The Portability of Pension Rights Within Europe1
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Free movement? The portability of pension rights within Europe1 “The Community shall have as its task, by establishing a common market and progressively approximating the economic policies of Member States, to promote throughout the Community a harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, and accelerated raising of the standard of living and closer relations between the States belonging to it. …the activities of the Community shall include… (c) the abolition, as between Member States, of obstacles to freedom of movement for persons, services and capital” “Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment.” Articles 2-3, 48.2 Treaty establishing The European Economic Community, 1957 When the European Economic Community was founded in 1957 its purpose was a peaceful and stable Europe, and the creation of a common market was considered to be central to achieving this aim. Mobile citizens were constituents of this common market from the start and in order to enable mobility the Community pledged to remove obstacles workers might face. Among these were the treatment of part-time employees, equal pay and social rights connected to employment, such as parental leave regulations and pension rights. This was the theory. In practice it took a long time until more specific rights were introduced and up until today mobile workers might well be penalised for moving between countries. This paper will explore the mobility of social rights in Europe from the perspective of pension rights, among the most significant and long-lasting for citizens. In order not to be disadvantaged in comparison with a stationary employee, a mobile worker needs to be able to carry accrued pension rights with her or him to the new place, no matter whether this is in the same county or in another European one. If such mobility is not supported, citizens who move risk losing their pension benefits and could face poverty in retirement. It is therefore important to know how the broad guarantees given by the European Communities in 1957 look from this more detailed perspective. In the following the paper will first give an overview of the evolution of European law regarding public and occupational pensions. This 1 This paper is part of the ESRC project “Pension rights and mobility in Europe" (Paul Bridgen, Traute Meyer, Caroline Andow), based within the Centre for Population Change at the University of Southampton that began in November 2011. The data and analysis presented here is based on the collaboration of the research team. The main aim of the project is to explore whether movement within the EU is really ‘free’ or whether mobile workers might incur pension right losses on account of their mobility. This paper is a work in progress; please do not quote without permission. 1 is followed by a discussion of the reasons for the EU’s slowness in passing encompassing legislation. Indeed during the first decades the common market did not really lead to much mobility of labour, and therefore policy-makers could afford to stay passive. However, with the collapse of the Soviet bloc this situation changed and migration increased quite substantially after 1989, as part three will show. We will discuss what types of citizens are moving, where most of them have moved to and why. The sudden increase makes reform of social rights more pressing, and it also makes it more important to know what impediments to mobility there are for current migrants within the European Union. In part four we discuss the literature that has dealt with the question of how mobility might affect pension rights. This suggests there are good reasons to assume mobile workers are penalised. Investigations are yet lacking into what such principles might mean in everyday life and how they affect public as well as occupational rights. In part five the paper offers a first empirical investigation into the impact of mobility on pension levels of workers who move between different types of pension regime, and in particular from East to West. 1. Portability of pension rights in the EU – The regulatory framework Pension rights of mobile workers fall under two types of legislation: the mobility of public pensions between member states is governed by European law; the mobility of non-state pension rights is governed by national legislation. Public pensions With the Treaty of Rome in 1957 EU member states committed themselves to creating an internal market that would include the free movement of workers. This notwithstanding it took 14 more years until the first legislation about the portability of statutory social security rights for mobile workers came into force in 1971 (Regulation (EEC) 1408/71 14 June 1971). This remained unchanged until 2010 when the Council simplified it (Regulation 883/2004, 1 May 2010) leaving its fundamental principles intact (Verscheuren, 2009). Thus, a mobile worker should be treated like a national in the Member State in which he or she chooses to work (Art. 4, 883/2004). In addition, the rules of only one Member State apply to this worker at any one time (Art. 11, 883/2004). Moreover, statutory benefits are exportable within the union, therefore, as a pensioner the individual is free to move (Art. 7, 883/2004). EU governments were aware that national systems were based on the assumption of lifelong membership, and that mobile workers might therefore be penalised. The methods of calculations they put in place were designed to avoid such effects. Thus, legislation stipulates that to work out someone’s pension after a pan-European career, the pension administrators in each Member State in which a migrant has worked have to make two calculations on their 2 behalf: firstly they determine the individual’s statutory entitlements only for the years worked in this Member State, using national legislation (“independent benefit”). Secondly, in order to avoid that rules favouring long term members like a minimum period of insurance penalise the mobile worker, national pension administrators also work out the pension entitlement of each mobile individual assuming that they spent their whole working career in this Member State; on this basis they apportion the individual’s entitlement in relation to the actual time spent in this particular Member State (“pro-rata benefit”) (Art. 52, 883/2004). The individual will receive whichever of these amounts is higher. If the pension benefit of a member state is based on a funded defined contribution scheme only the first calculation is necessary (Art. 52(5)). This change in the more recent legislation was a response to the different social security schemes in the expanded EU (Verschueren, 2009). Non-state pensions European regulation for non-statutory supplementary pension rights, i.e. entitlements acquired under occupational or personal pension schemes is much weaker, because it does not force member states to avoid penalties for short term membership of schemes. The EU allows member states to voluntarily apply the EU legislation in place for state pensions (i.e. Reg. 883/2004) to their compulsory non-state systems, but to our knowledge only France has yet asked for this legislation to be extended in this way (OJ C135/17, 5.5.2011). In our view it is not surprising that national governments refrain from asking for a voluntary tightening of their legislative freedom. The mobility of non-state pension rights is protected in some ways. According to EU legislation workers who move between countries must be governed by national legislation for the times they spend in one country. This means that they must be treated exactly like workers who move within one Member State (Directive 98/49/EC (29 June 1998) Art. 4). Moreover, providers of supplementary pension schemes must inform members who move to other Member States about their rights (Art. 7) and after the worker’s retirement they must pay the pension to another Member State, if required, net of taxes and transaction charges (Art. 5). However, no rule addressing possible disadvantages that short term membership brings exist for non state pensions. The European Commission recognised that the existing legal framework needs improving to protect the supplementary rights of mobile workers more effectively. This is why in 2005 it proposed a portability Directive designed to remove obstacles to the acquisition, preservation and transferability of supplementary pension rights. However, this Directive has yet to pass the unanimity hurdle in the European Council – its scope has been reduced already, leading to less transferability of rights than in its original version (Oliver, 2009). Nevertheless, EU governments have not been ready to agree so far. 3 In summary, one important problem of pension right mobility, penalties for short-term membership, has been addressed by EU-legislation, but only for public pensions. Reliance on one type of benefit only is rare in Europe, and many employees have additional non-state provision, but the mobility of occupational pensions much depends on the quality of national legislation. This varies between countries, creating unequal opportunities for workers from different countries. 2. Mobility of workers in the European Communities before 1989 As we have just seen, from the perspective of pension rights, important obstacles to the mobility of workers remain. One important reason for this is that after the treaty of Rome was agreed in 1957 the market for goods integrated much faster than the labour market. Between 1960 and 1970 the inter-EU trade in goods increased rapidly, from 34% of all imports and exports of the six founding member states to 48% and to 60% of all twelve members by 1990 (Tsoukalis 1997: 19).