Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council on improving the portability of supplementary pension rights  COM(2005) 507 final — 2005/0214 (COD)
Date: 2006-04-21
Institutions: European Economic and Social Committee
Subjects: ESC opinion, free movement of persons, retired person, supplementary pension, transfer of pension rights, worker (EU)

8.8.2006

EN

Official Journal of the European Union

C 185/37

Opinion of the European Economic and Social Committee on the Proposal for a Directive of the
European Parliament and of the Council on improving the portability of supplementary pension
rights

COM(2005) 507 final — 2005/0214 (COD)

(2006/C 185/08)

On 15 December 2005 the Council decided to consult the Economic and Social Committee, under Article
262 of the Treaty establishing the European Community, on the abovementioned proposal

The Section for Employment, Social Affairs and Citizenship, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 20 March 2006. The rapporteur was
Ms Engelen-Kefer.

At its 426th plenary session, held on 20/21 April 2006 (meeting of 20 April 2006), the European
Economic and Social Committee adopted the following opinion by 103 votes to 19 with 11 abstentions:

1. EESC conclusions and recommendations

— In keeping with the fundamental objectives of the Directive,
the deadlines for its transposal should be kept as short as
possible, taking into account what is actually necessary in
each country.

1.1
The EESC welcomes and endorses the Commission's
proposed objectives, although it has mixed feelings about some
of the means used to achieve them.

— Similarly, general exceptions without time limits for certain

implementation processes should be reconsidered.

it

In particular,

is questionable whether exemptions
1.2
contribute to what the Commission is really trying to achieve.
This applies both to exemptions from transferability and to the
long transition periods for reducing the requirements for defini-
tive acquisition of pension rights.

1.3
But above all, the objectives of facilitating mobility and
ensuring effective supplementary retirement income protection
can only be achieved if differing taxation systems in Member
States are also adjusted.

Future work on the draft directive should therefore take

1.4
the following points into account:

— A closely coordinated system for both the acquisition and
the retention and transfer of supplementary pension rights
must be in place to enable the dismantlement of obstacles
to employees' mobility. At the same time, sufficient account
must be taken of the implications for the various supple-
mentary pension schemes in the Member States and of the
potentially
expenditure within supplementary
pension schemes.

greater

— Accompanying measures are needed in the field of taxation
of supplementary pension schemes in order to dismantle
obstacles to mobility arising from such schemes.

2. Introduction

On 20 October 2005, the European Commission submitted its
proposal for a Directive of the European Parliament and of the
Council on improving the portability of supplementary pension
rights.
It argues that its proposals are needed to eliminate
obstacles to mobility, given the increasing importance of such
schemes in covering the risks of old age. Obstacles to job
changes are to be removed both within and between Member
States.

The Commission goes on to list the obstacles which

2.1
need to be overcome in the following areas:

— conditions for the acquisition of pension rights,

— rules for the preservation of dormant rights,

— rules for the transfer of rights.

— Financial contributions by employers to the development of
supplementary pensions are desirable and indeed necessary.
To avoid any negative effects,
transitional arrangements
enabling employers to gradually bring pension schemes
into line are needed.

The Commission also feels that mobility can be enhanced if
employees are given (better) information on how a change of
employer may affect supplementary pension rights.

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Official Journal of the European Union

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2.2
The Commission sees its proposal as the logical next
step to the exchange of information and experience at Euro-
pean level that has been going on for a number of years. No
negotiations were launched on an agreement between the
social partners due to divergent views on the thrust of Com-
munity-level action and on the instruments.

3.5
To promote mobility and to avoid penalising employees
who change jobs, the transfer of acquired rights from the
supplementary pension scheme of one employer to that of a
new employer should be made easier. For example, transfers
must not penalise employees financially as a result of differing
calculating methods or excessive administrative charges.

On the basis of Articles 42 and 94 of the EC Treaty, the
2.3
Commission is seeking in its proposal to flesh out the laws of
the Member States in this area. Among other things, this is to
ensure that the establishment of enterprises in other Member
States is not held back by problems in recruiting qualified staff,
due to such staff being tied to other companies by rules on
supplementary pension schemes.

The Commission justifies its choice of a Directive as a
2.4
legal instrument by pointing out this is the only way to strike a
balance between the necessary rights of employees with regard
to free movement and the requisite flexibility on the part of
national legislative authorities when transposing the Directive,
while taking account of the particular circumstances of supple-
mentary pension schemes in that country.

3. Gist of the Commission proposal

The Directive defines the concepts used in this area in

3.1
accordance with the definitions given in Directive 98/49/EC.

3.2
The proposal establishes the principle that contributions
to a supplementary pension scheme paid by an employee or by
an employer on behalf of an employee must not be lost after
the termination of employment, even if these contributions do
not yet confer any rights to subsequent pension payments.
Provisions must therefore be in place for contributions to be
either reimbursed or transferred.

3.3
To ensure that young workers in particular do not lose
pension rights after a change of employer, the Commission
suggests that the minimum age at which a worker can start
acquiring supplementary pension rights should not exceed 21
in any Member State.

In addition, the waiting period, i.e. the length of time after the
beginning of an employment relationship before an employee
can become a member of the supplementary pension scheme,
should not exceed one year.

Likewise,
the period after which contributions definitively
confer pensions rights, measured from the beginning of contri-
butions, should be no longer than two years.

Employees are to always have a choice between transfer-

3.6
ring rights and leaving them in the previous scheme.

The proposal also provides for employees to be given
3.7
information on request and within a reasonable period as to
the implications of a change of job for supplementary pension
rights.

3.8 Transposition

The Directive is to be transposed in the Member States by 1
July 2008 at the latest.

Member States have the option of an additional 60 months
(starting from 1 July 2008) for transposing the provision to
reduce the period after which rights are definitively acquired to
two years. Specific reasons must be given for the use of this
option.

Possible exemptions from transferability for an unlimited
3.9
period are granted for support relief funds, companies which
constitute book reserves for pension payments and pay-as-you-
go supplementary pension schemes. The Commission must be
informed of the specific reasons. The Member State concerned
must disclose which measures have been taken or are planned
in order to ensure transferability. The question of whether addi-
tional measures are needed to improve the transferability of
these systems as well will be considered by 2018 at the latest.

4. General assessment

4.1
The views of the social partners as to the scope and
content of any European legislation, are too disparate for an
agreement
to be reached among them, as provided for in
Article 139 of the EC Treaty.

4.2
However, in the preamble to their framework agreement
on fixed-term work, the ETUC, UNICE and CEEP acknowledged
that ‘innovations in occupational social protection systems are
necessary in order to adapt them to current conditions, and in
particular to provide for the transferability of rights’.

3.4
The Commission advocates steps to ensure a fair adjust-
ment of dormant rights; it is left up to Member States to decide
on the form that this should take and the means used to
achieve it. Besides,
if pension rights only represent a small
amount, a supplementary pension scheme should also have the
option not only of
transferring pension rights to a new
employer but also of reimbursing them, provided that such
rights do not exceed a certain threshold set by Member States.

4.3
This clearly reflects the general willingness to take a
fundamental look at the need to bring the legal bases for the
acquisition and retention of supplementary pension rights into
line. Although fixed-term employment is a different issue from
that of the free movement of workers, the parties to this agree-
ment acknowledge that employment conditions are changing
in ways that also require changes to occupational social protec-
tion schemes.

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4.4
Besides, this also reflects the important role played by
the social partners in shaping supplementary pensions schemes
in most Member States. However, as the scope of measures by
the
the social partners is restricted to the national
Commission's plan to adopt a Directive still makes sense.

level,

vation. To build up such a society requires a continuous
exchange of knowledge and experience. Employee mobility can
make a significant contribution here. Moreover, preserving
social cohesion is part of the Lisbon strategy. This is another
reason for supporting the objectives of the Commission's draft
directive.

The detailed content of

supplementary pension
4.4.1
schemes should be decided at Member State level,
including
through collective agreements by the social partners. On the
European level, rules on conditions for acquisition should
therefore
focus on principles and provide direction for
measures at national level, thereby leaving the social partners
sufficient room for collective bargaining.

Article 4 of the directive should be replaced by the
4.4.2
following: ‘where conditions for acquisition are stipulated, such
as minimum age, waiting periods and/or vesting periods, such
conditions should be fair and justified on objective (and non
discriminatory) grounds.’

A change of employer can have a negative impact on

4.5
the acquisition and level of supplementary pension rights.

This negative impact may influence employees' decisions
whether or not to change employer, although obviously such a
decision is contingent on many other factors as well.

4.6
Especially as a result of demographic change, statutory
pensions will no longer suffice in future to maintain living stan-
dards, even in countries where statutory social security schemes
are the main source of retirement
income. Supplementary
pension schemes are therefore becoming increasingly impor-
tant, even though such systems are also exposed to the reper-
cussions of demographic change.

Insofar as it ties in with the fundamental Single Market
4.7
goal of guaranteeing the free movement of persons, and also in
view of the need to improve conditions for supplementary
pension schemes,
the Commission's approach to removing
barriers to mobility created by supplementary pension schemes
is welcome.

4.8 Moreover, Article 40 of
the EC Treaty obliges the
Council to ‘issue Directives or make regulations setting out the
measures required to bring about freedom of movement for
workers’. The basis of the proposal — Article 42 — is thus
given additional backing through Article 40.

The elimination of barriers to mobility is also of particu-
4.9
the
lar importance for achieving the fundamental goal of
Lisbon strategy,
i.e. strengthening the European economy by
creating a knowledge-based society. A knowledge-based society
is not only a precondition for social development; it is also the
most important factor in productivity. Such a society is based
on the capacity of its citizens to generate new ideas and inno-

It

4.10
should also be noted that Council Regulation
1408/71 of 14 June 1971 on the application of social security
schemes to employed persons and their families moving within
the Community also tackled the issue (among others) of
avoiding penalising pension provision. This was one of the first
social policy instruments and its aim was to reduce obstacles to
free movement, and negative consequences arising therefrom.
The Commission's proposal thus follows on logically from this
policy, particularly in view of the legal loophole that exists for
supplementary pension schemes and which will have to be
closed, given the growing importance of such schemes for
maintaining living standards in old age.

to mobility are
4.11 Measures to break down barriers
timely, given that 2006 has been designated by the Commis-
sion as Year of Workers' Mobility.

4.12
Supplementary pension schemes vary from Member
State to Member State. Logically, therefore, a European frame-
work is the only way to gradually bring the various systems
into line in order to make it easier to transfer from one supple-
mentary pension scheme to another.

4.13
This certainly applies at European level; at the same
time, however, bringing arrangements for cross-border transfers
into line while neglecting transfers within a Member State
would hardly be in the interests of securing equal living and
working conditions. The Commission's
approach, which
involves eliminating both cross-border and internal obstacles to
workers' mobility, is therefore the right one.

i.e.

the alignment of

4.14
However, the draft directive does not cover one impor-
taxation on supplementary
tant area,
pension schemes, even though differences in this area between
tax treatment in Member States represent a substantial obstacle
to mobility since workers can be taxed twice (on contributions
and on benefits). This is because inclusion of taxation would
require unanimous approval at Council with the risk that this
could lead to the directive being blocked. The Commission has
sought therefore to deal with taxation through its Communica-
tion of 19 April 2001 and is currently taking infringement
a number of Member States. The
proceedings
Committee believes that without this action by the Commission
the aim of improving portability of supplementary pensions
will not be achieved.

against

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5. Comments on individual provisions

transition period for transposing the provisions on entitlement
periods.

5.1
There is strong evidence that long waiting periods and a
long deadline for the definitive acquisition of pension rights,
coupled with a high minimum age may indeed deter employees
from changing their jobs.

5.7 With regard to the preservation of dormant pension
it cannot be denied that adjustment could potentially
rights,
result
in greater expenditure within supplementary pension
schemes.

The Commission's approach to cutting waiting periods and
deadlines for the acquisition of definitive pension rights and
also to reducing the minimum age is therefore a step in the
right direction. The chosen measures might thus be seen as the
first step towards complete dismantlement of such obstacles.

However, the potential implications of the proposal for
5.2
voluntary employer-funded supplementary pension schemes
must also be considered; it must be borne in mind that these
measures may lead to greater expenditure, potentially under-
mining willingness on the part of employers to continue
funding such schemes.

5.3
Voluntary employer-funded contributions are also an
important HR policy tool. Thus, in the drive to attract the best
brains, and given changing demographic trends and the
increasing demand for skilled labour, it could well be in the
interests of employers to grant pension rights at an early stage
and after a short period of employment. Besides, supplementary
pension provision is only one of many HR tools, and one in
which the welfare aspect is always dominant. On the other
hand,
long waiting and vesting periods reward employees'
loyalty to the company and thus increase length of service.

5.4
As part of a general approach, variations between
Member States in the relationship between supplementary
pension schemes financed (solely) by employers and those
financed by an employee's own contributions must also be
taken into account. In order to reflect these differences, giving
Member States options for differentiating between schemes on
the basis of financing could be considered.

5.5
The Commission's approach to removing barriers to
competition for companies intending to become established in
other Member States must be clearly stressed, as long waiting
periods and a high entry age tie down employees and therefore
inhibit mobility.

5.6
The Commission has also taken the need for gradual
adjustment into account through the option of an extended

However, this largely depends on the type of contributions
involved. In the case of defined-contribution schemes, adjust-
ment of dormant pension rights makes little sense since the
value of
the accrued capital depends on developments in
capital markets and returns. However, this could have potential
negative implications for defined benefit schemes because
contributions are no longer being made.

Nevertheless, given the role of supplementary pensions
5.8
in complementing state pension schemes,
it does seem that
there is a need for adjustments. Admittedly, the wording of the
proposal does not
impose a strong obligation on Member
States to take measures of this kind, and the examples set out
in recital 7 can only be seen as suggestions. It is also unclear
whether differentiated adjustment on the basis of employee
loyalty and the obligation to adjust payments rather than
pension rights are consistent with the Commission's notion of
fair adjustment.

5.9
The option of reimbursing entitlements below a certain
ceiling — established on the basis of national practice —
instead of transferring them seems reasonable.

5.10
However, the choice whether to reimburse entitlements
or retain them is to be left entirely to supplementary pension
schemes. But, even entitlements which the general rules classify
as low-value could very well be of importance to individual
employees as regular additional retirement income. Unwanted
reimbursement might therefore stand in the way of a change of
employer.

5.11
The EESC endorses the objectives of the Commission's
proposal on the portability of pension rights. In particular, the
EESC appreciates the fact that the Commission, rather than
limiting itself to simply submitting proposals to enhance the
portability of supplementary pension rights,
is pursuing a
comprehensive approach aimed at dismantling barriers to
mobility in supplementary pension schemes.

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5.12
A particularly positive point concerning the rules on
transfer is that they will not penalise employees financially,
according to the Commission's plans. This is consistent with
the aim of the Directive, since, if in doubt, employees will opt
to transfer their pension rights and thus change employer only
if such a transfer does not penalise them financially.

5.13
Specific proposals concerning tighter requirements for
the provision of information may also serve the purposes of
the Directive, although it must be borne in mind that these
requirements should be proportionate to actual resources, parti-
cularly in the case of smaller undertakings.

However, one criticism is that Article 6(1) could be
5.14
interpreted in conjunction with the definition in Article 3f to
mean that only employees who change jobs by choice are
entitled to transfer supplementary pension rights; this would
seriously disadvantage individuals leaving employment as a

result of dismissal. Partly in view of the necessary objective of
providing protection from poverty in old age,
therefore
seems appropriate to include all forms of job change within the
scope of Article 3(1).

it

Besides, the theoretical option of exempting particular
5.15
supplementary pension schemes
from transferability could
clash with the fundamental goal of the Directive. Although
Member States are supposed to inform the Commission about
measures taken by them to extend transferability to such
schemes, this may not be enough, given the long-standing
debate on and the urgent need for the development of a stable
second pension pillar. On the other hand, given the diversity of
schemes in Member States, the Commission's proposals are
only likely to meet with acceptance if adequate transition
periods are provided for. Specific timescales and conditions
could therefore be included.

Brussels, 20 April 2006

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

APPENDIX

to the opinion of the European Economic and Social Committee

The following amendment, which received at least a quarter of the votes cast, was rejected in the course of the debate:

Point 4.10

Add a new point after 4.10.

The proposal centres the directive around a transfer of pension capital when changing jobs, which is not
‘4.10.1
always appropriate. It would be better to guarantee the right to consolidate acquired pension rights, in accordance
with the way the state pension is dealt with under Regulation 1408/71.’

Reason

It might be practical to use the same principles for combining different supplementary systems as for different public
pension systems.

Voting

For: 49
Against: 54
Abstentions: 19