  which,  in  the  Member  State  in  which  it  is  established,  satisfies  the 
conditions required  by that Member  State for  the granting of 'particular  tax  reliefs 
that are available in r e k t e to  supplementary pension provision; 

18 

» 

(d) 

(e) 

"pension rights" means any benefits  to  which  a  scheme member  is entitled  under  a 
supplementary pension scheme; 

"vested pension rights" means any entitlement to benefits  obtained  after  fulfilment  of 
the minimum  conditions, in particular  of vesting periods,  required  by the rules  of a 
supplementary  pension  scheme.  "Vesting  period"  means  any  period  taken  into 
consideration for admission to a supplementary pension scheme and for the acquisition 
of rights thereunder, 

(f) 

"Worker" means an employed or a self-employed person; 

(g) 

(h) 

"Posted worker" means a worker who is posted to work in another Member  State 
and who under the terms of Title II of Regulation (EEC) No  Î 408/71 continues to 
be subject to the legislation of the Member  State of origin, and "posting" shall be 
construed accordingly; 

"Member  State of origin" means the Member  State in which a  worker  has  worked 
immediately prior to the posting and  in which the supplementary  pension scheme of 
which he is a member is established; 

(i) 

"host Member State" means the Member State to which a worker is posted. 

CHAPTERffl 

Measures for protecting the supplementary pension  rights 
of workers moving within the European Union 

AJSSiJOBSaOKlmmmJL 

Member States shall take the necessary measures to  ensure that the vested  pension rights of 
supplementary  pension  scheme  members  are  preserved  when  they  move  from  one 
Member State to  another.  To this end,  Member  States shall ensure that  full  preservation  of 
vested pension rights shall be guaranteed for members in respect of whom contributions are no 
longer being made to a supplementary pension scheme as a consequence of their moving from 
one Member State to another, at least to the same extent as for members in respect of whom 
contributions are no longer being made but who remain within the Member State in question. 
This Article shall also apply to members of their families and their survivors. 

Articles 

Member States shall ensure that, in respect of members of supplementary pension schemes, as 
well as members of their families and their survivors, supplementary pension schemes make  frill 
payment in other Member States of all benefits due under such schemes. 

19 

Article 6 

1.  Member  States  shall  adopt  such  measures  as  are  necessary  to  enable  contributions 
to  continue  to  be  made  to  a  supplementary  pension  scheme  established  in  the 
Member State of origin by or on behalf of a posted worker who is a member of such 
scheme during the period of his or her posting to the host Member State. 

2.  Where,  pursuant  to  paragraph  1,  contributions  continue  to  be  made  to  a 
in  the  Member  State  of  origin,  the  host 
supplementary  pension  scheme 
to  a 
these  as  equivalent 
Member State  shall  recognize 
supplementary pension scheme in the host Member State. 

to  contributions 

Article 7 

Where contributions continue to be made in accordance  with Article  6(1)  to  an  approved 
supplementary pension scheme,  a host Member  State shall, to the extent that it has taxing 
rights, treat  such contributions  in the  same  way  as it  would  treat  contributions  paid  to  a 
the  host 
comparable  approved 
Member State. 

supplementary  pension 

scheme  established 

in 

Article 8 

Member States shall take measures to ensure that managers of supplementary pension schemes 
provide adequate information  to  scheme  members as to  their pension rights and the  choices 
which are available to them under the scheme when they move to another Member State. 

CHAPTERIV 

Final provisions 

Article 9 

Member  States may provide that the provisions of Article 6  shall apply only to  postings that 
commence on or after the date of entry into force of this Directive. 

Article 10 

Member States shall introduce into their national legal systems such measures as are necessary 
to enable all persons who  consider themselves wronged  by Mure  to  apply the provisions  of 
this  Directive  to  pursue  their  claims  by  judicial  process  after  possible  recourse  to  other 
competent authorities. 

20 

Article 11 

Member  States shall lay down the system of penalties for  breaching the national  provisions 
adopted  pursuant to  this Directive,  and  shall take all the  measures necessary to  ensure that 
those penalties are applied. The penalties thus provided for shall be effective, proportionate and 
dissuasive. Member  States shall communicate the relevant provisions to the Commission not 
later than 18 months following the entry into force of this Directive and shall communicate any 
subsequent changes as soon as possible. 

Article 12 

1.  Member States shall bring into force the laws, regulations and administrative provisions 
necessary to comply with this Directive not later than IS months following the date of its 
entry into force,  or  shall ensure by that date at the latest that  management  and labour 
introduce the  requisite provisions by way  of agreement.  Member  States  shall take all 
necessary steps to enable themselves at all times to guarantee the results imposed by this 
Directive. They shall immediately inform the Commission thereof. 

When Member  States  adopt  these  provisions,  these  shall  contain  a  reference  to  this 
Directive  or  shall  be  accompanied  by  such  reference  at  the  time  of  their  official 
publication. The procedure for such reference shall be adopted by. Member States. 

They shall inform the Commission of the national authorities to be contacted  regarding 
the application of this Directive. 

2.  Not later than two years following the entry into force of this Directive, Member States 
shall communicate to the Commission the text of the provisions of national law which 
they adopt in the field covered by this Directive. 

Member  States  shall  supply,  by  the  same  date,  a  correlation  table  showing  the 
pre-existing national provisions or those which have been introduced in order to comply 
with each provision of this Directive. 

3.  On the basis of the information  supplied by Member States, the Commission shall draw 
tip  a  report  for  submission  to  the  European  Parliament,  the  Council  and  the 
Economic  and  Social  Committee,  within  six  years  of  the  entry  into  force  of 
this Directive. 

The report shall deal with the application of this Directive and shall, where appropriate, 
propose any amendments that may prove necessary. 

Article 13 

This Directive shall enter into force on the twentieth day following that of its publication in the 
OfficialJourncrioftheEuropecmCommiinities. 

21 

This Directive is addressed to the Member States. 

Article 14 

Done at Brussels, 

For the Council 
The President 

22 

IMPACT ASSESSMENT FORM 

THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL 
REFERENCE  TO  SMALL  AND  MEDIUM-SIZED  ENTERPRISES 
(SMEs) 

Title  Of proposal:  Proposal  for  a  Council  Directive  on  safeguarding  the  supplementary 
pension rights of employed and self-employed  persons moving within the European Union 

Document reference number: 97003 

1. Taking account of the principle  of subsidiarity, why is Community  legislation 
necessary in this area and what are its main  aims? 

The  proposed  directive  is  needed  to  boost  the  free  movement  of  persons,  since  it  will 
allow workers to preserve their supplementary  pension rights, thus mitigating the  current 
deterrent to making use of the right to freedom  of movement. 

The impact on business 

The proposed  directive has implications  for  all  companies with  links to  a  supplementary 
pension  scheme,  i.e.  mostly  insurance  companies,  the  various  types  of  retirement  and 
pension funds, mutual schemes, cooperative associations, provident institutions, etc. 

Since  company  size  plays  no  role,  small  and  medium-sized  enterprises  are  likely  to  be 
affected,  but  it  is  estimated  that  the  number  will  be  fairly  limited,  because  the  persons 
affected  usually work in large companies. 

The  number  of firms affected  in  the  Member  States  varies  widely,  since  supplementary 
pension schemes differ greatly across the European Community. The United Kingdom, the 
Netherlands and Germany are particularly affected,  for example. 

3.  What will business have to do to comply with the proposal? 

This  directive  is  addressed  to  the  Member  States.  The  measures  to  be  taken  by 
Member States will  have  an  unavoidable  impact  on  companies  operating  supplementary 
pension  schemes since they will have to  comply with  any national  regulations  adopted  in 
application of the directive. 

23 

A distinction  must  be made between  the  provisions  obliging  the  Member  States  to  take 
measures (Articles 4, 5, 6, 7 and 8) and those which urge or invite Member  States to take 
measures (Article 7 and  Article  1), since in the latter  instance,  of course,  companies will 
only have to take  specific  measures if Member  States decide to  improve the  situation  or 
where sole responsibility is borne by Member States (Article 7). 

Given this distinction  it  is necessary  to  look  at  a number  of  key  points  contained  in  the 
directive,  not  forgetting  that  pension  rights  vary  from  one  Member  State  to  another, 
which  means  that  some  Member  States,  and  consequently  the  companies  operating 
supplementary  schemes,  already  comply  with  some  of  them.  In  other  words,  given  that 
variegated  supplementary  schemes  are  to  be  found  in  the  various  Member  States,  the 
changes dictated by the directive will differ from one Member State to another. 

There are five such Jcey points, viz.: 

1. 
2. 
3. 
4. 
5. 

1. 

Preservation of acquired rights -  Article 4. 
Payment of benefits in another Member State -  Article 5. 
Preservation of membership in scheme of country of origin -  Article 6. 
Taxation -  Article 7. 
Right to information -  Article 8. 

Preservation of acquired rights 

Pension  funds  must  take  measures  to  ensure  that  members  preserve  their  acquired 
rights when  they  leave  the  pension  fund,  i.e.  cease  their  membership  when  changing 
their employment  or  activity.  As  a  rule,  Member  States  already  provide  -  with  a  few 
exceptions -  for preservation of acquired rights. 

Furthermore,  in the  case  of  defined-benefit  schemes  companies  must  periodically  adjust 
the rights to avoid them decreasing in money terms. However, at the moment only Austria 
(book reserves and pension funds),  Finland (TEL and registered  private schemes), Ireland 
and  the  United  Kingdom  have  indexation  arrangements  for  former  members'  preserved 
rights.  Therefore,  the  directive  will  clearly  have  some  legislative  impact  in  the  other 
Member States. 

On  the  other  hand,  there  will  be  no  tangible  legislative  impact  on  defined-contribution 
schemes, in so far as Member States appear to meet the condition set out  in the directive. 
Having said that, the AGIRC and ARRCO supplementary schemes in France are based on 
the  pay-as-you-go  approach  and  are  not  pre-funded,  which  allows  them  to  revalue 
preserved  benefits  on  the  basis  of  the  mean  trend  in  their  active  members'  level  of 
remuneration. 

2. 

Payment of benefits in another Member State 

Companies  operating  supplementary  pension  schemes  already  have  the  obligation  -
pursuant  to  Articles  73  et  seq.  of  the  Treaty  -  to  ensure  full  payment  in  other 
Member States of all benefits  due to  ihobile members or  former  members.  It  is essential 
that benefits already being paid continue to be provided. 

24 

3. 

Continuation of membership in a scheme of country of origin 

Compames  will  find  themselves  obliged  to  preserve  a  worker's  membership  of  a 
supplementary pension scheme in his Member State of origin when two conditions are met 
(temporary  nature and probable return).  Article 6 will have a major  legislative  impact  on 
companies.  It  allows people working  for  multinationals  to  remain  members  of the  group 
scheme in their country of origin. 

4. 

Taxation 

Article 7, which is highly flexible,  will not  affect  companies,  since this is a matter  for  the 
tax authorities. 

5. 

Right to information 

Article  8  will  have  an  obvious  legislative  impact  on  compames.  Managers  of 
supplementary  pension  schemes, and companies too,  have the  obligation  to  comply  with 
transparency  measures which  Member  States  have  to  arrange.  Companies  are  therefore 
duty-bound  to provide their members with precise and regular  information  to  allow them 
to make mobility-related  decisions in full  possession of the facts.  This obligation  makes it 
necessary  to  be  aware  of  what  members'  needs  are,  and  thus  to  remain  in  contact  with 
them and listen to what they are saying. 

Finally,  this  directive  will  have  some  impact,  mainly  legislative,  on  companies  operating 
supplementary pension schemes. Generally speaking, the obligations placed on compames 
will  not  require  a major  overhaul  of Member  States'  current  national  laws, but  they  will 
engender changes in the law and the adoption of much more open behaviour and  attitudes 
in practice on the part  of companies. However,  it should be noted  that this impact  will be 
softened by the general principle of non-retroactivity enshrined in Article 9. 

4.  What economic effects is the proposal likely to have? 

(a) on employment 

Since this directive helps underpin  workers' freedom of  movement,  the beneficial  impact 
on employment is obvious. Workers will not be so hesitant when it comes to moving to a 
job in another Member State, i.e. at least they will no longer be put off by possible loss of 
their  supplementary  pension  rights.  This  allows  workers  to  apply  for  vacancies  in  other 
Member  States,  thus  increasing  their  chances  of  finding  a job  more  in  line  with  their 
qualifications.  The  self-employed  can  also  become  established  in  a  Member  State  -  or 
more precisely in a region -  where there appear to be development  opportunities  for  their 
services.  Job  supply  and  demand  are  therefore  much  more  likely  to  dovetail,  which  will 
benefit  the  employment  situation  and  also  contribute  to  economic  and  social  cohesion 
within the European Union. 

25 

(b) on investment and the creation of new businesses 

Supplementary  pension  schemes  are  funded  differently  in  Member  States,  and  the 
financing  vehicle  (pre-funding,. pay-as-you-go,  accumulation  of  reserves  -  i.e.  either  as 
(i) provisions in the form of balance sheet liabilities (book reserves), or (ii) assets held by a 
pension  fund)  largely  determines  the  situation  in  each  country,  especially  as  regards 
investment. 

The pre-funding approach is often used to finance private pensions. This involves  financial 
management of capital entailing investments and accumulation of returns. This approach is 
based  on  defined  contributions.  More  commonly  adopted  by  pension  schemes  and 
insurance companies,  it  leads to  accumulation  of  large volumes  of  capital,  especially  in 
Member States where this method is dominant, but even in the other Member States such 
an approach helps increase capital volume. 

As for pay-as-you-go schemes, no reserves are accumulated, apart from those in the form 
of  provisions  for  risks.  What  is  more,  France's  AGIRC  and  ARRCO  supplementary 
schemes do not use the approach referred to in Article 4 of the proposal for a directive, 
i.e.  under  which  the  preserved  rights  represent  accumulated  "savings"  which  can 
be invested. 

As  for  the  balance-sheet  provision  (book  reserve)  method,  it  differs  from  pre-funding 
because  it  does  not  permit  the  accumulation  of  assets  for  investment  on  the  financial 
markets.  Nevertheless,  this  approach  is financially important  given  that  it  constitutes  a 
consistent source of self-funding for the company involved. 

Financing via a pensions fund also makes use of the pre-funding method, since the monies 
saved are reinvested  in the  economy  through investment  in securities  or in the  financial 
markets.  Such  investments  generate  a  return  and  the  resultant  capital  belongs  to  the 
pension funo\ which can reinvest it. 

(c) on the competitive position of businesses 

This  proposal  for  a  directive  should  not  have  any  major financial repercussions  on 
companies.  However,  if  any  changes  dictated  by  new  national  regulations  adopted  in 
implementation of the directive do have financial consequences for companies, the impact 
of this cost factor will be softened by the gradualist approach provided for in the directive. 
Any adaptations Member  States must make to  comply with the  provisions  are likely  to 
have an impact  elsewhere,  i.e.  on the legislative framework and,  above all,  in respect  of 
employers',  administrators'  and  tax  authorities'  traditional  perception  of  the  problems 
connected with workers leaving their home country in the course of their working life. 

Effective mobility of workers cannot frûl to benefit  companies and their productivity level 
since  it  fosters  labour  market  flexibility  and' the  transfer  of  skills  and  experience  at 
European level. 

What is more, preservation  of supplementary pension rights plays an undeniable  role in 
staff motivation. 

26 

5. Does the proposai  contain measures to take account of the specific situation of 
small and medium-sized firms (reduced or different requirements, ete.f? 

The proposal  for  a directive  makes  no  distinction  on the basis  of  company  size,  which 
means that no specific measures for SMEs are included. However,  since few  SMEs have 
supplementary pension schemes, they will be only very marginally affected. 

Consultation 

6. List the organisations which have been consulted about the proposal  and outline 
their main views 

The  Commission  has  consulted  Member  States,  social  partners  and  representatives  of 
supplementary pension schemes. 

Member States were generally supportive of the broad approach of the proposal  since it 
reflected  the views of the High Level Panel on free movement (chaired by Mrs Veil) and 
the main principles of the Treaty. 

As  regards  the  social  partners,  the  ETUC  was  very  supportive  of  the  proposal  and 
considered that it should be a first step to removing obstacles to free movement. 

The CEC (Council  of European Professional  and Managerial  Staff)  was  also  supportive 
but  would  have  liked  the  proposal  to  go  further,  and  underlined  the  problem  of  long 
vesting  periods  .  This problem  has been  addressed  in the  Green  Paper  "Supplementary 
Pensions in the Single Market"23 presented by the Commission on 10 June 1997. 

Eurocadres  fully  supported the  draft  proposal,  while  UNICE  also  approved  the general 
approach  but  expressed  some  concerns  about  the  wording  of  a  number  of  provisions. 
Association Europe and Enterprises  fully  supported the Commission's  proposal.  Several 
of their comments have been taken into account  in the current draft.  For example, under 
Article  11 there is the possibility for  social partners, to jointly agree on and put  in place 
the necessary arrangements in order to  comply with the provisions  of the directive.  The 
CEC  and  UNlCE  specifically  requested  that  the  proposal  should  a!so  address  taxation 
issues. Article 7 reflects these concerns. 

Supplementary pension schemes representatives (EFRP) strongly supported the approach 
of taking account of the findings of the High level Panel. 

23 

Supplementary Pensions in the Single Market - A Green Paper. 10 June 1997, COM(97) 283. 

27 

ISSN 0254-1475 

COM(97) 486  final 

DOCUMENTS 

EN 

05  10  09  06 

Catalogue number  : CB-CO-97-524-EN-C 

ISBN 92-78-25785-0 

Office tor Official  Publications of the European Communities 

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