Move to avert pensions crisis

Date: 26/09/1996

By Rory Watson

THE European Parliament is substantially increasing its payments to a voluntary pension scheme for MEPs to avoid a potential 15-million-ecu shortfall in the fund by 1999.

The decision will raise the institution's contribution to the fund from 5.5 million ecu this year to more than 11 million ecu in 1997.

The increase is being accompanied by the introduction of higher monthly premiums for the 470 MEPs who are pension fund members and by an extra crisis levy which will be applied throughout 1997.

But these efforts to plug the financial gap have raised wider questions within the Parliament about the way the scheme is run, with critics seizing on auditors' forecasts that the accumulated actuarial deficit could reach a hefty 394.2 million ecu by the year 2044 if it remained uncorrected.

“The people who calculated the pension scheme calculated it badly. When experts examined it, they told them so and also told the bureau of the last Parliament. But nothing was done,” complains one MEP.

The practical result of this error is that the current crop of MEPs who are in the scheme have seen their regular monthly payments rise to 750 ecu, in addition to the crisis levy they will have to pay next year.

“In effect, we are paying for people in the last Parliament who paid very little and who are or will be getting a good pension,” said one member.

Others are raising more fundamental issues. They do not believe that the Parliament, which makes two-thirds of the payments as against the members' one-third, should be contributing to the voluntary scheme, which is in addition to any national pension rights MEPs enjoy.

“It cannot be justified that the Parliament pays 1,045 ecu every month for every member. A lot of people in Europe have to live on such a sum. This is an extra fund and not basic pension rights, so if people want it, they should pay 100&percent;. It really hurts the Parliament's credibility,” says Dutch Green MEP Nel van Dijk.

But pension fund chairman Richard Balfe, a British Socialist MEP, defends the optional scheme. “This is all that remains of a common statute for MEPs. In member states, parliamentarians can augment their pensions in various ways, but until this scheme was introduced, it was not possible in the European Parliament. The two- thirds/one-third ratio is an EU formula which exists in other institutions like the Commission and the European Court of Justice,” he explains.

The potential shortfall if all members were to draw their pensions results from the way the fund was set up.

The go-ahead was given in 1989, but the non-profit-making association was only established in 1991 and later incorporated in Luxembourg in July 1993. Members must be over 60 and have a minimum of five years' contributions to qualify for a monthly pension for life of just over 1,000 ecu per month.

With European elections looming in 1994, it was decided the fund could be backdated to 1989 to ensure the five-year condition was met by members leaving the Parliament that year. But, although the necessary contributions were made, the payments could not be invested during that period.

Balfe informed MEPs before the summer recess of the decision to impose the crisis levy. Under the scheme, the Parliament will pay an additional 3.47 million ecu and members 1.73 million ecu.

Balfe is confident that the measures taken will wipe out the deficit. “Pretty tough decisions had to be made, but we must ensure we have enough money to pay members' pensions and we had the full backing of professional advisors,” he says.

The members' crisis contribution of 307 ecu per month between January and December next year will be deducted directly from the general expenditure allowance each MEP receives from the EU budget, and not from their salaries.

The Parliament first agreed in 1981 to provide a pension fund for those members - essentially French and Italian MEPs - who did not have national schemes. Ten years later, this was extended to include the voluntary scheme now operated by the non-

profit-making Luxembourg-based Société d'Investissement à Capital Variable (SICAV).

By the end of 1995, the fund had accumulated almost 41 million ecu. Last year, 950,000 ecu were paid out in pensions.