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IPE special report May 2018

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Commission issues two surveys in fight for pensions portability

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  • Commission issues two surveys in fight for pensions portability

More artillery has arrived on the battleground where the EU is still fighting for pan-European legislation on the portability of supplementary, non-state pensions for employees. The weapons recently wheeled into place by the European Commission takes the form of two heavyweight studies.

These include existing national business practices, measures of how long people stay in their jobs, how many move across frontiers and how often.

The pensions portability directive, which would facilitate the transfer of employees' pension rights, was blocked in the Council of the EU when national ministers met at the end of last year. The deadlock - following years of wrangling - was caused by a German objection (backed by Luxembourg) to reducing to less than five years the period an employee needs to stay in a scheme before acquiring pension rights, the vesting period.

Now, the issue has fallen into the hands of the Slovenian six-month EU presidency, which is said to be a keen supporter of overcoming the minority objections. The directive is likely to be discussed at the employment and social policy Council meetings, scheduled for 29 February and 9 June.

The Commission states that both studies support the case for a Europe-wide initiative to improve the rights of employees to have access to supplementary pension rights. Commissioner Vladimír Špidla says: "Tackling obstacles to workers' mobility in Europe forms a key plank of the EU's strategy for growth and jobs."

The larger of the two analyses, entitled ‘Quantitative Overview on Supplementary Pension Provisions', was prepared for the Commission DG dealing with employment by Hewitt Associates. The 232-page report examines supplementary pension scheme rules in major firms from nine EU member states.

Overall, the kind of data it addresses comprises the nature and scope of pension schemes, funding and benefit practices, conditions of acquisition of pension rights, treatment of dormant pensions rights, transferability of pension rights, evolution of scheme conditions and communication.

Covering Belgium, France, Germany, Ireland, Italy, the Netherlands, Poland, Spain and the UK, the survey notes that cross-border issues related to supplementary pensions are becoming more common as business becomes more international.

One constant theme is the move from direct benefit (DB) to direct contribution (DC) schemes. Hewitt looks into how these and hybrid schemes are funded. Insurance contracts are used to fund 16% of DB schemes and 28% of DC schemes, it finds, but funding methods vary substantially from one country to another.

Concluding remarks on each country show that, for instance, in France, supplementary private pension schemes are usually designed primarily for managers and senior mangers. But recent laws should encourage plans to cover a much wider workforce.

Bearing in mind the focus on Germany, national finance ministers seeking to overcome the present impasse are likely to turn to the concluding remarks on that country. There they read that, "even now, most of the pension liabilities in Germany are un-funded - more than two-thirds are un-funded if IASs were applied".

However, the report, referring to figures that are not known, adds: "Nevertheless, funding via contractual trust arrangements becomes more and more popular." It continues that all Germany-based schemes are subject to statutory vesting requirements. These require the five years for employer-sponsored schemes, and no vesting period for employee-sponsored schemes. Supplementary pension schemes cover over 5.3m public sector employees, and about 10.2m in the private sector.

Equivalent remarks for Ireland find that approximately 55% of the workforce is covered by supplementary schemes, and funding is primarily via a separate legal entity know as a trust fund.

Similarly, in Spain, funding is also covered by a separate legal entity. Most schemes have very few people in waiting periods because most schemes have a short or no waiting period, the time between start of work and the joining of a scheme, and have no minimum age. Waiting periods may not exceed two years. Around half of the active population is not covered by any supplementary scheme, although there is an increasing trend towards greater coverage.

Non-coverage is also high in the UK. The survey states that there are well over 10m private sector employees not covered by supplementary pension schemes. However, a new National Pensions Savings Scheme is being created to address this shortfall. Recent years have been characterised by a rapid closure of DB schemes in the private sector, and a switch to DC or hybrid schemes. Vesting periods are legally required to be no more than two years, and can be much less.

The second study, undertaken by researchers at the Higher Institute for Labour Studies at Leuven University, comprises an investigation of Eurobarometer data from a mobility survey that was carried out in 2005 for the EU 25. It looks into how long people spend in their jobs, when they expect to change jobs and on aspects such as career lengths across the EU.

A Commission statement comments that nearly 40% of current employees change jobs within five years. These people are therefore "potentially disadvantaged" by the operation of long vesting periods found in supplementary pension schemes. The Commission says this demonstrates that in countries where acquisition periods are comparatively lengthy, job mobility tends to be low and vice-versa.

The Leuven survey finds that across the EU 26% of workers have been with their current employers for a maximum of two years. Another 12% have stayed put for three or four years and 22% have not moved employers for from five to nine years. Finally, 40% have been working with their current employers for more than 10 years.

Leuven finds that the agricultural sector has the lowest mobility, while over 40% of workers in construction and industry do not expect to be working for the same employer in five years.

Looking further at employee expectations, more than half of people who intend to move to another country joined their current employer as recently as a maximum of two years previously.

The study also finds that Denmark emerges as the country with the highest fluidity. Some 70% of Danish employees expect to move employer within five years. Enthusiasm for changing jobs is also high in Sweden and Latvia. Particularly low job mobility expectations are experienced in Portugal, Italy and Austria.

There is little difference in mobility expectations between men and women. Women do, however, show a higher occupational ‘homogeneity', averaging 3.4 different jobs during their careers, while men average 4.2 jobs.

A cluster analysis reveals that countries in the north of Europe, including the UK, have high job mobility. In contrast, Germany, Austria, the Czech Republic, Italy, Greece, Spain and Portugal have low mobility expectations. Ireland and Luxembourg form a small, special cluster, with high proportions of inhabitants having lived abroad - 18-16% respectively.

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