In 2005 the European Commission introduced a proposal for a Directive on improving the portability of supplementary pension rights.1 In defined benefit plans employees obtain ‘pension rights’ to future retirement income as a percentage of wages. The aim is to take away impediments to labour mobility that feature in some occupational pension plans:
- Pension plans in some countries may provide for vesting periods. This means that workers are not entitled to any pension until they have been employed for several years. Employees thus have an incentive to stay with their employer until the vesting period is over.
- Pension plans in some countries treat deferred and active members’ pension rights differently. It becomes unattractive to change employment if accrued pension entitlements are – for example – no longer increased in line with inflation.
The original proposal afforded employees the right to transfer accrued pension rights. But transfer was too complex with regard to the valuation and taxation of pension rights. Pension contributions are often exempt from taxation and pension benefits are taxed. So, member states with high retirement wealth – and a high future tax claim – would face a substantial loss in tax revenue with cross-border transfers of pension capital. The Commission's amended proposal2 of 2007 therefore focuses on the acquisition and preservation of pension entitlements.
EFRP supports improving the portability of pensions to facilitate labour mobility. But initiatives should as a first step modestly concentrate on the transferability of pension assets rather than pension rights. Pension promises (vesting periods, indexation, accruals) are in EFRP’s view the prerogative of the social partners and/or individual member states.
See also:
EFRP Position Paper – EU Commission Questionnaire – Improving Portability of Occupational Pension rights in the EU – July 2004
1 Proposal for a Directive on improving the portability of supplementary pension rights, 20/10/2005, SEC(2005) 1293
2 Amended Proposal for a Directive on minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary rights, 09/10/2007, COM(2007) 603
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