Supplementary Pensions in the European Union
Total Page：16
File Type：pdf, Size：1020Kb
SUPPLEMENTARY PENSIONS IN THE EUROPEAN UNION DEVELOPMENT, TRENDS AND OUTSTANDING ISSUES Report by the European Commission's Network of Experts on Supplementary Pensions Brussels, 1994 ....... '' . .,A'VW'll' This report was produced by independent experts and should not be taken to represent the views of the European Commission. List of Members of the Experts' Network on Supplementary Pensions Mr. Giovanni Tamburi (Italy) (Coordinator) Prof. Carla Angela Italy Mr. Chris Daykin United Kingdom Prof. Vicente Gonzales Catala Spain Prof. Coriolano Albino Ferreira Portugal Prof. Erik Luijens Netherlands Mr. Gerry Mangan Ireland Mr. Finn 0strup Denmark Prof. Pierre Pestieau Belgium Ms Helene Petridou Greece Mr. Emmanuel Reynaud France Mr. G. Schroeder Luxembourg Prof. Heinz-Dietrich Steinmeyer Germany TABLE OF CONTENTS INTRODUCTION . 1 Purpose and Scope ... ). 1 Terminology used and conventional definitions . 1 CHAPTER 1: AN OVERVIEW OF THE ORIGIN OF AND THE RATIONALE FOR SUPPLEMENTARY PENSIONS . 3 CHAPTER 2: THE LINK BETWEEN SUPPLEMENTARY PENSIONS AND SOCIAL SECURITY ............................................. 7 Assessing expectations from State pensions . 7 Income replacement rates estimates from other sources ...... 13 Contrasting expectations with present conditions . 18 The pursuit of global pension objectives .................. 20 CHAPTER 3: THE STRUCTURE OF NATIONAL TWO-TIER PENSION PROVISION ................................... 22 CHAPTER 4: SUPPLEMENTARY PENSIONS: COMPULSORY PROVISION 36 Policy overview .................................... 36 Compulsory and voluntary pension provision can run parallel ... 38 Detailed Country Information . 38 CHAPTER 5: SUPPLEMENTARY PENSIONS: THE VOLUNTARY OPTION . 48 Introduction and scope . 48 Establishment procedures and institutions involved .......... 48 Persons covered . 59 Design strategies for pension plans . 64 Tax treatment ..................................... 71 Protection of members' rights .......................... 77 CHAPTER 6: PENSION FUNDS, SAVINGS AND INVESTMENT . 88 A growing concern . 88 The size of pension funds . 88 Comparing estimates of the value of assets held by pension funds . 94 The behaviour of pension funds in financial markets . 96 Occupational pensions in the European Union CHAPTER 7: A LEGISLATIVE FRAMEWORK FOR SUPPLEMENTARY PENSIONS AT EUROPEAN UNION LEVEL? ............................. 108 Equal treatment of men and women . 108 The protection of supplementary pension rights under European labour law . 111 Pension funds and financial freedoms in the European Union . 112 CHAPTER 8: FREEDOM OF MOVEMENT, LABOUR MOBILITY AND PENSION RIGHTS: PRESENT SITUATION AND PROPOSED STRATEGIES ............ 115 The background to the Commission's initiatives .............. 115 Some national reactions and realities . 116 Alternative strategies for the future . 123 CHAPTER 9: AN AGENDA FOR THE FUTURE . 126 NOTES ............................................... 129 ii Occupational pensions in the European Union INTRODUCTION Purpose and Scope In 1992 the European Commission decided to establish an Experts' Network on supplementary pension schemes, bringing together 12 independent national experts (one from each Member State) and a coordinator. The Network's main task is to review and to analyse the different facets of the current development in Member States of schemes and arrangements, whether private or public, whose aim is to enable individuals to obtain at retirement a cash benefit over and above an individual's entitlement under mandatory state social security legislation. A specific topic in the Network's terms of reference is to relate the development of the 'second tier' of pension protection to issues relevant to the process of European integration. In the course of 1993 each national expert contributed a report describing the main features of supplementary pensions in his/her own country and examining policy issues relevant to the national European debate in this area. The information contained and the opinions expressed in the national contributions have been summarised and joined together in the present consolidated report. In doing this, the Coordinator has- whenever necessary- inserted additional analysis in order to enhance the discussion of questions of particular relevance. Following an initial clarification of terminology and definitions, this report is structured in chapters dealing respectively with: - the origins and role of supplementary pension provision, with its social, financial and political implications (Chapter 1); - an analysis of the link between supplementary provision and social security in terms of retirement income expectations and experience (Chapter 2); - a sketch of the overall structure of the first and second tier of retirement provision in each Member State (Chapter 3); - a full account of the supplementary pension schemes which have been made compulsory by way of national legislation (Chapter 4); - a detailed description of the main features of voluntary and private supplementary pension arrangements (Chapter 5); - a review and a summary of statistical data concerning the economic and financial implications of funding pension liabilities (Chapter 6); - an overview of existing and/or proposed European legislation dealing with different aspects of supplementary pension rights (Chapter 7); - an analysis of the European issue relating to cross-border labour mobility and pension rights (Chapter 8); - an agenda for the future (Chapter 9). The present report is aimed at a broad audience: those who seek an explanation of the origin, the role and the salient features of supplementary pensions as well as those specialists who have a professional interest in obtaining detailed national information. Naturally, the report is also addressed to readers who follow Community policies on pensions. Terminology used and conventional definitions The first tier of pension protection is constituted by public retirement income provision, that is the mandatory social insurance or social security programmes or schemes which are found in each Member State, albeit shaped differently according to national legislation. In the present report the first-tier will be referred to in short as 'social security'. The terms of reference of the Experts' Network indicate that the present report should deal with the 'second-tier' of pension provision. Two questions, however, arise. The first relates to terminology. The term 'supplementary pension provision' is usually used in this report to Occupational pensions in the European Union 1 describe the scope of the 'second tier', recognising that (i) in certain countries alternative terms are used, such as 'occupational pensions' (in the United Kingdom and Ireland), and that in French the relevant concept is expressed by using the adjective 'complementary' (complementaire) rather than 'supplementary'. The second question, more importantly, relates to the definition of the scope of the 'second tier', an issue of great importance when comparisons are made between EC countries. One is concerned not so much with a possible overlap between first and second tier but rather with establishing criteria that will allow the second tier to be separated logically from the third. Difficulties arise because of the similarities between the two tiers, such as their ultimate object (supplementary provision for retirement), the fact that the state encourages both (both may enjoy favourable tax treatment) and the fact that individual initiative is not necessarily an exclusive feature of the third tier. A satisfactory demarcation line between the second and third tiers could not be achieved by opposing the concept of collective to that of individual arrangements, or by contrasting public with private provision, or by using the terms compulsory and voluntary alone. There are obvious second-tier supplementary arrangements that cut across such dichotomies (as will be shown later). The distinction becomes easier if one recognises that, unlike the third tier, the second normally requires an additional element which is past or present membership in the workforce of an enterprise, or membership in a profession. It must be accepted that borderline cases do exist and that it would be pointless to ignore them, pretending that perfect, indisputable definitions can be given. This report takes a pragmatic approach, treating borderline cases on their merits and taking account of their importance, while accepting that, as a general rule, the second tier of supplementary pension provision discussed here includes arrangements having the following characteristics. (i) The benefits are intended to ensure that the person covered (member) acquires an entitlement to a cash benefit in the event of retirement (and, if the case may be, in the event of disability and death), representing income which would be additional (i.e. supplementary) to that due to the said person for the same contingency by the public retirement income system (social security). (ii) Coverage is collective, i.e. plans and schemes are established for the benefit of a group of people (such as the employees of one or more companies, the members of an association, a given category of self-employed). Exceptions to the collective coverage criteria have, however, been made in order to cover cases where individual coverage or individual choice is a legally acceptable alternative for opting out of or opting in to a collective retirement arrangement. 'Legally acceptable' means here that the option exercised