Uphill fight over pension plan

Date: 15/02/1996

By Michael Mann

SOCIAL Affairs Commissioner Pádraig Flynn faces an uphill struggle in his battle to persuade fellow Commissioners and member states to agree to the free movement of supplementary pensions across EU borders.

After last week's decision to refer the matter to the newly-established high-level working group on free movement, Flynn's officials were adamant that the idea had merely been postponed, not shelved completely. “He expects to return with a directive in six months,” claimed an official.

Flynn himself told MEPs yesterday: “This matter has not been sent into the long grass.”

But industry experts say it could take a long time to overcome the resistance of those most fiercely opposed to the move and changes will be needed at member state level before EU-wide laws can be introduced.

Flynn went to the Commission last week seeking support for his plan to prepare a directive allowing workers to transfer private pensions from one member state to another, but came away empty-handed. Officials say Flynn was surprised by unexpected resistance from a number of his fellow Commissioners.

He anticipated opposition from German Commissioners Monika Wulf-Mathies and Martin Bangemann, but did not get the support he had expected and needed from others. Commission President Jacques Santer expressed concern that the move might interfere with domestic legislation and, ironically, Internal Market Commissioner Mario Monti also spoke out against the idea - even though officials in DGV, the Directorate-General for social affairs, regard this issue as one of the major barriers to the free movement of people in the single market.

“All supported the objective, but disagreed as to whether a directive was the appropriate means to achieve it. This is the first new piece of social legislation since the current Commission took up the reins, and its postponement is a bad signal for 'social Europe' and for the free movement of goods and people,” commented one official.

But pension industry analysts said they were “not surprised” that the initiative had been blocked. EUROCADRES, the Council of Professional and Managerial Staff, described the latest hold-up as “unfortunate”, adding: “We cannot continue to delay this issue if we wish to create a Europe of citizens.”

But Koen de Ryck of the European Federation for Retirement Provision said: “It's not a great surprise because progress has to be made on a national level first. But it's a shame that the member states cannot respect the freedom of movement guaranteed in the EU treaty.”

The industry is convinced that efforts must be redoubled to persuade opponents of the need to free up domestic pension provisions. But it questions whether trying to force change is the best approach. “Supplementary pensions are a growth sector and so changes will eventually fall into place. The question is whether the Commission should go on the attack, or try to encourage change in the member states,” said De Ryck.

Germany is particularly reluctant to accept the idea because its national laws require workers to be over 35 and to have been employed by a firm for at least ten years before they qualify for a company pension.

The problem faced by Germany and, to a lesser extent, Spain and Sweden is that many pensions schemes are based on the “book reserve system”, under which any invested funds remain within the company and when employees retire, the firm pays out from its own assets. This makes businesses anxious to discourage staff from moving on.

Member states are also anxious that any move towards making pensions transferable across borders should not limit their ability to levy deferred taxes when pensions are paid out at retirement.

Calls for new EU-wide rules have been prompted in part by an increase in the number of people taking out private pensions. No member state has followed Switzerland's example, where supplementary pensions schemes are compulsory, but around 85&percent; of workers in the Netherlands and 80&percent; in Denmark top up their statutory benefit with some form of supplementary pension. The figure is less than 50&percent; in the UK and Germany and just 32&percent; in Belgium.