GERMANY - The state-subsidised German supplementary pension vehicle Riester violates EU labour laws and changes must therefore be made, according to Advocate General to the European Court of Justice (ECJ).

The European Commission filed a lawsuit against Germany (Case C‑269/07) in 2007 with the ECJ concerning the discrimination of Riester beneficiaries who leave Germany to work or live in other EU member states.

Under current German regulations, the subsidised capital cannot be used to purchase a house outside Germany, and pension bonuses have to be paid back if the beneficiary moves out of the country and is no longer paying taxes in Germany.

Furthermore, cross-border workers cannot participate in the Riester system if they are not fully liable to taxes in Germany

Ján Mazák, Advocate General to the ECJ, has now revealed he supports the Commission's concerns and recommended ECJ judges force Germany to make changes to Riester rules.

"I propose that the Court declare that the Federal Republic of Germany has failed to fulfil its obligations under Article 39 EC (…) on freedom of movement for workers within the Community," Mazak noted.

He added several EC Articles on non-discrimination concerning cross-border workers in social security systems have also been breached.

Mazak noted in his opinion paper that the Riester pension albeit voluntarily is part of the German government's initiative to ensure "that beneficiaries, albeit through primarily their own initiative, are guaranteed a sufficient income in their old age".

Such a provision therefore has to be treated as a social advantage to which certain anti-discrimination laws apply, rather than just a tax advantage. he argued.

Another point of criticism he raised was the clause on paying back pension bonuses when moving abroad was particularly hard on non-German born workers who were likely to return to their home countries once they were retired.

Germany had argued that allowing people to use Riester money to purchase houses abroad would up set other member states' real estate markets and worsen the housing situation in Germany.

However, Mazak noted current provisions in the Riester pension were "disproportionate in nature" to the effect on the housing situation and instead claimed "Germany has failed to produce any evidence of such a possible conflict or disruption" with regards to other member states' real estate markets

The commission attacked the German stance and argued "there is nothing to indicate that the savings-pension bonus is a measure aimed at encouraging the construction of dwellings".

The verdict is expected to be published this summer and it is widely assumed that ECJjudges will follow the recommendations of the attorney general

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