European economies are rebuilding their economies by encouraging job mobility and flexibility, and European graduates are offered lucrative job offers from businesses outside their current EU country – but a problem lies in wait. Depending on the employee’s age (and they are often less than 30 years old), pension rights may be lost along with the job move, with employees receiving back only their own contributions to the scheme. Indeed, some young graduates may choose to stay on in their current position until reaching a qualifying age.
This age-related clause results in employees losing funds built up on the employer's part of the pensions scheme, and was developed in some European countries as a way of rewarding company loyalty rather than purely to provide pension.
This increasingly outmoded approach was addressed almost five years ago, when the European Commission published a proposal for a directive on 20 October 2005. However, with lack of agreement on the draft Directive on European pensions, interim developments include a 2007 consideration of the issue by The European Parliament and a subsequent revised proposal in October, in the same year, by the European Commission.
Originally, the proposed directive aimed to improve conditions related to the building up of rights and the preservation of dormant rights left behind in the schemes, and also increased the possibility for employees to transfer the rights to the new job.
In the revised proposal, the ‘transfers’ element of the original proposal was dropped –the proposed ability to transfer existing supplementary pension rights to a new employer’s pension scheme when changing jobs.
The two remaining main elements of the original proposal include ensuring pension rights are irrevocably acquired in a reasonable time period and, once acquired, that their value is suitably maintained when a person moves jobs.
The transfers element had provoked long-running disagreements with some Member States and some members in the European Parliament. Some people considered that, provided supplementary pension rights were granted in a timely way and then maintained (that is, indexed), it was not particularly vital that it should also be possible to transfer those rights.
Despite the concession on transfers by the Commission and vigorous efforts by the various Presidencies, the necessary unanimous agreement in Council has not been achieved.
Future developments may be complicated by the ending of the previous Commission’s tenure and the beginning of the new Commission (September 2009), together with the Lisbon Treaty coming into force. However, the Directive remains 'live' for the next Commission. As President Barroso, who won a second term as president of the European Commission in September 2009, said in his political guidelines: "Millions of Europeans are wholly dependent on pensions.
"The crisis has shown the importance of the European approach to pension systems. It has demonstrated the interdependence of the various pension pillars within each Member State and the importance of common EU approaches on solvency and social adequacy. It has also underlined that pension funds are an important part of the financial system. We need to ensure that pensions do the job intended of providing the maximum support to current and future pensioners, including for vulnerable groups."
Homegrown solutions?
Some companies have provided their own solution. In August 2009, the European Molecular Biology Organization (EMBO) developed a new private pension plan for EMBO fellows, who are often highly mobile scientists. Voluntary enrolment in the pension plan, (open to new and second-year EMBO Fellows) started in January 2010.
“The international portability of the pension plan allows contributors to continue in the plan as they move from country to country,” said Jan Taplick, EMBO Deputy Director and manager of EMBO Fellowships. “We are pleased to now offer a solution to the long-time problem facing EMBO Fellows who wish to plan for financial security while they are actively mobile early in their research careers.”
An EMBO Fellowship office survey showed less than ten per cent of fellows contributed to a pension scheme. More than 200 long-term fellowships are awarded annually, offering funding and support for two-year post-doctoral research terms.
In the European Commission’s view, the issue at the heart of this – removing obstacles caused by supplementary pensions to the free movement of workers – remains as, or more, important than ever. EC policy makers realise that in today's labour market, particularly with the added challenges from the financial and economic crisis, people need to be able to change jobs easily and without hardship, and employers need to be able to recruit the right person with the right skills. And with ageing demographics, people need to have opportunities to work and build up and retain pension rights, not lose them just because of a change of job.
But, given the difficulty in reaching agreement on the draft portability Directive, the EC sees the need to look at all ways to make progress. The President has asked the Commissioner designate for DG Employment “to work with other Commissioners to develop proposals to secure Europe's pensions systems", and this wider pensions work will provide a way to inject new impetus into issues around mobility and social protection, including on portability. EC policy-makers will see what this wider process brings and take things from there. In the meantime, the draft proposal remains in the Council.
For more information on the proposed directive, contact David Eatock at the European Commission: david.eatock@ec.europa.eu
Copyright Ffion Llwyd-Jones: FLJMEDIA - Copy and content writing www.fljmedia.com
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Almost five years ago, an EU directive aimed to facilitate the process of tackling obstacles to employee mobility. Ffion Llwyd-Jones looks at how the pension transfers plan is still waiting for the journey to begin.
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