REPORT FROM THE COMMISSION TO THE COUNCIL on the Pension Scheme of European Officials and Other Servants of the European Union
Date: 2012-02-07
Institutions: European Commission
Subjects: European official, early retirement, pension scheme, regulations for civil servants, retirement conditions, servant (EU)

EUROPEAN COMMISSION 

Brussels, 7.2.2012  
COM(2012) 37 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

on the Pension Scheme of European Officials and Other Servants of the European 
Union 

 
 
 
 
 
 
EXECUTIVE SUMMARY 

The  Pension  Scheme  of  Officials  and  Other  Servants  of  the  European  Union 
(hereinafter ‘the PSEO’) functions as a notional fund with defined benefits. Although 
there is no actual investment fund, it is considered that the amount which would have 
been  collected  by  such  a  fund  is  reflected  in  the  pension  liability  guaranteed  by 
Article 83 of the Staff Regulations and Article 4(3) TEU. 

The PSEO follows an actuarial balance principle and the pension contribution rate is 
the  mechanism  that  maintains  the  scheme  in  balance.  If  the  actuarial  assessment, 
based on various parameters defined by the Staff Regulations, shows that a pension 
contribution rate different from the rate in force should be applied in order to fully 
cover  the  pension  rights  acquired  during  a  given  year,  that  rate  is  adjusted  by  the 
Council  on  the  basis  of  a  Commission  proposal  and  a  Eurostat  report.  When  staff 
members  pay  the  pension  contribution  adjusted  by  this  rate,  they  acquire  pension 
rights for a given year, which are protected by the principle of acquired rights. 

The PSEO is a mandatory occupational pension scheme for EU civil servants and as 
such shall be compared to pension schemes for civil servants in Member States and 
other international organisations, rather than to general national pension schemes for 
the private sector. 

1. The main parameters to be assessed 

All  aspects  of  the  pension  scheme  have  to  be  considered  as  a  whole,  while  also 
taking into account the specific aspects of the EU civil service, to ensure adequate, 
sustainable and safe pensions for the staff of EU Institutions. 

As  regards  the  pension  age  (normal,  mandatory  and  minimum  retirement  age),  the 
EU Institutions appear within the range of the schemes of Member States for national 
civil  servants.  If  the  Commission  Proposal  of  2011  on  the  review  of  the  Staff 
Regulations (hereinafter ‘the Commission Proposal’) is adopted by the Council and 
the Parliament, the EU Institutions will be in line with those Member States that are 
the  most  advanced  in  reforming  their  pension  systems  and  fully  in  line  with  the 
orientations  of  the  Green  Paper  towards  adequate,  sustainable  and  safe  European 
pension  systems  (hereinafter  ‘the  Green  Paper’).Many  of  the  Member  States  still 
need to carry out structural reforms to this end. 

The  PSEO  is  either  in  line  or  even  compares  less  favourably  (by  granting  lower 
entitlements) with the schemes of the Member States as regards the accrual rate, the 
basis for pension, the maximum possible pension rate and the staff contribution rate. 
The pensions in the PSEO are adjusted at the same level as the remuneration in the 
EU Institutions. As a result, the pensions paid from the PSEO have lost 5.4%1 of the 
purchasing power since 2004. 

As  regards  the  individual  progression  in  the  salary  scheme,  even  though  it  has  an 
impact on pension costs, the career system should not be changed if its only aim is to 

1 

The figure takes into account the Council Decision (2011/866/EU) of 19 December 2011 not to adopt 
the Commission proposal to adjust the remuneration and pensions. 

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achieve  savings  on  pensions.  The  first  consideration  should  be  the  need  to  attract, 
retain  and  motivate  the  active  staff  of  the  EU  Institutions.  These  were  the 
considerations  behind  the  complete  overhaul  of  the  career  structure  in  2004,  which 
established  a  merit  based  career  structure  providing  performance  incentives 
throughout the entire career. 

The  Commission  has  also  considered  a  number  of  other  policy  aspects  related  to 
pensions  listed  in  the  Council  request,  notably  the  role  of  pensions  in  the  overall 
reward package for EU staff and ensuring fair future pension provision across the EU 
workforce. The Commission reached the conclusion that the PSEO provisions are up 
to  date  and  comply  with  the  policy  goals  of  the  EU  Institutions,  as  well  as  the 
orientations of the Green Paper. 

2. A reflection on possible changes to the PSEO 

The possible creation of a pension fund may entail additional costs, as the value of 
the notional fund would have to be transferred to an investment fund. In the long run, 
however, annual budgetary pension expenditure would decrease, as pensions would 
be paid from the fund. Incentives for private pension provision could be considered, 
although  certain  issues  such  as  additional  costs  for  management  and  security  of 
investment should be addressed. 

The creation of the category of contract staff in 2004 has brought and will continue 
to bring considerable savings. However, it is also important to keep the same pension 
scheme  for  officials  and  contract  agents  in  order  to  maintain  contract  agents' 
positions attractive for qualified staff. 

Therefore,  the  Commission  concludes  that  all  parameters  of  the  PSEO  are  in  line 
with the pension schemes for national civil servants of the Member States. However, 
in  order  to  comply  with  the  orientations  of  the  Green  Paper,  the  early  retirement 
scheme should be restricted, and both the normal retirement age and the mandatory 
retirement age should be postponed until 65 and 67 respectively, as provided for in 
the Commission Proposal. 

Lastly,  the  Commission  has  assessed  the  additional  savings  that  would  result  from 
the  Commission  Proposal  based  on  three  approaches:  annual  pension  expenditure, 
the service cost which reflects the annual cost of pension rights and corresponds to 
the amount to be invested in the pension fund if it existed, and pension liability. 

The  measures  set  out  in  the  Commission  Proposal,  if  adopted,  would  have  a 
considerable impact in terms of reducing the long-term pension costs. As a result of 
those  measures,  the  annual  pension  expenditure  would  decrease  by  around  500 
million Euros in the long run, and the service cost, which corresponds to the annual 
cost  of  acquired  pension  rights,  would  be  reduced  by  9.5%.  This  would  have  an 
immediate  impact  on  the  pension  liability  for  active  staff,  which  would  fall  by 
14.5%. 

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1. 

INTRODUCTION 

1.1. 

Request for the report 

As part of the discussion in the Council concerning the Commission report on Annex 
XI (mid-term review)2, the Council invited the Commission to undertake a study on 
the  long-term  budgetary  implications  of  the  pension  costs  of  staff  of  all  EU 
Institutions and agencies. On 18 August 2010 the Commission presented a Eurostat 
study on the long-term budgetary implications of pension costs3.  

Eurostat  recalled  the  main  principles  of  the  PSEO  and  emphasised  that  "it  is 
important  to  appreciate  that  the  new  pension  expenditure  due  to  a  staff  member 
retiring today has already been paid for, in the form of the pension contributions paid 
during that staff member's period of service."4 When staff members pay the pension 
contribution adjusted by this rate, they acquire pension rights for a given year, that a 
protected by the principle of acquired rights. 

That abovementioned study addressed the major trends in pension expenditure of the 
PSEO  over  a  period  of  50  years  (2010-2059)  and  showed that the  PSEO  is  not  yet 
mature. This is because, even though the scheme has been in existence since 1962, 
the number of staff has grown over time as a result of successive EU enlargements, 
new tasks for the EU institutions and the steady trend in establishing new EU bodies. 
Consequently, between 2010 and 2059, the number of beneficiaries will increase by 
109%. 

Another  consequence  of  the  fact  that  the  scheme  is  not  yet  mature  is  that  annual 
pension  expenditure  will  grow  during  the  projection  period.  Total  pension 
expenditure (at constant prices) will rise from 1 235 million Euros in 2010 to peak at 
2 490 million Euros in 2045, before falling to 2 259 million Euros in 2059. Pension 
expenditure  is  therefore  projected  to  grow  more  slowly  than  the  number  of 
pensioners  and  will  then  start  to  decrease,  largely  due  to  the  effects  of  the  2004 
reform of the Staff Regulations5. 

Eurostat  calculated  that  the  annual  savings  for  EU  budget  between  2010  and  2059 
resulting from the 2004 reform will increase over time to reach 1 047 million Euros 
in  2059.  This  means  that  the  total  pension  expenditure  in  2059,  which  is  now 
projected to increase by 83% as compared to 2010, would otherwise have increased 
by 168% without the 2004 reform. The total cost savings over 50 years are projected 
to be 24 785 million Euros. This may even be an underestimate of the total savings 
from the 2004 reform, as it does not take into account savings from the changes to 
invalidity and survivors' pensions. 

The  Council  took  note  of  the  study  and  asked  the  Commission  to  make  an 
assessment  of  all  elements  that  have  a  significant  impact  on  pension  costs,  and  it 
called upon the Commission to have regard in its assessment to a number of policy 
aspects. In addition, the Council requested the Commission to present, by the end of 

2 
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4 
5 

COM (2008/443). 
SEC (2010) 989.  
SEC (2010) 989, p.3. 
Hereinafter '2004 reform'. 

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2011,  appropriate  proposals  for  amending  the  Staff  Regulations  based  on  this 
assessment. 

The structure of the present report is in line with that of the abovementioned request 
of the Council. 

1.2. 

Green Paper towards adequate, sustainable and safe European pension systems 

In  parallel  with  the  abovementioned  process  initiated  by  the  Council,  the  Green 
Paper towards adequate, sustainable and safe European pension systems6 launched a 
European  debate  on  the  key  challenges  facing  pension  systems  i.e.  demographic 
ageing and the financial and economic crisis. It defined the priorities for modernising 
pension  policies  in  the  EU  in  order  to  achieve  two  overarching  objectives  i.e. 
addressing  pension  adequacy  and  securing  sustainability.  These  objectives  can  be 
achieved, inter alia, by: 

– 

– 

– 

achieving a sustainable balance between time spent in work and in retirement; 

removing obstacles to mobility in the EU by strengthening the internal market 
for pensions and enhancing the mobility of pensions; 

promoting  safer,  more  transparent  pensions  with  better  awareness  and 
information. 

2. 

METHODOLOGY 

2.1. 

Comparative approach 

In  order  to  assess  whether  the  PSEO  is  in  line  with  national  pension  schemes,  the 
Commission  used  a  comparative  approach.  This  approach  meant  defining  the 
methodology,  i.e.  defining  the  comparable  sample,  time  frame  and  comparable 
elements of different pension schemes for civil servants. It goes without saying that, 
while assessing separate elements across pension schemes, we should remember that 
they  are  interrelated  and  interdependent.  Therefore,  only  by  combining  all  of  these 
elements we can provide the full picture of a given pension scheme for civil servants. 
At the same time we need to be mindful of the complexity and particular features of 
the pension schemes that are being compared. 

When defining the time frame we need to bear in mind the dynamism and diversity 
of  pension  schemes  for  civil  servants.  Often  different  conditions  apply  to  civil 
servants  depending  on  their  age,  the  department  in  which  they  work  or  the  day  on 
which  they  started  their  service  (or  the  date  of  their  entry  into  the  employment 
market).  This  diversity  is  inherent  in  the  way  the  reforms  in  pension  schemes  are 
introduced, sometimes, as a result of the need to preserve certain acquired rights. In 
order to have comparable results, this report takes into account the present situation 
for civil servants that enter into service in 2011 and transitory measures that are put 
in place. 

6 

SEC (2010/830). 

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2.2. 

Making proper comparisons 

The PSEO is a mandatory occupational pension scheme for EU civil servants and as 
such should be compared with pension schemes for civil servants in Member States 
and  other  international  organisations  rather  than  with  general  national  pension 
schemes for the private sector. General pension schemes are defined by the State and 
normally do not apply to civil servants. 

Although the Commission  did not  compare the PSEO with the pension schemes of 
other international organisations in this report, it considers such a comparison fully 
appropriate due to the similar staff features and the comparable nature of the work. 
The Commission does not rule out the possibility of conducting such an analysis in 
the future. 

In order to assess whether the PSEO is in line with the pension schemes for national 
civil servants, the Commission asked the Member States to reply to a questionnaire 
on their pension schemes for national civil servants in central government. Twenty-
six  Member  States  sent  the  replies,  while  France  failed  to  do  so  despite  several 
reminders. This report is based on the replies sent in by the Member States. 

When assessing the PSEO, the specific situation of EU staff should be borne in mind: 
the  EU  Institutions  recruit  mainly  expatriate  staff  coming  from  27  Member  States 
which have significantly different national pension systems. This is not the case for 
the civil services of the Member States. In terms of other international organisations, 
only the United Nations is of a comparable size and this makes it difficult to compare 
like with like. Although the Commission considers that the pension schemes of other 
international organisations and national pension schemes are the most appropriate for 
purposes  of  comparison,  such  comparisons  have  inherent  limitations,  which  are 
underlined in the report. For example, many schemes in the Member States are pay-
as-you go schemes, whereas the PSEO operates as a notional fund. 

All components of the pension scheme have to be considered altogether, while taking 
into account the specific aspects of the EU civil service, in order to ensure adequate, 
sustainable and safe pensions for the staff of EU Institutions. 

EU  Institutions  recruit  mainly  expatriate  staff  from  all  27  Member  States,  and 
compete  in  the  international  labour  market  with  other  international  organisations, 
diplomatic  services,  central  government  services,  multinational  companies,  law 
firms, financial consultancies, etc. They need to continue to be an attractive employer 
so  as  to  maintain  the  geographical  balance  among  staff  and  be  able  to  deliver  on 
policies in order to meet the expectations of EU citizens and the Member States. 

2.3. 

Separate pension schemes for civil servants 

There are separate occupational pension schemes for civil servants in all international 
organisations, in about half of the countries of the world and in the majority of EU 
Member  States.  Integrated  schemes  are  universal  in  the  new  Member  States,  albeit 
often with different rules for different groups of workers. In Ireland and Spain, civil 
servants  are  covered  by  the  national  pension  scheme,  but  have  their  own  top-up 
retirement  income  arrangements  (additional  defined-benefit  pensions  for  civil 

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servants). In the United Kingdom, civil servants are covered by part of the mandatory 
pension arrangements that apply to private-sector workers. 

The  rationale  for  providing  pensions  for  civil  servants  is  somewhat  different  from 
that behind the creation of general national pension schemes, the purpose of which is 
to ensure an adequate retirement income. The objectives are the following: securing 
the  independence  of  public  servants,  making  a  career  in  public  service  attractive, 
postponing the cost of remunerating public servants into the future and ensuring that 
retirement provision for older civil servants is politically and socially acceptable. 

While civil service pension schemes share some of the social-policy goals of national 
pension  programmes,  they  must  also  accommodate  the  human-resources  policy  of 
the employer. Therefore civil service pension policy also involves general issues of 
civil-service remuneration and compensation7. 

3. 

THE PENSION SCHEME OF EUROPEAN OFFICIALS (PSEO) 

3.1.  Main concepts 

3.1.1.  Legal references 

Pursuant to Article 83 of the Staff Regulations: 

– 

the benefits paid under this pension scheme are to be charged to the budget of 
the Union,  

–  Member States are to jointly guarantee the payment of such benefits, 

– 

officials are to contribute one third of the cost of financing the pension scheme. 

Article  83a  and  Annex  XII  of  the  Staff  Regulations  set  out  the  actuarial  rules  for 
computing  the  contribution  rate  in  order  to  guarantee  the  balance  of  the  pension 
scheme. 

The benefits paid under the scheme are laid down in Chapter 3 of Title V of the Staff 
Regulations, as well as in Annex VIII thereto. 

3.1.2.  Notional fund principle 

The  European  Coal  and  Steel  Community  (ECSC)  had  a  pension  fund,  but  it  was 
dismantled and replaced by the notional fund upon the merger of the institutions of 
the Communities in 1967. The notional fund has been put in place for the European 
Economic Community with the adoption of the Staff Regulations in 1962. 

It must be borne in mind that the PSEO does not operate as a pay-as-you-go scheme. 
In  a  pay-as-you-go  scheme,  the  pension  contribution  rate  or  pension  benefits  are 
adjusted in order to have yearly balance between the collected contribution and the 

7 

Robert Palacios, Edward Whitehouse. Civil-service Pension Schemes Around the World. May 2006. SP 
discussion paper NO. 0602. World Bank. 

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pension expenditure. In case the balance cannot be achieved, the budget finances the 
difference through taxes. 

This is not the case in the PSEO, in which the pension contribution actually covers 
the cost of the pension rights acquired in a given year and is not in any way linked to 
the pension expenditure of that year. When the PSEO reaches the maturity, there will 
necessarily  be  a  gap  between  pension  contribution  and  the  pension  expenditure, 
which is due to the interest that is applied to the collected contribution until it has to 
be paid back in the form of pension benefits. 

Although there is no actual investment fund, it is considered that the amount which 
would have been collected by such a fund, is invested in the Member States (on the 
basis  of  the  observed  average  annual  interest  rates  on  the  long-term  public  debt  of 
Member  States)  and  is  reflected  in  the  pension  liability,  which  is  guaranteed  by 
Article 83 of the Staff Regulations and Article 4(3) TEU.  

As far as the budget is concerned, the pension scheme produced net revenue in the 
past, because active staff paid contributions for pension rights they acquired, whereas 
very few retired or invalided staff actually drew benefits. This revenue consisted of 
the  pension  contribution  paid  by  the  staff  plus  the  employer's  contribution,  which 
was however not paid into a fund, but was only reflected in the pension liability. 

In  the  longer  term,  as  active  staff  go  into  retirement,  there  will  be  an  inevitable 
increase in the pension expenditure. The increase will continue until around the time 
when  the  pension  scheme  reaches  maturity  –  that  is,  until  the  number  of  deceased 
retirees in a given year balances out the number of new beneficiaries. The amounts 
which  would  have  been  covered  by  the  pension  fund  are  now  covered  (and  will 
continue to be covered) by the budget and have an impact on the pension liability. 

Under the  notional fund  approach, staff contributions have not  been set aside in an 
actual  pension  fund,  but  have  been  credited  instead  to  the  EU  budget  at  the  time 
when  they  were  collected  and  spent  in  accordance  with  the  decisions  of  the 
budgetary authority, i.e. they were not assigned to any particular policy field. As for 
the  remainder,  which  would  normally  correspond  to  the  employer's  part  of  the 
contribution,  it  was  decided  that  it  would  not  be  collected8;  instead,  the  EU 
Institutions  have  undertaken  to  pay  future  pension  benefits  (to  be  charged  to  the 
Union  budget)  when  staff  retire.  Pursuant  to  Article  83  of  the  Staff  Regulations, 
Member States shall jointly guarantee payment of the benefits. As a result the budget 
was, in effect, borrowing this money from the members of the scheme, in return for a 
guarantee  to  pay  future  benefits.  The  balance  of  the  amounts  borrowed  and  the 
amounts repaid is reflected in the pension liability. 

As members of the PSEO reach retirement age, the money has to be repaid to them in 
the  form  of  retirement  benefits.  Therefore,  pension  expenditure  has  gradually 
increased  in  the  past,  and  this  trend  will  continue  until  around  the  time  when  the 
scheme matures. 

8 

With the exception of self-financing agencies, which pay the employer's part of the contribution to the 
EU budget. 

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In  relation  to  this  growth  in  pension  expenditure,  it  is  important  to  understand  that 
the new pension expenditure due to a staff member retiring today has already been 
paid  for9  in  the  form  of  the  pension  contributions  paid  during  that  staff  member's 
period  of  service,  and  their  pension  entitlements  that  will  have  to  be  paid  from  the 
moment of retirement are covered by the pension liability. 

3.1.3.  Actuarial balance principle 

The  PSEO  follows  the  actuarial  balance  principle.  The  annual  contribution  paid  by 
the  staff  has  to  cover  one  third  of  the  rights  that  the  staff  have  acquired  during  a 
given  year.  The  acquired  rights  of  EU  civil  servants  during  that  given  year 
correspond to the future pensions that the staff will receive after retirement, as well 
as  to  the  entitlement  (under  certain  conditions)  to  an  invalidity  allowance,  a 
survivor's pension, and an orphan's pension. In other words, the annual contribution 
is designed to finance one third of the service cost under the pension scheme, i.e. a 
series  of  payments  that  will  arise  in  the  future.  In  order  to  make  this  computation 
possible, the series of payments for European civil servants has to be evaluated at its 
present  value  (using  an  interest  rate  "discount  rate").  The  computation  is  thus  an 
actuarial valuation.  

In  technical  terms,  the  method  used  in  the  computation  of  the  pension  contribution 
rate is that prescribed by international accounting standard IPSAS2510 and referred to 
as “projected unit credit”. The sum of the actuarial values of rights acquired by active 
members  of  staff,  referred  to  in  actuarial  practice  as  “service  cost”,  is  compared  to 
the annual total of their basic salaries in order to calculate the contribution rate. 

The  pension  contribution  rate  maintains  the  PSEO  in  balance.  If  the  actuarial 
assessment, based on the various parameters defined by the Staff Regulations, shows 
that  a  pension  contribution  rate  which  is  different  from  the  rate  in  force  should  be 
applied  in  order  to  cover  the  pension  rights  acquired  during  that  year,  that  rate  is 
adjusted by the Council on the basis of a Commission proposal. 

The contributions paid during the current year are not calculated so as to cover the 
pension payments for the current year: they might be higher or lower. The actuarial 
balance principle guarantees a balance in the long term, not a yearly balance: this is a 
different concept from a yearly cash-flow balance. 

4. 

COMPARATIVE  ANALYSIS  OF  THE  MAIN  FEATURES  OF  THE  PENSION  SCHEMES  OF 
NATIONAL CIVIL SERVANTS AND EUROPEAN CIVIL SERVANTS 

4.1. 

Pensionable age 

The Green Paper defines the "normal pension age" as the "age at which a member of 
the  pension  scheme  is  eligible  to  receive  full  pension  benefits".  The  "mandatory 
retirement age" is the age at which the employment contract automatically expires as 
an effect of chronological age. The "effective retirement age" is the age at which an 

9 
10 

Active staff paid the pension contributions for the pension rights they acquired. 
The International Public Sector Accounting Standard (IPSAS) 25 is the equivalent of the International 
Accounting Standard (IAS) 19 applied in the private sector. 

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individual actually retires. As a general rule, the effective retirement age tends to be 
below the normal pension age. However, for reasons of data availability, the labour 
market exit age is often used as a proxy for the effective retirement age.  

For example, in 2008 the average age of exit  from the labour force  in  the Member 
States11  ranged  from  55.5  in  Romania,  59.3  in  France  and  Poland  to  63.2  in  the 
Netherlands  and  63.8  in  Sweden.  The  average  exit  age  of  all  Member  States  was 
61.4. The effective retirement age in the EU Institutions varies between 61 and 62. 

4.1.1.  Normal pension age 

In a number of Member States the normal pension age for civil servants is lower than 
in general schemes. 

The  following  chart  shows  the  normal  pension  age  for  central  civil  services  of  the 
Member States: 12 

Normal pension age for civil servants

European institutions (after 2013 Reform)

DE, DK, EL, ES, IE, IT, NL, PL(M), PT, RO(M), SE,
UK

AT, BG(M), CY, EE(M), FI, RO(M)

European institutions (before 2013 Reform)

CZ(M), HU, LT(M), LV, SK

EE(F), MT

BE, BG(F),  CZ(F), LT(F), LU, PL(F), RO(F), SI

65

65

63

63

62

61
60 years or 
less

58

60

62

64

66

NB: France is not included in the chart as no reply was provided to the questionnaire. 

If only the pension age for men is taken into account, it should be pointed out that the 
majority of the Member States have set the normal pension age between 61 and 63 
years. In three Member States it is still 60 and in ten of them it is as high as 65. In six 
Member States the normal pension age is lower for women than for men and is set at 
the age of 61 or below. 

The normal pension age for EU civil servants was raised from 60 to 63 (for both men 
and women) in 2004, with transitional provisions applying for staff already in place 

11 
12 

Source: Green Paper. 
In the following tables, "F" stands for "Female" and "M" stands for "Male". 

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(ranging from 60 to 63 depending on the age of the civil servants on 1 May 2004). 
The  current  normal  pension  age  of  63  is  broadly  in  line  with  the  standard  pension 
eligibility ages for civil servants in the Member States. If the EU Institutions raise the 
normal  pension  age  to  65,  it  will  be  higher  than  the  normal  pension  age  for  civil 
servants in most Member States. 

4.1.2.  Mandatory retirement age 

The  mandatory  retirement  age  is  also  a  relevant  indicator  that  should  be  observed 
when describing pension schemes. A third of the Member States have established 63 
or  65  as  the  age  at  which  the  tenure  or  employment  contract  for  a  civil  servant 
expires,  and  in  nine  Member  States  there  is  no  upper  age  limit  for  staff  in  public 
employment.  It  should  be  pointed  out  that  the  suggestion  in  the  Commission 
Proposal is that civil servants should be allowed to work until the maximum age of 
67  if  it  is  in  the  interests  of  the  service,  which  previously  was  possible  only  in 
exceptional circumstances. 

Mandatory retirement age for civil servants

CZ, DK, EE, LT, LV, PL, PT, SI, SK

UK

ES, HU, NL

FI, LU

European institutions

EL, SE

AT, BE, BG, DE, IE, IT, MT, RO(M)

CY

RO(F)

55

60

60

No maximum

75

70

68

67

67

65

63

65

70

75

80

NB: France is not included in the chart as no reply was provided to the questionnaire. 

This  increase  in  the  mandatory  retirement  age  will  put  the  EU  Institutions  in  the 
category as those Member States in which civil servants have the possibility to work 
the longest, whereas most of the Member States need to implement structural reforms 
in order to encourage longer working lives. 

4.1.3.  Minimum retirement age 

As  far  as  early  retirement  is  concerned,  a  majority  of  Member  States  maintain  a 
minimum  pensionable  age  close  to  58  years.  However,  at  least  ten  Member  States 
still  offer  the  possibility  for  civil  servants  who  have  a  certain  minimum  number  of 
years of service to leave the service before reaching the age of 58. This is the case in 
the United Kingdom, where civil servants can retire at the age of 50. 

EN 

11 

   EN 

 
 
Minimum retirement age for civil servants

IE

DE

FI

MT, SE

AT, BE, DK, EE(M), EL, ES, IT, LV, NL, SK

European institutions (after 2013 Reform)

CY, EE(F), SI(M)

CZ(M), HU, LU

European institutions (before 2013 Reform)

PT

RO, SI(F)

CZ(F)

UK

BG, LT, PL

no minimum

55
55

53

51

50

65

63

62

61

60

58
58

57

45

50

55

60

65

70

NB: France is not included in the chart as no reply was provided to the questionnaire. 

In  its  Proposal,  the  Commission  suggested  measures  restricting  access  to  early 
retirement schemes and other early exit pathways in order to enable civil servants to 
stay  longer  in  activity.  In  particular,  the  number  of  staff  members  that  can  take  up 
early retirement without a reduction of pension rights would be diminished and the 
early  retirement  age  increased  to  58.  Some  Member  States  have  started  similar 
reforms, while the others have yet to implement such measures. 

4.2. 

Accrual rate 

The Green Paper defines the accrual rate as "the rate at which future pension benefits 
are built up. It is used in defined benefit schemes and based on the formula linked to 
the scheme". 

When  comparing  the  accrual  rates  existing  in  the  Member  States,  it  is  relevant  to 
consider at the same time the basis, which makes the exercise very complex.  

First of all, in nearly a dozen Member States, part of the pension could be paid under 
different rules than the accrual rate.  

There is a wide range of situations in the various Member States that apply accrual 
rates. To give some examples, in the United Kingdom the accrual rate is up to 2.30 % 
of  the  last  salary,  in  Portugal  it  is  between  2.00%  and  2.30%  of  each  relevant 
calendar  year,  in  the  Netherlands  it  is  2.05 %  of  the  pensionable  income  and  in 
Germany, it accrues 1.80% of the final salary and family allowances for each year of 
service. 

EN 

12 

   EN 

 
 
The  current  accrual  rate  for  the  officials  and  servants  of  the  European  Union  is 
1.90% of their final basic salary for each year of service; this rate was reduced from 
2 %  to  1.9 %  in  the  2004  reform13.  This  level  is  fully  justified  by  the  particular 
situation  of  EU  staff.  It  has  to  be  taken  into  consideration  that  the  average  age  of 
entry  into  the  European  civil  service  is  35  years.  Therefore,  staff  have  a  shorter 
period  of  time  to  acquire  pension  rights  than  do  national  civil  servants.  Moreover, 
when  European  civil  servants  transfer  pension  rights  from  Member  States,  it  is  not 
the  number  of  years  worked  but  the  monetary  value  transferred  that  is  taken  into 
account. 

There is another aspect that makes the situation even more complex when comparing 
Member States and EU Institutions: the accrual rate may also vary depending on the 
age. Finland offers a progressive accrual rate, which is 1.5 % of earnings between the 
ages  of  18  to  52,  1.9  %  of  earnings  between  the  ages  of  53  to  62  and  4.5  %  of 
earnings between the ages of 63 and 68. This provides a clear incentive for the civil 
servants to work longer. The EU Institutions adopted a similar approach by creating 
an  incentive  of  additional  pension  rights  for  work  after  reaching  the  normal 
retirement age (known as the “Barcelona incentive”). 

The chart below shows accrual rates in the Member States that use accrual rates to 
calculate pensions. 

UK
PT
NL
IT
European Institutions
LU
DE
BE
CY, FI, SI
AT
SK
BG
LT

Accrual rates

2,30%

2,15%

2,05%

2,00%

1,90%

1,85%

1,79%

1,67%

1,50%

1,43%

1,25%

1,10%

1,00%

0,75% 1,00% 1,25% 1,50% 1,75% 2,00% 2,25% 2,50%

NB: France is not included in the chart as no reply was provided to the questionnaire.  

4.3. 

Basis for pensions 

Member  States  apply  very  different  systems  when  it  comes  to  the  basis  for 
calculating the pension once an official retires. Some Member States such as Cyprus, 
Ireland  or  the  United  Kingdom,  base  the  pension  on  the  last  salary  or  on  the  last 
year's  salaries.  In  other  Member  States  (for  example  in  Finland,  Hungary  and 
Slovakia)  the  average  of  pay  over  the  whole  career  is  taken  into  account  for  the 

13 

For staff recruited before 1 May 2004 the accrual rate is 2 %. 

EN 

13 

   EN 

 
 
                                                 
pension calculation. This means that the career progression is very important for the 
definition of the basis for pension. For example, in the systems that take into account 
the  last  years  of  service  as  a  basis  and  where  the  end  of  career  progression  is  very 
slow, this has only a very limited impact on the pensions. The effect is similar in the 
systems using the average career salary, when the difference between starting salary 
and final salary is small. 

In  the  EU  Institutions  the  basis  for  the  pension  is  the  basic  salary  of  the  last  grade 
that  the  official  has  held  for  at  least  one  year.  There  are  important  reasons  to 
maintain this system. In the 2004 reform of the Staff Regulations, the career structure 
in  the  EU  Institutions  was  revamped  and  made  longer  by  introducing  additional 
grades,  in  order  to  create  performance  incentives  throughout  the  entire  career.  The 
salaries at entry level were consequently lowered. In addition, given the high average 
age  of  recruited  staff,  it  would  be  impossible  for  many  of  them  to  progress  to  the 
higher grades if they followed the average career pace. Therefore, changing the basis 
for the pension would much more affect the level of pensions in the EU Institutions 
than  it would  in  national services  with  a lower number of grades, and would make 
the entry grades even less attractive for experienced staff. As a consequence, the EU 
Institutions would need to find alternative solutions, which might be more costly, in 
order  to  attract  qualified  staff  from  all  Member  States  (for  example,  by  organising 
competitions in higher grades for experienced staff, the result of which would be not 
only higher salaries, but also higher pensions). 

4.4.  Maximum possible pension rate 

The  maximum  pension  rate  puts  a  cap  on  the  pension  rights  that  a  person  can 
accumulate  during  his  working  life.  As  this  notion  does  not  exist  in  some  Member 
States, such as Czech Republic, Finland, Romania, Latvia, Estonia, the pension rights 
of civil servants in those Member States correspond to their years of service, while 
the  EU  Institutions  and  other  Member  States  have  established  a  cap.  The  effect  of 
having such a cap is that a person may be obliged to work until he reaches the normal 
retirement  age  without  acquiring  any  additional  pension  rights,  but  would  still  be 
under  an  obligation  to  contribute  to  the  scheme,  if  he  has  reached  the  maximum 
pension rate. 

The  maximum  pension  rates  can  vary  considerably  from  one  Member  State  to 
another.  For  example,  although  in  France14  the  maximum  pension  rate  is  75%,  it 
could  be  raised  to  80%  as  a  result  of  various  premiums.  Germany  has  a  maximum 
pension  rate  of  71.75%  of  the  final  basic  salary  plus  family  allowances.  Some 
Member  States  have  set  the  rate  on  the  basis  of  the  highest  salary  throughout  the 
career.  This  is  the  case  in  the  United  Kingdom,  where  employees  could  receive  a 
maximum pension equivalent to 66 or 75% of the highest salaries depending on the 
pension scheme. In Slovenia and Austria, the maximum is 80% of the highest salary 
received during a number of years. 

14 

EN 

As  far  as  France  is  concerned,  as  data  was  not  made  available  to  Eurostat,  the  data  included  in  this 
report 
http://www.info-
retraite.fr/index.php?id=144  

following 

authority 

French 

portal: 

public 

rely 

the 

on 

14 

   EN 

 
                                                 
The  maximum  retirement  pension  for  officials  and  other  servants  of  the  European 
Union  is  70%  of  the  final  basic  salary  corresponding  to  the  last  grade  which  the 
official or servant occupied for at least one year. In order to achieve the maximum 
pension rate, EU civil servants have to work at least 37 years, and with the increase 
in  the  retirement  age  to  65  they  have  to  start  at  the  age  of  28,  in  order  to  acquire 
maximum pension rights in the EU civil service. As the average recruitment age in 
the European Commission is 35, the majority of staff will be unable to achieve the 
maximum  pension  rate.  This  is  already  the  case:  the  accumulated  pension  rights  of 
the staff members who retired in 2010 are equivalent to 63% on average and will be 
around 57% for staff recruited after 1 May 2004. 

The only possibility of receiving a pension exceeding 70 % of the pension rights is if 
the  minimum  subsistence  figure  is  applied.  An  official  or  other  servant  becomes 
entitled to a pension equal to the basic salary of an official in grade 1 step 1 after 25 
years  of  service.  However,  this  applies  only  to  the  lowest  categories  of  staff  (for 
more details, see the chapter of this Report on use of contract agents and conditions 
of contract agents). In a few Member States the maximum pension rate is set below 
70%,  but  it  is  applied  to  a  different  basis.  In  Denmark,  for  example,  the  maximum 
possible pension rate is fixed at 57%, but it applies only to the statutory pension and 
not to the state pension, which is dependent on the length of residence in Denmark. A 
person must have lived in Denmark for 40 years after their 15th birthday in order to 
be  entitled  to  a  full  state  pension  from  Denmark.  The  State  pension  consists  of  a 
basic  amount  and  a  pension  supplement.  The  gross  basic  amount  is  58  032  Danish 
krona (7 780 Euros15) annually. The pension supplement for single persons is 58 416 
Danish  krona  (7  831  Euros)  annually,  whereas  it  is  27  276  Danish  krona  (3  657 
Euros) for married and cohabitating persons16. 

For purposes of comparison, the theoretical replacement rates17 in the Member States 
could  be  used  as  a  comparator.  These  have  been  developed  by  the  Indicators 
Subgroup of the Social Protection Committee. In the majority of Member States the 
replacement rates can be found in the range between 60% and 80% of last earnings. 
The median rate would be around 75%, i.e. the rate applied in the United Kingdom. 

4.5. 

Staff contribution rate 

The staff contribution rate is the part of the EU official's salary to be paid to finance 
one third of the actuarial cost of the pension scheme. The remaining two thirds are to 
be financed by the  employer’s contribution. In practice, EU Institutions do not pay 
their  corresponding  part  to  finance  the  scheme,  but  –  by  way  of  compensation  - 
pension payments are jointly guaranteed by the Member States (Article 83 of the SR) 
(see 5.8). 

Here again, comparisons between Member States are complex because of the diverse 
nature of the bases on which the contribution relies (which includes the basic salary, 
gross earnings, real salary, gross wages, etc).  

15 
16 

Figures in Euros are calculated with exchange rate of 1 July 2011, 1€=7.4592 DKK. 
https://www.workindenmark.dk/Find%20information/Til%20arbejdstagere/Naar%20du%20 
arbejder%20i%20Danmark/Pension/Folkepension.aspx 
Replacement rates show the level of pensions as a percentage of previous individual 

17 
earnings at the moment of take-up of pensions. 

EN 

15 

   EN 

 
                                                 
It should be noted that, in some Member States, officials do not have to contribute to 
the  pension  scheme  at  all,  as  all  contributions  are  covered  by  the  State  and  their 
pensions  are  paid  from  the  budget.  This  is  the  case  in  Bulgaria,  Estonia,  Germany, 
Sweden, as well as some pension schemes in Belgium and Denmark.  

At  the  level  of  the  European  civil  service,  it  should  be  remembered  that  the  total 
pension contribution rate is needed in order to maintain the PSEO in balance and it is 
calculated  every  year.  The  share  to  be  paid  by  EU  officials  (1/3  of  this  total 
contribution)  is  adjusted  accordingly  (according  to  Article  83  of  the  Staff 
Regulations).  For  example,  for  the  year  2009,  the  pension  contribution  rate  for  EU 
officials  was  set  at  10.9%,  at  11.3%  for  2010  and  at  11.6%  of  the  basic  salary  for 
201118. 

In by far the majority of Member States, the staff pension contribution rate is lower 
than the rate of the PSEO. The rate in some of the Member States is around 5% or 
below (the United Kingdom, Cyprus, Lithuania and Spain), while others have set the 
rate at between 5% and 10% (Finland, the Netherlands, the Czech Republic, Ireland, 
Greece,  Slovakia,  Luxembourg,  Italy,  Latvia,  Hungary  and  Poland).  The  pension 
contribution  rate  is  higher  than  that  of  the  PSEO  only  in  two  Member  States:  in 
Austria, where it ranges from 10.25 % to 12.55 % and, in Slovenia, where its upper 
limit is 15.5 %. 

Staff contribution rate to the pension scheme

15,50

11,40 11,60

11,00

10,50

10,00

8,80 9,00

9,50 9,52

8,00

6,42 6,50 6,67 7,00

18,00

16,00

14,00

12,00

10,00

8,00

6,00

4,00

2,00

0,00

5,70

4,70

3,50

3,00

0,00 0,00

G
B
E
B

,

,

,

E
S
E
E
K
D
E
D

,

Y
C

,

T
L

K
U

I

S F
E

L
N

E

I
,

Z
C

L
E

K
S

T
U I
L

V
L

U
H

L
P

T
M

O
R

T
P

T
A

I

S

s
n
o
i
t
u
t
i
t
s
n
I

U
E

BE:7% contribution paid by staf for survivor's pensions

DK: in the case of Labour Market PS, CR varies between 8% and 17%
PL: 7,3% for OPF part and 2,22% for PAYG part. 
CY: in the case of CY Widows PS, CR is 2%
ES: 3,86% as regards Régimen de Clases Pasivas del Estado
FI: In 2010 contribution is 4,5% for persons aged under 53 and 5,7 % for persons having reached the age of 53. 

UK: 1,5% for some categories

18 

The Commission has proposed an 11.0% pension contribution rate for 2012. 

EN 

16 

   EN 

 
 
 
 
                                                 
NB: France is not included in the chart as no reply was provided to the questionnaire. 

4.6. 

Annual adjustment of pensions 

A key determinant of the dynamics in pension expenditure is the indexation rule. As 
underlined  in  the  Joint  Report  on  pensions  for  2010,  many  reform  packages  have 
featured  changes  in  the  indexation  of  pensions  during  retirement.  The  indexation 
issue  can  be  seen  as  a  choice  between  a  lower  initial  pension  plus  earnings 
indexation and a higher starting benefit plus price indexation. 19  

By far the majority of Member States (all except Hungary, Lithuania and some of the 
Danish and Polish pension schemes)20 are adjusting pensions in central governments 
in  line  with  a  number  of  relevant  indicators,  such  as:  the  Consumer  Price  Index 
(CPI),  pay  increases,  GDP  growth,  or  the  growth  in  social  tax  revenues.  Some 
Member  States  use  a  single  indicator  (CPI  or  pay  increases)  to  adjust  pensions, 
whereas others use a weighted index based on two indicators. Some Member States 
(Slovenia, Denmark for the official pension scheme, Ireland and the Netherlands) are 
adjusting their pensions on the basis of changes in wages, whereas several others are 
adjusting their pensions in line with both prices in wages (Belgium, Cyprus, Czech 
Republic, Finland, Luxembourg, Slovakia and some pension schemes in Poland).  

As far as  the EU Institutions  are concerned, pensions are adjusted  according to the 
same method as the salaries of EU officials. These salaries are adjusted yearly to take 
account of changes in the purchasing power of officials in the central government of 
Member States and in the prices in Brussels (Brussels International Index).  

This  method  is  in  line  with  the  practice  of  all  but  a  few  Member  States  that  are 
indexing  the  trend  in  pensions  according  to  the  trend  in  a  number  of  relevant 
indicators,  as  explained  above.  A  number  of  Member  States  are  adjusting  their 
pensions either based on the changes in wages or on the basis of a combined index 
which  includes  the  changes  in  wages.  However,  most  systems  are  indexed  to 
inflation or on the basis of a combined index including inflation. At  the  same  time 
the  method  used  by  the  EU  Institutions  has  led  to  adjustments  of  salaries  and 
pensions  that  are  below  the  rate  of  inflation.  During  the  period  2004-2010,  the 
pension adjustments have been below the rate of inflation (by 1.8%). 

If the method for adjusting pensions were to be changed and linked to the adjustment 
of  the  pensions  of  officials  in  the  Member  States,  it  is  likely  that  the  result  would 
have been more favourable to the pensioners of the EU Institutions than the current 
method, as most of the Member States index their pensions on inflation. 

It is worth underlining that the annual adjustment of pensions has already been taken 
into  account  when  the  staff  pay  pension  contributions.  Therefore,  failure  to  adjust 
current pensions paid may be open to legal challenge, since it is clearly a violation of 
acquired rights. 

19 

20 

Joint  Report  on  Pensions  2010  by  the  Economic  Policy  Committee,  the  Social  Protection  Committee 
and the Commission services, p. 25 and 26. 
Denmark: Labour market pension scheme; Poland: New pension scheme: OPF. 

EN 

17 

   EN 

 
                                                 
4.7. 

Possible creation of an actual pension fund 

As already explained, the PSEO operates as a notional fund and this means that there 
is no investment fund as such. Greater pre-funding, in one form or another, has been 
a  popular  policy  response  on  the  part  of  Member  States  to  the  demographic 
challenge.21 However, it is important to note that, for most European citizens, pay-as-
you-go  (PAYG)  is  and  will  always  be  the  most  important  issue  in  overall  pension 
provision. 

Until  recently,  pre-funded  pension  schemes  played  a  significant  role  in  Denmark, 
Ireland,  the  Netherlands,  Sweden  and  the  United  Kingdom,  where  the  initial 
limitation  on  the  pay-as-you-go  public  provision  to  basic,  flat  rate  pensions  for  all 
has  prompted  the  growth  of  private  provision,  whether  in  the  form  of  collective 
occupational pensions or individual pension insurance contracts.  

However,  in  the  past  decade  of  pension  reforms,  a  number  of  countries  have 
expanded  the  role  of  existing  private  schemes  (e.g.  Denmark,  Germany)  or 
introduced  new  elements  of  pre-funded,  privately  managed  pensions  into  their 
statutory  pension  systems  (Bulgaria,  Estonia,  Latvia,  Lithuania,  Hungary,  Poland, 
Romania, Slovakia, Sweden). Some of the reforms have been partially reversed (e.g. 
in Latvia, Poland) or reversed entirely (e.g. Hungary) in the wake of the crisis, but 
the  contribution  by  pre-funded  schemes  to  pensioners'  incomes  will  grow  as  the 
schemes mature. 

Proportion of pension income coming from prefunded pension schemes projected for a 
hypothetical pensioner retiring in 2008 and 204822 

0,80

0,70

0,60

0,50

0,40

0,30

0,20

0,10

0,00

2048

2008

NL

PL

IE

DK

EE

SK

UK

SE

LV

LT

DE

RO

BG

IT

21 

22 

Funded schemes are pension schemes whose benefit promises are backed by a fund of assets set aside 
and invested for the purpose of meeting the scheme's liability for benefit payments as they arise. 
Source:  Social  Protection  Committee's  Indicator  Sub-Group's  calculations.  Calculations  are  based  on 
the theoretical replacement rates for individuals working in the private sector, having a 40-year careers 
without interruptions (from the age of 25 to 65), and average earnings in the economy. Proportion of 
income coming from mandatory funded pension schemes will be probably lower than presented in the 
Figure for a number of Member States, where the contribution rates to the funded schemes have been 
reduced (temporarily or permanently) in the wake of the recent economic crisis. 

EN 

18 

   EN 

 
 
                                                 
By far the majority of the pension schemes in the Member States are also unfunded, 
which means that pension contributions are not transferred to a fund. Some Member 
States  (Austria,  Latvia,  Portugal,  Slovakia,  Netherlands,  Sweden,  Poland  and 
Denmark) have partially funded schemes. 

The  situation  is  different  in  other  international  organisations,  which  either  have  a 
complete pension fund or are going through a period of transition after introducing a 
pension fund. 

Four possibilities for creating an actual pension fund for the EU Institutions could be 
envisaged. Each of the tables below presents in column I the service cost (meaning 
the yearly employer's contribution to the newly created fund), in column II the yearly 
pension  expenditure  as  regards  the  notional  fund  in  the  framework  of  the  current 
pension scheme in force and in column III the yearly total of both costs ("total cost in 
Heading  V").  An  analysis  of  the  total  annual  costs  in  long  term,  as  well  as  of  the 
different options for the period 2013-2020, is helpful in terms of assessing the pros 
and the cons of each scenario. 

– 

Scenario n°1: Transfer of the value of the notional fund to the actual fund. 
This  scenario  is  somewhat  hypothetical,  as  the  first  year  would  involve 
enormous  cost  since  the  equivalent  of  the  pension  liability  would  need  to  be 
transferred  to  the  actual  fund.  In  the  years  that  followed  the  employer's 
contribution  would  remain  low  and  stable  (at  around  800  million  Euros)  and 
would have to be paid into the fund together with the staff contribution (about 
400  million  Euros).  In  the  short  term  and  during  the  period  2013-2020,  this 
option  is  by  far  the  most  costly  for  the  EU  budget.  However,  it  does  have  a 
considerable  impact  on  pension  liability,  because  the  amount  in  the  pension 
fund would cover the pension liability. 

Projected number of active 
staff covered by the new 
pension fund from 2013

I Service cost 
(employer's 
contribution)

II Pension expenditure 
under the current 
pension scheme

III Total cost in 
Heading V 1 ( I + II )

55 000  
55 000  
55 000  
55 000  
55 000  
55 000  
55 000  
55 000  

Total cost 2013-2020

2013
2014
2015
2016
2017
2018
2019
2020

2060

55 000  

55 000  

In the long term when the 
new pension scheme 
becomes mature

800
800
800
800
800
800
800
800
6400

800

800

37 700
0
0
0
0
0
0
0
37 700

0

0

38 500
800
800
800
800
800
800
800
44 100

800

800

1  With 2011 legal provisions and methodology

– 

Scenario n°2: Newly recruited staff would be covered by the pension fund, 
while  current  staff  would  continue  to  be  covered  by  the  current  pension 
scheme.  Under  this  hypothesis,  the  yearly  pension  expenditure  as  well  as  the 
pension expenditure in the period 2013-2020 related to the notional fund would 
remain  the  same  as  if  no  actual  pension  fund  had  been  created.  The  current 
staff would indeed continue to be covered by the current pension scheme and it 
is assumed that almost no newcomers would retire before 2020. The employer's 

EN 

19 

   EN 

 
 
annual contribution to the fund would increase according to the number of new 
staff covered by the actual pension fund. This number appears high in the first 
years due to the large turnover of contract and temporary staff. 

This  scenario  would  therefore  involve  a  higher  cost  than  the  current  pension 
scheme in the short to medium term (13 520 million Euros over the 2013-2020 
period  instead  of  12  600  million  Euros).  However,  the  cost  would  decrease 
significantly in the long run, when the pension fund reaches maturity. 

Projected number of active 
staff covered by the new 
pension fund from 2013

I Service cost 
(employer's contribution)

II Pension expenditure 
under the current pension 
scheme

III Total cost in 
Heading V 1 ( I + II )

4 200  
7 700  
10 700  
13 200  
15 500  
17 600  
20 000  
21 400  

Total cost 2013-2020

2013
2014
2015
2016
2017
2018
2019
2020

2060

55 000  

55 000  

In the long term when the 
new pension scheme 
becomes mature

40
70
90
100
130
140
160
190
920

800

800

1 400
1 450
1 500
1 550
1 600
1 650
1 700
1 750
12 600

1 100

0

1 440
1 520
1 590
1 650
1 730
1 790
1 860
1 940
13 520

1 900

800

1  With 2011 legal provisions and methodology

– 

Scenario  n°3:  New  pension  rights  would  be  covered  by  the  real  pension 
fund, while past pension rights would be covered by the notional fund.  

Under  this  assumption,  the  yearly  pension  expenditure  of  the  current  pension 
scheme would be lower than the forecast pension expenditure until 2020 if no 
actual  fund  is  created.  The  employer's  contribution  to  the  actual  fund  would 
remain  stable  (at  around  800  million  Euros  per  year),  but  would  be  much 
greater  during  the  period  2013-2020  than  in  Scenario  n°2  (6.4  billion  Euros 
compared to 920 million Euros).  

Therefore, this scenario would entail an even higher cost in the medium term 
than scenario n°2 above, although the transition would be faster. 

Projected number of active 
staff covered by the new 
pension fund from 2013

I Service cost 
(employer's 
contribution)

II Pension expenditure 
under the current 
pension scheme

III Total cost in Heading 
V 1 ( I + II )

55 000  
55 000  
55 000  
55 000  
55 000  
55 000  
55 000  
55 000  

Total cost 2013-2020

2013
2014
2015
2016
2017
2018
2019
2020

2060

55 000  

55 000  

In the long term when the 
new pension scheme 
becomes mature

800
800
800
800
800
800
800
800
6400

800

800

1 280
1 320
1 360
1 400
1 420
1 450
1 470
1 490
11 190

300

0

2 080
2 120
2 160
2 200
2 220
2 250
2 270
2 290
17 590

1 100

800

1  With 2011 legal provisions and methodology

EN 

20 

   EN 

 
 
 
– 

Scenario n°4: Actual fund covering one third of all newly acquired rights, 
covered by the pension contributions of the staff. The remaining two thirds 
of pension rights, plus all pension rights acquired in the past, would continue to 
be  covered  by  the  notional  fund.  This  scenario  would  entail  transferring  staff 
pension  contributions  to  the  investment  fund  and,  given  that  one  third  of  the 
pension  costs  would  be  partially  covered  by  this  fund  in  the  future,  pension 
expenditure would decrease by one third in the long run. 

Under  this assumption, until 2020 the  pension expenditure under the notional 
pension scheme, covering two thirds of newly acquired pension rights, would 
be  slightly  less  than  the  forecasted  pension  expenditure  if  no  change  is  made 
(12 100 million Euros compared to 12 600 million Euros). There would be no 
employer's contribution to the actual fund, as one third of the newly acquired 
rights would be fully covered by the pension contributions of the staff.  

Therefore,  in  the  short  and  medium  term,  Scenario  n°4  would  be  the  least 
costly  of  all  the  scenarios  for  the  EU  budget.  However,  in  the  long  term,  the 
total cost in heading V would be twice that of the other scenarios (1650 million 
Euros as compared to 800 million Euros). 

Projected number of active 
staff covered by the new 
pension fund from 2013

I Service cost 
(employer's contribution) 

II Pension expenditure 
under the current 
pension scheme

III Total cost in Heading 
V 1 ( I + II )

55 000  
55 000  
55 000  
55 000  
55 000  
55 000  
55 000  
55 000  

Total cost 2013-2020

2013
2014
2015
2016
2017
2018
2019
2020

2060

55 000  

55 000  

In the long term when the 
new pension scheme 
becomes mature

0
0
0
0
0
0
0
0
0

0

0

1 350
1 400
1 450
1 500
1 540
1 580
1 620
1 660
12 100

1 750

1 650

1 350
1 400
1 450
1 500
1 540
1 580
1 620
1 660
12 100

1 750

1 650

4.8. 

Incentives for private pension provision 

1  With 2011 legal provisions and methodology

Nowadays,  private  pension  schemes  are  being  used  increasingly  in  a  number  of 
Member States to achieve the objectives of adequacy and sustainability. In its Green 
Paper,  the  Commission  pointed  out  the  importance  of  providing  sufficient 
opportunities for complementary entitlements: such as making it possible for people 
to  have  longer  working  lives  and  increasing  access  to  supplementary  pension 
schemes.  In  addition,  the  Commission  underlined  the  need  to  put in  place  a  proper 
framework  for  complementary  retirement  savings,  the  success  of  which  depends 
above  all  on  measures 
the  cost-effectiveness  and  safety  of 
that 
supplementary pension schemes. 

increase 

Some Member States have introduced measures to complement their public pay-as-
you-go  pension  schemes  with  private  pre-funded  schemes.  However,  the  crisis  has 
highlighted  how  vulnerable  pre-funded  pension  schemes  are  to  the  financial  crisis 
and economic downturns, and the need to review the regulatory framework so as to 

EN 

21 

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guarantee  the  safety  of  private  pensions.  It  is  also  worth  noting  that  the  NATO 
pension scheme is entirely managed through private funds. Staff can choose to invest 
their  holdings  in  private  equity,  bond  and  cash  funds  and  may  elect  to  make 
additional voluntary contributions to the scheme of up to 2% of basic salary. 

As  regards  the  EU  Institutions,  if  the  path  of  introducing  mandatory  or  voluntary 
private supplementary pension schemes were to be followed, it would be essential to 
ensure  that  there  was  an  appropriate  framework  for  such  a  scheme.  According  to 
constant case-law, the EU Institutions, which act not only as an employer but also as 
a public authority, have a duty of care towards their staff. Therefore, it is important 
to  make  a  careful  assessment  of  the  potential  impact  on  the  EU  budget  of  the 
inadequacy or even bankruptcy of the private pension scheme. 

If  a  decision  was  taken  to  introduce  such  incentives,  the  authorisation  of  tax 
deduction  for  those  investing  in  private  pension  schemes  could  be  considered  a 
possibility, because it would involve a fairly low burden on the EU budget compared 
to other options, such as subsidising investment by staff in private pension schemes. 
The  EU  Institutions  could  propose  opt-out  or  opt-in  private  pension  schemes,  in 
conjunction with private actors. 

If  the  private  pension  schemes  were  to  invest  partly  in  equities,  as  is  the  case  for 
example in the United Nations Joint Staff Pension Fund23 or NATO, where staff can 
choose to invest their holdings in equity, bonds and cash funds, the eventual return 
rate on investment could be expected to be higher than the rate of return in the PSEO, 
but it would also be associated with higher risk. 

Such  a  scheme  has  a  number  drawbacks  which  would  need  to  be  considered, 
principally  the  additional  cost  for  managing  the  investment  and  the  safety  of 
investments and, therefore, future pensions. 

5. 

OTHER ASPECTS THAT HAVE AN IMPORTANT IMPACT ON THE PENSION SCHEMES OF 
CIVIL SERVANTS 

5.1. 

Use of contract agents and conditions of contract agents 

By far the majority of Member States differentiate between civil servants and other 
public employees. In most Member States there are different rules for civil servants 
with  regard  to  their  legal  status,  recruitment  procedures,  job  security,  career  and 
salary  systems.  However,  in  most  Member  States,  civil  servants  and  other  public 
employees have  the same  or  similar rules when it comes to  social dialogue, ethical 
rules,  disciplinary  rules  and  in  particular  pension  systems.  According  to  the 
publication Civil Services in the EU of 27, Reform Outcomes and the Future of the 
Civil Service, Member States that have a separate pension scheme for civil servants 
and  other  public  employees  are  Germany,  Lithuania,  Estonia,  Cyprus,  Belgium, 
France,  Greece,  Luxembourg,  Spain,  Austria,  the  Netherlands  and  Denmark.  The 

23 

http://www.unjspf.org/UNJSPF_Web/page.jsp?role=info&page=Invest&lang=eng 

EN 

22 

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remaining 15 have the same pension scheme for both civil servants and other public 
employees.24 

The 2004 reform of the Staff Regulations established the category of contract agents 
in the EU Institutions. Since then, contract agents have contributed to the work of the 
institutions  by  performing  administrative  support  tasks  and  by  providing  additional 
skills.  At  the  end  of  2009,  there  were  around  9000  contract  agents  in  total  for  all 
institutions  and  agencies,  and  around  two  thirds  of  the  total  were  employed  by  the 
Commission.  Under  the  Staff  Regulations,  the  same  pension  scheme  applies  to 
officials and contract agents. This is in line with the situation in the majority of the 
Member States that have the same scheme for officials and for other public service 
employees. 

As  regards  the  provisions  on  the  minimum  subsistence  figure25,  these  refer  to  the 
basic salary of an official in grade 1 step 1. An official or other servant acquires 4% 
of the minimum subsistence figure per year of service, i.e. after 25 years of service 
the  retirement  pension  of  an  official  or  other  servant  cannot  be  lower  than  the 
minimum  subsistence  figure.  Although  the  same  provisions  apply  to  officials  and 
temporary staff, contract agents in particularly in the lower grades benefit more from 
this  provision,  as  their  entitlements  are  generally  lower.  For  example,  a  contract 
agent  in  function  group  I  may  be  entitled  to  a  pension  equal  to  the  minimum 
subsistence  figure,  which  would  exceed  70%  of  their  final  salary.  However,  this  is 
the only exception to the rule that the maximum pension entitlement is set at 70% of 
the final salary in any event.  

The  replacement  of  officials  by  contract  agents,  although  not  directly  related  to 
pension cost, has a major impact on the overall cost of pensions as it limits the final 
salaries  on  which  pension  benefits  are  calculated.  This  is  due  to  contract  agents 
having a lower salary grid and a shorter average duration of contracts by comparison 
with officials. 

The 2010 Eurostat study shows that the introduction of the category of contract staff 
in 2004 will generate considerable annual savings (300 million Euros in 2059). 

Keeping  the  same  pension  scheme  for  officials  and  contract  agents  is  important  in 
order  to  preserve  the  attractiveness  of  contract  agents'  positions,  so  as  to  attract 
qualified staff. It is already difficult to achieve geographical balance among different 
nationalities,  and  proposing  a  less  attractive  pension  scheme  for  contract  agents 
would  further  reduce  the  ability  of  the  institutions  to  achieve  geographical  balance 
for this category of staff. 

5.2. 

Individual progression in the salary scheme 

The 2004 reform of the Staff Regulations introduced changes in the career structure. 
Although  it  is  not  related  directly  to  pension  cost,  it  does  have  an  impact  on  the 
overall cost of pensions because it limits the final salaries on which pension benefits 

24 

25 

See  Civil  Services  in  the  EU  of  27,  Reform  Outcomes  and  the  Future  of  the  Civil  Service,  by  C. 
Demmke, and T. Moilanen, Edition Peter Lang, 2010, p.98. See also Table 13 p. 99.  
Article 77, alinea 4 of the Staff Regulations states that the amount of the retirement pension must not be 
less than 4% of the minimum subsistence figure per year of service. 

EN 

23 

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are  calculated.  These  include  lower  entry  level  salaries  combined  with  a  longer 
career  path  involving  more  grades,  but  faster  promotions.  According  to  the  2010 
Eurostat  study,  this  aspect  of  the  2004  reform  will  generate  annual  savings  of  94 
million Euros in 2059. 

The restructuring of the career stream in the AST function group provided for in the 
Commission  Proposal  will  generate  additional  savings  in  the  long  term.  In  future, 
AST officials in charge of administrative, technical or training activities requiring a 
certain degree of autonomy (this excludes secretarial tasks), who wish to progress to 
the  two  highest  grades  (Senior  Assistants),  will  have  to  demonstrate,  in  a  selection 
procedure,  that  they  possess  an  appropriate  level  of  expertise  and  qualifications  in 
terms  of  staff  management,  budget  implementation  and/or  coordination.  There  is 
likely to be a new career structure for newly recruited secretarial staff with a linear 
career, as well as lower promotion rates than in the AST career and only six grades.  

However, even though the progression of an individual in the salary scheme has an 
impact  on  pension  costs,  this  aspect  is  only  secondary  when  it  comes  to  thinking 
about  how  to  revamp  the  career  system  within  the  EU  Institutions.  It  would  be 
conceptually  wrong  to  change  the  career  system  if  its  only  aim  were  to  achieve 
savings on pensions, while ignoring the fact that it has a major impact on active staff 
of the EU Institutions. 

5.3. 

Gap  between  the  benefits  to  employees  of  public  service  and  private  sector 
pensions 

In almost all Member States, civil servants are subjected to separate regimes, and a 
separate pension  scheme is often part thereof.  There  might  be  a  number  of  reasons 
for having such special schemes, as well as pension benefits that are possibly higher 
than  the  general  pension  schemes.  Firstly,  pension  benefits  should  be  seen  as  a 
deferred portion of the civil servant’s salary that would be paid when they retire, and 
as  an  important  component  of  a  comprehensive  package  offered  to  civil  service 
employees. Secondly, higher pension benefits in the civil service make it possible to 
attract highly qualified staff, even in cases where they are being paid a higher salary 
in the private sector for a comparable job with a similar level of responsibilities. 

By offering higher pension benefits, the Member States can take into account the fact 
that, for certain job profiles, the level of salaries is lower than in the private sector 
and therefore has to be compensated by a higher level of social security. However, as 
the Green Paper points out, Member States are generally responsible for the design 
and organisation of their pension system and for pension provision. The gap between 
the  benefits  to  public  service  employees  and  the  level  of  private  sector  pensions  is 
the  overriding  issue  to  be  considered  by  the  Member  States.  They  are  in  charge  of 
restructuring pension schemes in a manner which ensures that these pension schemes 
are adequate, sustainable and safe. 

As  regards  the  issue  of  whether  there  is  a  gap  between  the  pension  benefits  of  EU 
staff and those paid on the private market, it is important to realise that, as explained 
above, the main comparators for the pension benefits of EU civil servants, who are 
mainly  expatriates,  are  the  ones  who  recruit  comparable  staff  and  have  a  similar 
career and salary structure, i.e. other international organisations, national diplomatic 
services,  and  central  government  services  in  the  Member  States.  As  regards  the 

EN 

24 

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private sector, the comparison should be based not only on pensions, but should be 
much  wider  and  include  other  aspects,  such  as  general  salary  levels  and  career 
progression, because of the huge gap between the private and the public sector in this 
respect. 

Lastly,  it  should  not  be  forgotten  that  many  private  multinational  companies  have 
supplementary pension funds and offer additional pension benefits as a way to attract 
and keep qualified employees.  

5.4. 

Costs for the EU Institutions to provide pensions 

The  2010  Eurostat  study  showed  that  the  PSEO  is  not  yet  mature,  and  that  the 
number of pensioners and pension expenditure are bound to increase until such time 
as the pension scheme reaches maturity. Given that the PSEO operates as a notional 
fund, the staff pay for the pension rights that they acquire in a given year from their 
pension  contribution,  which  covers  one  third  of  the  actuarial  cost  of  those  pension 
rights. This contribution, together with the employer's contribution which is not paid, 
is considered to be invested in long term bonds issued by the Member States. For the 
purposes of comparison, this would be the most conservative approach to adopt for a 
private pension fund, which gives low returns compared to a mixed fund. 

In the assessment of the actuarial balance of the PSEO carried out in 2010, Eurostat 
calculated  that  the  total  service  cost,  which  should  be  paid  to  the  fund  in  order  to 
cover  the  pension  rights  acquired  in  2011  should  be  1  206  million  Euros.  EU  civil 
servants will pay one third of this amount, i.e. 402 million Euros, corresponding to 
11% of their basic salaries. Therefore, the portion to be covered by the employer in 
2011 is 804 million Euros. Absent any significant change in the other parameters, the 
total  cost  of  pension  rights,  and  therefore  the  employer's  contribution,  is  likely  to 
remain of the same order. 

5.5. 

Role of pensions in the overall reward package for EU staff 

When being offered a job, older people seeking employment are likely to give more 
consideration  to  the  role  of  pensions  in  the  reward  package  than  are  younger 
candidates.  Also,  candidates  who  have  previously  worked  in  the  private  or  public 
sector  have  acquired  some  experience  and  sensitivity  in  dealing  with  retirement 
issues. Candidates who leave the system with which they are familiar to enter a new, 
unfamiliar  system  are  likely  to  pay  particular  attention  to  this  new  system.  Lastly, 
candidates  who  put  a  premium  on  (job)  security  and  a  predictable  career  over  top 
salaries in less stable employment will pay greater attention to the pension scheme. 
The typical official newly recruited by the EU Institutions is likely to fall into one of 
these categories. 

As the institutions typically employ persons who started  their career elsewhere and 
who are therefore 35 years old on average, the importance of the pension system in 
the  overall  reward  package  is  believed  to  be  higher  than,  for  example,  for  public 
employees  in  Member  States  who  start  their  careers  in  public  administration 
immediately after they graduate. The fact that almost all new recruits have previously 
worked  elsewhere  is  also  attested  to  by  the  number  of  transfers  to  the  PSEO  of 
pension rights acquired outside the institutions. On average, the officials who were in 
active  employment  on  31  December  2009  have  transferred  1.6  years  of  acquired 

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25 

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rights  in  the  PSEO,  which  resulted  from  a  much  longer  period  of  work  in  the 
Member States. 

Another feature of new recruits to the institutions, which is also linked to the fact that 
they are relatively older, is that many of them have started a family or were about to 
do so around the time when they were recruited. Their individual situation is likely to 
prompt  applicants  to  give  careful  consideration  to  the  social  benefits,  including 
pensions, and to compare them with their other options. 

Although  the  Commission  has  not  carried  out  any  specific  research  on  this  topic, 
which also appears difficult to assess methodologically, it is reasonable to conclude 
that pensions play a significant role in the decision by would-be employees to choose 
the EU Institutions as a career. 

5.6. 

Future recruitment and retention needs of the EU Institutions 

Although  recruitment  needs  for  officials  for  2011-2013  at  the  Commission  are 
estimated at 1,393 AD officials  and  1,251 AST officials26, as part of the envisaged 
Financial Framework 2014 - 2020 the Commission is proposing to cut staff in each 
EU Institution by 5 % during the period 2013 – 2017; this will be done in part by not 
replacing staff who retire or those whose contracts expire. 

It  should  be  mentioned  that  there  is  a  growing  geographical  imbalance  between 
nationals  of  different  Member  States  and  this  is  particularly  visible  in  the  case  of 
certain  nationalities.  This  is  mainly  due  to  the  fact  that  the  EU  Institutions  are 
confronting  the  challenge  of  offering  sufficiently  attractive  working  conditions  to 
potential employees from those Member States. 

Pension benefits should definitely be considered as part of the package that enables 
the most qualified candidates from all Member States to be recruiting and retained, 
including  those  countries  with  the  highest  salaries  and  the  most  competitive  labour 
market. 

5.7. 

Ensuring that future pension provision is fair across the EU workforce 

Ensuring  that  future  pension  provision  is  fair  across  the  workforce  is  a  conceptual 
issue faced by Member States when reforming their own pension scheme. They need 
to protect acquired rights and, at the same time, ensure that the pension benefits and 
the  burden  of  providing  these  benefits  is  distributed  fairly  across  the  different 
generations. 

To a certain extent, the EU Institutions are confronted by the same issues. Following 
the  reform  of  the  Staff  Regulations  in  2004,  there  is  now  a  slightly  different  set  of 
rules that apply to the staff recruited before the effective date of the 2004 reform and 
after that date, because the staff members that were already in place are covered by 
transitional provisions. This was in line with the principle of acquired rights and non-
discrimination. 

26 

Human Resources Report 2011, p. 43. 

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26 

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Under the terms of the Commission proposal, the staff recruited before the entry into 
force of this proposal would be covered by a similar transition as in 2004 as regards 
the  increase  in  the  normal  pension  age.  This  transition  will  result  in  greater 
consistency  between  the  situation  of  colleagues  recruited  before  2004  and  those 
recruited after 2004.  

5.8. 

Sharing risk between the EU Institutions (the employer) and employees 

The PSEO is not directly exposed to investment risks because contributions are not 
paid to a real fund;  thus  the  capital  is not invested. Article 10 of Annex XII to the 
Staff  Regulations  indicates  "interest  rates  to  be  taken  into  consideration  for  the 
actuarial calculations shall be based on the observed average annual interest rates 
on the long term public debt of Member States…". Thus it is as if contributions were 
paid  to  a  notional  fund  and  the  corresponding  capital  is  invested  in  the  bonds  of 
Member States. This is probably the most conservative investment available, which 
means that the rate of return is rather low. 

If the pension system were to be restructured in such a way that an element of risk is 
indeed included, it should be borne in mind that the staff of the EU Institutions might 
be ready to accept higher risk in return for a higher rate of return that would result in 
a lower contribution rate being necessary to maintain the pension scheme in balance. 
Nevertheless, since the institutions have the duty of care towards their staff, the issue 
of  providing  additional  resources  in  case  of  the  fund's  failure  to  pay  pensions 
remains. 

The  financial  burden  of  the  contribution  to  the  pension  system  is  not  a  risk  in  this 
sense. One third of this burden is borne by the staff of the institutions; the remaining 
two thirds are covered by the EU budget to which EU taxpayers contribute in their 
turn. 

Member  States  operate  different  systems  in  this  respect.  It  is  not  uncommon  for 
public  officials  not  to  contribute  to  their  pensions  at  all.  The  Member  States 
submitted the following information on how the burden is shared between employer 
and employees: 

Proportion of pension contribution paid by the employee and by the employer in the pension 
schemes applicable to civil servants in central government of Member States 

Member State 

Contribution paid by the employee 
(%) 

Contribution paid by the 
employer (%) 

AT 

BE 

BG 

CY 

33,3% 

0%27 

Not specified 

Not specified 

66,7% 

100% 

Not specified 

Not specified  

27 

Please  note  that  in  Belgium  a  7.5%  contribution  rate  is  paid  by  the  employee  to  finance  survivor's 
pensions only. 

EN 

27 

   EN 

 
                                                 
CZ 

DE 

DK 

EE 

EL 

ES 

FI 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

23.2% 

0% 

0%  

0% 

33,3% 

16,6% 

76.8% 

100% 

100% 

100% 

66,7% 

83,4% 

18,2% to 22% depending on the age 

81,8% to 78% 

28.4% 

71.6% 

Not specified 

Not specified 

26,7% 

11,4% 

50% 

27,2% 

33,3% 

30% 

73,3% 

88,6% 

50% 

72.8% 

66,7% 

70% 

50% or 20% or 100%, depending on 
the scheme 

50%  or  80%  or  0%,  depending  on 
the scheme 

40%  or  33,3%,  depending  on  the 
scheme 

60%  or  66,7%,  depending  on  the 
scheme 

25.4% to 33.5% 

74.6% to 66.5% 

0% 

63,6% 

29,2% 

100% 

36,4% 

70,8% 

7.4% or 15.6%, 

92.6% or 84.4%, 

NB: France is not included in the table as no reply was provided to the questionnaire. 

5.9.  Wider  EU  staffing  and  HR  policy  to  encourage  longer  working  lives  and 

adequate saving for retirement 

In  its  proposal  the  Commission  suggested  increasing  the  normal  pension  age  and 
enhancing the possibility of working beyond the pension age. The Commission will 
consider  the  human  resources  measures  that  would  help  elderly  people  to  work,  in 
addition  to  those  measures  that  are  already  laid  down  in  the  Staff  Regulations,  for 
example  the  possibility  of  working  part-time  to  prepare  for  retirement,  subject  to 

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payment of a small supplement. Some of these measures do not require any change 
to the Staff Regulations and they would be implemented by the EU Institutions. 

6. 

SAVINGS RESULTING FROM THE COMMISSION PROPOSAL 

While savings in the pension cost from the 2004 reform of the Staff Regulations will 
continue  to  grow  over  time,  the  Commission  proposal,  if  adopted,  would  yield 
further savings. A number of the changes to the Staff Regulations suggested by the 
Commission  would  directly  limit  the  cost  of  pensions.  These  include:  raising  the 
normal  pension  age  from  63  to  65,  the  effective  postponement  of  the  mandatory 
retirement  age  until  67,  and  limiting  access  to  early  retirement  by  raising  the 
minimum age of retirement from 55 to 58. 

Changes have also been suggested to the Staff Regulations which, while not directly 
related to pension cost, do have an impact on the overall cost of pensions by limiting 
the final salaries on which pension benefits are calculated. Careers of AST officials 
carrying  out  secretarial  tasks  would  be  reviewed  and  capped  with  the  creation  of  a 
new function group (AST/SC). For other AST officials, access to the top AST grades 
(AST  10  and  11)  would  be  limited  by  linking  them  to  a  higher  level  of 
responsibilities. The suggested 5% staff cut would result in a lower number of future 
beneficiaries and will also reduce future pension costs. 

An analysis of the impact of these changes shows that the Commission proposal will 
significantly  reduce  pension  costs  in  the  long  run.  The  Commission  presents  the 
pension related savings from three angles: the impact on pension expenditure in the 
long term, the impact on the service cost to be financed each year and the impact on 
pension liability. 

The three approaches are complementary. The assessment of pension savings in the 
long  term  focuses  on  the  time  at  which  pensions  are  paid  (Cash  Flow  Approach). 
Service cost focuses on the time when the pension rights are acquired and financed 
(Projected  Unit  Credit  Method).  Lastly,  pension  liability  focuses  on  pension  rights 
cumulated at a reference date (normally 31 December of each year). 

6.1. 

Long-term Impact of the Commission Proposal on pension expenditure 

If  the  methodology  and  the  assumptions  of  the  2010  Eurostat  study  were  used  to 
measure  the  effect  of  the  Commission  proposal  (including  the  5%  staff  cut),  the 
annual  pension  expenditure  would  grow  more  slowly  over  the  projection  period 
(2013 - 2059)28. This simulation shows that, if the Commission proposal entered into 
force on 1 January 2013, the annual pension expenditure after 2060 would decrease 
by an additional 500 million Euros. This would add to savings of 1 047 million Euros 
yielded  by  the  2004  reform  of  the  Staff  Regulations,  giving  total  annual  pension 
savings in 2059 of 1 550 million Euros. This means that the Commission proposal, if 
it were in force from 2013, would result in further savings of around 50% in annual 
pension expenditure. 

28 

It must be noted that the 2010 Eurostat study on the long-term budgetary implications of pension costs 
has  not  been  updated.  Pension  savings  presented  in  this  part  were  calculated  with  a  simplified 
methodology. 

EN 

29 

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The table below shows the total estimated savings in annual pension expenditure in 
2059  (in  constant  prices)  generated  by  the  2004  reform  and  the  Commission 
proposal, if it entered into force on 1 January 2013. 

Table: Impact analysis of the Commission proposal and the 2004 reform (million EUR) on 
annual pension expenditure in the long term (2059) 

Item 

2008 prices 

Total impact of the 2004 reform: 

- Correction coefficients 

- Establishment in 2004 of the contract agents' statute 

- Salary progression due to seniority and promotions 

- Entry salary level 

- Pension accrual rate 

- Retirement table 

Total impact of the Commission proposal 

Total 
and the 2004 reform 

impact 

of 

the 

Commission 

proposal  

6.2. 

Impact of the Commission proposal on the service cost 

1047 

120 

300 

-227 

321 

106 

426 

500 

1547 

The pension contribution rate is calculated annually in order to finance the pension 
rights that will be acquired in the coming year (service cost), regardless of the date 
from which the corresponding pension will be paid. The service cost represents the 
amount which would be paid into the pension fund, if it existed. 

However,  the  service  cost  can  only  measure  those  aspects  of  the  Commission 
proposal that directly reduce the cost of pensions, i.e. raising the normal pension age 
from 63 to 65, postponing the mandatory retirement age until 67 and limiting access 
to  early  retirement  by  raising  the  minimum  retirement  age  from  55  to  5829.  Other 
factors that indirectly limit the overall cost of pensions (see above) are left aside. 

If  the  Commission  proposal  were  in  force30,  the  service  cost  would  be  9.5%  lower 
than  the  cost  currently  calculated  at  31  December  201031,  i.e.  it  would  be  1 092 
million  Euros  instead  of  1 206  million  Euros.  However,  this  saving  would  be  seen 
only  in  the  long  term,  once  the  new  parameters  are  applied  to  all  active  members. 

29 

30 

31 

Their impact on the yearly service cost, expressed in percentages, is representative of the whole career 
service cost (i.e. total pensions to be paid till the person dies), if other assumptions remain unchanged 
(ceteris paribus). 
Simulation based on active population at 31.12.2010, which exclude any impact due to change on the 
structure of the population. 
Pension  assessment  at  31.12.2010  based  on  parameters  and  assumptions  of  the  Staff  Regulations  in 
force from 2004. 

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30 

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The saving is likely to be negligible in the very short term and will increase gradually 
each  year  to  reach  about  9.5%  as  a  result  of  the  implementation  of  transitional 
measures. 

The calculation of  the current service  cost is based on the assumption that the staff 
recruited prior to the 2004 reform of the Staff Regulations and after that reform will 
retire at the ages of 63 and 64 respectively. This has been compared with the service 
cost calculated on the assumptions deriving from the Commission proposal (assumed 
minimum  retirement  age  of  65  and  assumed  maximum  retirement  age  of  67). 
Changes to the minimum retirement age, a penalty for early retirement and incentives 
for late retirement have also been considered. 

6.3. 

Impact of the Commission proposal on the PSEO liability 

The  Commission  proposal  would  have  an  impact  on  the  PSEO  liability  because 
calculation  parameters  would  have  to  be  updated  accordingly32.  The  gross  PSEO 
liability  at  31  December  2010  has  been  valued  at  37 702  million  Euros,  including 
family allowances and the effect of correction coefficients.  

The increase in the normal pension age from 63 to 65 provides a greater incentive for 
late retirement (work until age 67) and limited access to early retirement (by raising 
the minimum retirement age from 55 to 58) is bound to reduce the PSEO liability.  

The  above  measures  only  have  an  impact  on  the  liability  of  contributing  members, 
which was evaluated at 21 246 million Euros at 31 December 2010 (56% of the total 
PSEO liability). 

The  savings  of  the  pension  cost  generated  by  the  Commission  proposal  at  an 
individual level depends on the age of the person. Higher savings will be made for 
young staff aged under 30 years on 1 May 2013, whereas, the transitional measures 
mean that there will be no savings in relation to staff aged 59 and over. 

The simulations show that the Commission proposal would reduce the liability of all 
contributing members by 14.5%; this means that the liability at 31 December  2010 
would be 18 166 million Euros instead of the current figure of 21 246 million Euros. 

7. 

CONCLUSIONS 

After  having  considered  the  above,  the  Commission  has  reached  the  following 
conclusions: 

– 

As  regards  the  accrual  rate,  the  basis  for  the  pension,  the  maximum  possible 
pension rate and the staff contribution rate, the PSEO is fully in line with the 
schemes of the Member States. As far as some aspects are concerned, such as 
the  level  of  the  employee's  pension  contribution,  the  PSEO  is  among  the 

32 

The PSEO  liability  also  called  "Defined  Benefit Obligation"  (DBO)  is determined  by  discounting  the 
estimated future cash outflows attributed to past services using a discount rate based on interest rates of 
government bonds denominated in the currency in which the benefits will be paid, and with maturity 
terms approximating those of the PSEO. This liability corresponds to pension rights acquired by active 
staff (pension contributions) and to transfers from other pension schemes. 

EN 

31 

   EN 

 
                                                 
– 

– 

– 

schemes of the Member States where the rate is the highest. As far as the above 
issues are concerned, the PSEO is also in line with the Green Paper. 

The EU Institutions fall within the range of the schemes of Member States for 
national officials as regards normal pension age. However, in order to comply 
fully with the orientations of the Green Paper, the measures that are set out in 
the  Commission  proposal  need  to  be  implemented.  In  particular  this  involves 
restricting  early  retirement  by  raising  the  minimum  retirement  age  to  58  and 
lowering the number of early retirements without reduction of pension rights to 
5%, ensuring longer working lives by raising the normal pension age to 65 and 
postponing  the  mandatory  retirement  age  to  67.  These  measures  would  bring 
the  Commission  into  line  with  the  most  advanced  Member  States,  whereas 
many of them still have to carry out similar reforms. 

If a decision were taken to consider establishing an actual pension fund, such a 
measure  would  result  in  a  higher  expenditure  on  the  pension  scheme  in  short 
and  medium  term.  However,  it  would  reduce  the  pension  costs  in  long  term, 
since pension expenditure would be partly or fully financed from the pension 
fund, depending on the solution adopted. 

The measures contained in the Commission proposal, if adopted, would have a 
considerable impact in terms of reducing long-term pension costs. In the long 
run,  the  annual  pension  expenditure  would  fall  by  around  500  million  Euros, 
and  the  service  cost  –  which  reflects  the  amount  to  be  invested  in  the  real 
pension  fund  if  it  existed  –  would  be  reduced  by  9.5%.  They  would  have  an 
immediate  impact  on  the  share  of  the  pension  liability  for  active  staff,  which 
would fall by 14.5%. 

EN 

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   EN