Portability of supplementary pensions
The term ‘portability of supplementary pensions’ refers to the transferability of occupational pension rights and is particularly important in the context of increasing worker mobility, in particular mobility within self-employment. A supplementary pension is a retirement pension provided for in the rules of a supplementary pension scheme established in conformity with national legislation and practice.
There is no common framework in the EU regulating the transferability of company pension rights. The difficulty in transferring supplementary occupational pension rights from one country to another has become a serious obstacle to the free movement of workers within the EU. The growing importance of supplementary pensions was recognised in a European Commission Green Paper on supplementary pensions of 10 June 1997, following which the Commission published a Communication entitled ‘Towards a single market for supplementary pensions’. The significance of supplementary pensions had already been marked by the decision of the European Court of Justice (ECJ) that occupational pensions constituted ‘pay’ within the meaning of Article 141 EC (now Article 157 of the Treaty on the Functioning of the European Union (TFEU)) (Barber v. Guardian Royal Exchange, Case C-262/88,  ECR I-1889). The potential financial consequences of the decision led to the limitation of its respective effects by the Protocol attached to the Maastricht Treaty (Protocol No. 2, the ‘Barber’ Protocol).
It is in light of their importance that the issue of portability of supplementary pensions has emerged as a problem. On 28 June 1998, the Council adopted Directive 98/49/EC on safeguarding the supplementary pension rights of employed and self-employed persons moving within the Community that ensured the right to equal treatment but did not concern the conditions of acquisition of supplementary pension rights or their transferability. In June 2002, the Commission launched the first consultation of the European social partners based on Article 138(2) EC (now Article 154(2) TFEU) on the portability of supplementary pension rights. In its first consultation paper, the Commission explained that there was no Community legislative framework which, in contrast to state pensions, regulated the transfer of acquired company pension rights. This would lead to the undesired consequence that an employee changing employers may be entitled to a pension with the new employer only if he or she fulfils certain criteria, such as waiting periods and minimum age. Since this constituted, in the eyes of the Commission, an infringement on the principle of free movement of workers, an EU-level action was appropriate and proportionate in the sense of the principle of subsidiarity.
Both sides of industry responded positively to the first consultation, acknowledging that that there was a need for Community action on the topic in order to improve the portability of occupational pensions and, henceforth, mobility of workers across the European Union. The European social partners did have different views, however, regarding the most adequate instrument to tackle this problem. Against the background of the responses by the EU-level intersectoral and sectoral social partners, the Commission launched a second consultation to the same target audience on 15 September 2003. In its consultation document, the Commission argued strongly in favour of a legal framework being the only appropriate means of assuring minimum requirements to improve the portability of occupational pension rights and, henceforth, mobility of workers across the EU. However, the Commission envisaged a framework agreement between the European social partners as best suiting these needs, since, in application of the principle of horizontal subsidiarity, management and labour were the actors closest to the problem, because occupational pension schemes were based on initiatives at the branch or company level.
In the course of 2005, the EU-level social partners did not embark on intersectoral negotiations on this issue and this led to the Commission tabling a proposal for a directive on the portability of supplementary pension rights in October of the same year. The general thrust and main objective of the directive was to increase labour mobility across EU boundaries in tackling issues such as the acquisition of supplementary pension rights, the preservation of dormant rights and the transferability of rights. The new draft directive now covers all supplementary pension schemes – that is, so-called ‘second pillar/occupational schemes’– with the exception of those under the scope of EC Regulation 1408/71 on social security.
Thus, it applies to supplementary pension schemes existing due to an employment relationship based on reaching retirement age or on fulfilling other requirements laid down by the scheme or by national legislation. The text of the directive notes that a key objective is to ensure that mobile workers have the opportunity to build up sufficient pension rights by the end of their careers and that failure to achieve this will reduce the flexibility and effectiveness of the market. The directive covers: the conditions under which an individual acquires pension rights; the conditions under which those rights are treated once an individual has changed jobs; and rights to information on how mobility affects the acquisition and preservation of their supplementary pension rights. The directive specifically sets out the treatment of dormant pension rights of mobile workers.