The idea for a pension fund for members of the European Parliament began on a paper tablecloth in an Athens restaurant. It was sketched by Richard Balfe and a fellow member of the European Parliament (MEP) Anthony Simpson. They felt that MEPs fared worse than their national parliamentary counterparts in terms of rewards.
Under the current rules MEPs are paid the same as national parliamentarians. As a result MEPs total remuneration is low. “If I’d been earning the same salary in business I would have been considered a failure,” says Balfe.
A voluntary additional pension scheme was at least one way of levelling up to the national parliamentary remuneration.
The pension scheme was also designed as a temporary arrangement before the Statute of Members was introduced. This statute would have provided for a community pension scheme for MEPs, as well as a community salary with both being subject to a community tax. However, the differing interests of members states have thwarted the introduction of a members’ statute over the past 25 years. The latest effort to introduce a statute was defeated last month.
The MEPs additional pension scheme was adopted faut de mieux. The scheme was formally established by the Bureau of Parliament in 1990. Balfe, currently chairman of the board of the pension fund, and one of the five Quaestors responsible for MEPs pensions, sums up the achievement: “It was legal and it worked.”
The fund was established in Luxembourg because it is the financial centre of both the Commission and the Parliament. Its assets are managed by the Luxembourg-based bank Credit Agricole Indosuez.
The lack of a suitable trust vehicle in Luxembourg in the early 1990s meant the pension scheme had to spatchcock two structures – an Association Sans But Lucratif (ASBL) and a Sicav, says Cunningham.
“An ASBL is basically an association of individuals put together without the goal of making money, and that is what the pension fund is. But because of the restrictions on making money we had to own a Sicav, which is allowed to make money. The arrangement is a bit cumbersome but we had no choice.”
Since then Luxembourg has introduced two new vehicles – the Assep and Sepcav – aimed at the multinational and pan-European pensions market. A working group from the MEPs Pension Fund’s board of directors is currently looking at these, says Cunningham.
“It’s an ongoing thing we are considering. The choice is not as clear cut as it would seem. There are some advantages and disadvantages between an Assep and our existing structure. On balance the amount of money it would cost to change in terms of fees and set up structure and the benefits we would get in terms of different rates of taxation means that it’s marginal whether it would be of any benefit to us.”
The MEPs pension fund is modelled closely on the EU’s staff pension scheme. Contributions based on a one third: two third ratio, with the MEP members contributing a third and the European Parliament contributing two thirds.
Contributions into the scheme are deducted at source by Parliament from members general expenses allowance. This has been attacked by critics of the fund, who suggest that the scheme is being funded by MEPs expenses.
However, the MEPs pension fund makes it plain to members that their contributions are not being paid from their general expense allowances, and that they will be expected to refund to their allowances the sums deducted for pension contributions.
Cunningham says that while the system is not ideal, it is the most efficient. “At the moment the allowance is the only payment that MEPs get on a European level. So for administrative reasons we deduct the contributions from that allowance. It’s very simple, very efficient, and it works.
“It would be difficult to pay by standing order, because there’s the currency problem and the cost of international bank transfers and a huge amount of work trying to collect 400 different payments from 15 different countries on a monthly basis. And what is important for the scheme is the timeliness and accuracy of the payments.”
The introduction of the euro has made life easier for the fund, both in terms of the management of investments and members’ benefits. The fund was originally set up in ecus. “Once they had agreed it was a one for one parity with the ecu, the euro solved twelve fifteenths of our problem,” says Cunningham.
Problems for MEPs from the three member states outside the Euro-zone – UK, Sweden and Denmark – still remain however. “Each year there’s a real chance that, although their pensions have gone up, in real terms they could go down because of currency fluctuation.”
Pension contributions into the fund are necessarily large. Few MEPs are likely to be MEPs for more than 10 years and many are MEPs for only a single five year term. Some political parties and some member states limit MEPs to two terms of the European Parliament.

To receive full benefits from the scheme members must have contributed for at least three years. The current contribution rate for members of the scheme is E901 a month. The contribution is 13% of 40% of the basic salary of a judge at the European Court of Justice. The current pension, payable at the retirement age of 60, is E1,213 a month for members who have paid five years of contributions into the scheme. This amount is 3.5% of 40% of the basic salary of an ECJ judge. The benefits increase pro rata for members who have paid for more than five years.
As member state parliaments have modernised and changed their retirement plans, the MEPs scheme has tended to follow suit, and benefits have been expanded over the past 10 years. The scheme introduced lump sum options in 1999 and actuarially reduced early retirement options from the age of 50 the following year.
MEP pensions are taxed according to national tax rules. This ball and chain round the ankle of the MEPs Pension Fund will be removed only when the long-awaited Statute of Members is adopted. This would apply a single community tax, already applying to European Commission pensions, to MEP pensions.
Membership of the MEPs pension scheme has remained steady since its inception. In the current European Parliament, (1999 to 2004) 410 MEPs, two thirds of the potential membership, are members of the scheme, while 272 former MEPs are drawing pensions.
There are a number of reasons why MEPs may not want to join the scheme. Some MEPs, for example the Italian premier Silvio Berlusconi, have been too wealthy to need to join. Others have decided not to join on a point of principle. When the European Parliament failed to agree on a Statute for Members during the last parliament, all 31 Dutch MEPs signed up to a code of conduct, one of whose provisions was that they would not take part in the MEPs voluntary contributory pension scheme. Many German MEPs have stayed out principally because of national rules that penalise German MEPs if they receive a pension from two public sources.
The MEPs fund has won official approval. In 1998 the European Parliament asked European Court of Auditors to look at the administration and financial management of the MEPs fund. The Court’s opinion gave the administration of the scheme and the financial management of the fund a clean bill of health.
However, recently lawyers in the Court have questioned the scheme’s legality. The Court’s recent report to parliament claims that that the MEPs pension fund “still lacks a proper legal basis”.
It also points out that the fund does not have sufficient funds to cover all its liabilities. Certainly it has been underfunded. As with other schemes, the MEPs pension fund has suffered from the effects of a three year equity bear market. As a result funding levels have dropped from 108% two years ago to 74% at the end of last year.
The fund has since improved its funding by increasing contributions by more than 8% from 36% to 39%, with the European Parliament paying an additional 2% and MEP members an additional 1%.
The MEPs pension fund is unworried by such criticism. Its architects see it as a scheme that carries the flag in continental Europe for funded schemes. Balfe is certainly bullish about the scheme’s success. “I make no apology about a pan-European pension scheme that works and continues to work well,” he says. Whether the European Parliament can come up with anything better remains to be seen.

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