Commission Issues Draft Directive on the Portability of Supplementary Pensions

By European Industrial Relations Observatory on-line

In October 2005, the European Commission issued a proposal for a Directive on the portability of supplementary pension rights.

The aim of this is to increase the labour mobility and career development of European workers. The proposal covers issues such as the acquisition of supplementary pension rights, the preservation of dormant rights and the transferability of rights.

On 20 October 2005, the European Commission issued a new proposal aimed at improving the portability of supplementary pension rights. This comes after two formal consultations by the Commission of the EU-level cross-sector social partners on this issue, in June 2002 (EU0207201N) and in September 2003 (EU0310205F). The social partners have not embarked upon negotiations for an agreement on this issue, as their views on its regulation are too divergent.

The new proposal covers all supplementary pension schemes that are based on an employment relationship - so-called 'second pillar' or occupational schemes - with the exception of schemes that fall under the EU's social security Regulation 1408/71, such as the French AGIRC/ARRCO scheme.

In terms of acquisition rights, the proposal puts into place ceilings on acquisition conditions so as to enable mobile workers to build up sufficient supplementary pension rights throughout their career. For example, workers must start acquiring supplementary

pension rights from the age of 21 at the latest. In addition, the waiting period before an employee can become a member of the pension scheme must not be longer than one year and vesting periods (after which scheme members obtain acquired rights) cannot be longer than two years.

In terms of dormant rights, the proposal states that a worker should not have to suffer a considerable reduction in the acquired rights that they left in a supplementary pension scheme linked to a former employment relationship. However, to avoid excessive administration costs stemming from the management of a large number of low-value dormant rights, the proposal allows for the transfer or payment of a capital sum representing the acquired rights, as long as they do not exceed a set threshold.

In terms of transfer rights, workers will be able to either maintain their rights in a former scheme (unless these are so low that this would lead to excessive administrative costs) or transfer them to another scheme. However, Member States will be able to exclude unfunded schemes from this transfer requirement so as to preserve their financial sustainability. This provision will be reviewed after the Directive has been in force for 10 years. Workers should be well informed about the consequences for their supplementary pension rights if they leave a company.

Vladimir Spidla, European Commissioner for Employment, Social Affairs and Equal Opportunities, stated: 'If we expect workers to be mobile and flexible we cannot punish them if they change jobs. Pension rights must be fully transferable. This directive has been long overdue' .