The German pension fund association aba has claimed the recently adopted EU Portability Directive fails to recognise the attractiveness of occupational pensions and called on Brussels to consider “mutual” tax recognition for these schemes.

In a position paper on the Directive – adopted by the EU council in June, eight years after the European Commission first published the legislative proposals – Aba argues that, rather than working to improve “worker mobility between member states”, Brussels should recognise the attractiveness and coverage of occupational pensions.  

The aba touted occupational pensions as “the most efficient form” of funded retirement provision.

“They are particularly beneficial for employees if employers or companies or social partners organise an occupational pension as a social benefit, with no or only low costs to the beneficiaries,” it said.

“It cannot be expected that the coverage of occupational pensions will increase as a result of this Directive.”

The Aba also argued that the Directive – with its regulations regarding vesting periods and the protection of deferred pension rights – would limit the “established function” of occupational pensions to retain employees in a company.

“So far, occupational pensions have been used in countries like Germany to retain mostly qualified employees and strengthen their ties to their employer,” the association added.

“Very high mobility of workers, which inhibits the creation and preservation of company-specific human capital, negatively impacts the medium and long-term economic success and is therefore neither in the interest of individual companies nor the overall economy.”

It called on the European Commission to consider the possibility of mutual (tax) recognition for occupational pensions within the new Directive, at least for periods when workers are posted abroad.

This, it said, would enhance worker mobility between member states and increase the attractiveness of occupational pensions.

Lastly, the aba called on policymakers to amend the title of the Portability Directive to distinguish between second and third pillar.

“The title of the Directive should make clear it is not covering all supplementary pensions,” it said.

“We therefore suggest referring to ‘occupational pensions’.”

The Directive was approved in June, just one month after Brussels agreed to postpone the introduction of pillar one of the revised IORP Directive, and eight years after the Commission first released a proposal in 2005.

When first introduced, the Directive aimed to increase harmonisation in vesting periods and encourage the transfer of pension rights.

It also sought to establish a common requirement to ensure that dormant contributions from past employees were fully inflation-proofed.

However, taxation issues arose among member states, as pension contributions can be exempt from taxation in one country, while pension benefits are taxed in another.

In 2007, the Commission’s project failed to reach an agreement with all member states represented in the Council.

It was forced to revise its Directive, excluding provisions on transferability to focus on vesting periods and dormant rights.