Finnish proposal garners support

The directive on portability of supplementary pensions may be making waves within the Brussels machinery, but any advance is painfully slow, and no clear outcome is certain. A diluted version — the so-called Finnish proposal — got qualified support from the EU’s 25 member state delegations when they met at the Council of Employment & Social Affairs.

A majority of the representatives of national governments managed as a conclusion that the draft directive should focus on vesting criteria, as well as on the preservation of pensions rights through a fair treatment of dormant rights. Vesting criteria refers to the process by which employees acquire non-forfeitable rights.

In a provisional report of the debate, the Finnish presidency concluded that “a balance should be found between as broad as possible scope of the directive and a sufficiently long transitional period to allow pension schemes to adjust their rules”. However, delegations from Belgium, Czechoslovakia, Finland and Hungary regretted the deletion of transferability of pension rights from the text. Overall, the committee suggested that other means of improving transferability could be considered, including working on a voluntary basis.

The case to advance mobility was expressed by European Commission director, Jerome Vignon, addressing journalists in Brussels, prior to the Council debate. The director described the existing, 1998 Safeguarding Directive as providing “very minimal conditions”.

Against a background that half the workforce changes jobs every five years, and the fact that salaried workers no longer feel bonded for life to one company, the question of supplementary pension rights remaining dormant in previous employing companies remained to be tackled.

Employees should have the right to take their benefits on to their next employer (transferability), Vignon argued. He explained that in late 2005 the Commission came up with a new draft portability directive, covering acquisition conditions, the preservation of dormant rights and the “pretty hot potato” of transferability. Under its wording, and subject to certain conditions, an outgoing worker could obtain the transfer all his acquired pension rights. Removing the three obstacles to mobility was part of the Lisbon strategy, said Vignon, adding the political twist that the next Lisbon progress report would mention progress on mobility.

He said there was opposition from those in the pensions industry because transferability would cost them money and they “want to keep their loot”. However, the “general interest had to be tackled”. Following reaction from the Council, dilutions to the proposed directive were made, to produce the “Finnish compromise”, which drops the transferability element. It is this compromise version that national ministers in the Council have just discussed.

Progress on the directive comes under rules that require Council unanimity plus a co-decision procedure with the European Parliament. As Leonardo Sforza, of Hewitt Associates, expressed it to IPE: “All 25 member states need to agree every comma of the text. And we are far from that. The package also has to be agreed by the European Parliament. It will be difficult to see agreement on a final version [of the Finnish proposal] by the end of this year.” One problem Sforza cited was that the Netherlands does not think this is an area of competence for the EU.

The European Federation for Retirement Provisions says that it does support portability measure that includes a transferability mechanism. However, it states that it favours more limited vesting and preservation rules. It was very worried that the Commission’s “transfer of rights” approach - instead of a clear transfer of capital approach - would “invite years of confusion and interference by Brussels in matters best dealt with by member states”.

Through its member associations, the EFRP represents €3.3trn of assets (2004) managed by workplace pension funds for future occupational pension payments. Total pension industry assets in Europe come to €€5.5trn, which is roughly similar to that of the insurance industry, life and non-life, where the total is €6.3trn.

Currently, the directive is in the hands of the European Parliament’s Employment and Social Affairs Committee. Much is going on behind closed doors, with the hope of producing what might amount to a new version of the Finnish compromise for open discussion later this month. The intention is to get agreement from both the Council and clearance through a committee vote, on 24 January, if there are no delays. A vote in plenary could follow in February.

Certainly rapporteur Ria Oomen-Ruijten MEP, Dutch, CDR party, wants changes to the current draft. In a strongly worded letter to the Financial Times, she wrote, in July, that labour market flexibility would have come off much better if the social partners had managed to set the rules themselves, “without interference from the EU legislator”.

Oomen-Ruijten painted a grey picture of the present situation, noting that at present workers who change jobs a couple of times during their career lose out considerably to on pension entitlements compared with those who stay. Under some supplementary pension schemes, she noted, a 30-year-old employee with eight years’ work experience with three different employers had still not acquired any entitlement to supplementary pension.

In the eyes of some, the new Finnish proposal represents a considerable defeat for the Commission as one third of its draft proposal would effectively sink without trace.

Whether a directive on these lines has been worth the effort remains open to question. It simply adds a domestic dimension to the Safeguarding Directive and introduces vesting rules. Whereas the Safeguarding Directive applies to the self-employed the revised portability directive will not. The interplay with the pension funds directive is also unclear as regards pan-European pension funds. Amazingly, the entire EU is set to reopen the portability issue in the context of the flexicurity debate which will continue well into 2007 - so the EU could find itself adopting a measure that does more harm than good and which is obsolete before it reaches the statute books.

Assuming that it does overcome all the Brussels hurdles, the new version of the directive may be given up to a 10-year phasing-in period for adjusting scheme rules to the new harmonised requirements.

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