As part of the general effort to tackle obstacles to employee mobility, companies across Europe are beginning to reorganise their pension schemes. We look at how a recent directive from the EU aims to facilitate the process.

For employees, job-hopping in Europe won't be such a gamble

European graduate Maria was thrilled to accept a job offer with a European company shortly after her 21st birthday. Two years later, she was entitled to become a member of the organisation's pension scheme.

At 27 Maria received a lucrative job offer from another organisation in another member state. However, there was a catch. Her first company's pension scheme contained a clause stating that an employee must be 30 to have built up pension rights. Maria was faced with the choice of pursuing a career opportunity but losing her pension rights — receiving back only her own contributions to the scheme, or staying on in her current position until she reached the qualifying age.

This age-related clause, which results in the employee losing the funds built up on the employer's part of the pensions scheme was developed in some European countries as a way of rewarding company loyalty rather than purely to provide pension. However, as Europe strives to boost and develop its economies through encouraging flexibility and mobility within its workforce, this approach appears outmoded.

To help EU member states address such hurdles to mobility within company pension plans, the European Commission published a proposal for a directive on 20 October 2005.

Overall, the proposed directive aims to improve the conditions related to the building up of rights and the preservation of dormant rights which are left behind in the schemes, and also increase the possibility for employees to transfer the rights to the new job.

Finding common ground

However, the directive, which is currently under discussion in the European Parliament and in the Council, is tackling a complex issue due to the diversity of occupational pension systems across the EU, and arguments have been raised based on the principal that this is an area which should be dealt with by social partners rather than the legislator.

Most recently, social partners in Sweden and the Netherlands, part of a group headed by Confederation of Swedish Enterprise director general Urban Backstrom, wrote a letter to the Financial Times stating, "The social partners must be allowed to continue to share conditions of supplementary pensions, which are both conducive to mobility and provide for sustainable solutions, based on the specificities of our different labour markets."

Ria Oomen-Ruijten, responding on behalf of the European Parliament, agreed that "the fiscal treatment of pension entitlements is not covered by the proposal, but there is unfortunately no common ground for EU rules on that thorny issue." But, she questioned whether it was right to "stop trying to tackle problems related to the conditions for transferability and preservation of pension rights," as the social partners suggested.

The European Commission's role

According to the EC, the basic approach of the directive is to lay down, for the first time, minimum standards to facilitate the mobility of workers across Europe through introducing legislation. Traditionally, an important part of the systems governing schemes for supplementary pensions have been provided on a voluntary basis by the employers, although this is not always the case.

Many systems, for example the UK system, already conform, to a large extent, to the directive's requirements, and therefore the existing supplementary pension design should remain relatively unaffected by the directive.

However, Chairman of the National Association of Pension Funds in the UK Robin Ellison has just described the whole debate as missing the point.  Ellison believes there is "a real risk that EU rules will have unintended consequences and place new burdens on pension schemes just as the UK government is trying to adopt a more flexible approach," reports IPE.com.

What companies are doing

Despite any misgivings, companies across Europe are starting to reorganise their pension schemes within the legal framework to develop portable pension plans for their employees.

An emerging trend is for multinationals to establish pan-European pensions funds for their staff in one single EU country. Luxembourg has already been targeted by several organisations as a base country from which to manage pension schemes for their branch organisations in several EU member states, due to related tax advantages.

Room for manoeuvre

Human resources professionals are often directly confronted with the effect the design of the workplace pensions systems has on employee mobility as they are the ones dealing with the 'comings and goings' of employees. They will have first-hand experience of what approach works best and what the obstacles to employee mobility are, from both the companies and the employee's standpoint, and in this case they have room to influence the outcome.

The directive, which is currently in full legislative process can still be amended either by the member states, which have recognised that pensions systems need to evolve as much as the transfer process to facilitate labour mobility, or by the European Parliament, which will adopt a position on it in November this year.

The changes can be initiated at several levels. On a national level, the legislator can fix new maximum conditions that pension schemes can apply, or this can be decided by the social partners. These conditions can also be decided at company level by an individual employer, or developed at all levels. In the end however, it will be up to the Member States to ensure that the minimum conditions laid down in the directive are respected.

How HR can contribute

HR managers could examine the approach taken by the Commission and take the following steps to ensure the best possible overall outcome.

First, see whether you would agree with the analysis and solutions proposed on the basis of your daily practice in the workplace.

Then, if you see possibilities to improve the text or other means to achieve mobility, seek to influence the position your company is taking in this debate.

Should your company become actively involved in giving input, eventually the information will be collated and presented to the European Parliament and Council via the employer's representative organisation in Brussels. On the national level, companies can also take a position on particular points which are unique to their member state. This will ensure that the final version of the directive takes all country viewpoints into account.

To read the full proposal, which includes the impact assessment on common obstacles to mobility within company pension plans and appropriate solutions, visit Social Protection in the EU.

For more information on the proposed directive, contact policy officer Raymond Maes, Employment, Social Affairs and Equal Opportunities Directorate General of the European Commission at Raymond.Maes@ec.europa.eu

Natasha Gunn is the editor of Expatica HR.

7 September 2006

[Copyright Expatica 2006]

Subject: Portable pensions, European pensions schemes, mobility-friendly occupational pensions