EFRP - ALDE Seminar - Speech - VERHAEGEN - 2011-02-10

8/7/2019 EFRP - ALDE Seminar - Speech - VERHAEGEN - 2011-02-10

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10 February 2011

ALDE SEMINARPENSION REFORM:MAKE OR BREAK

INITIATED BY MEP GUY VERHOFSTADT, ALDE PRESIDENT CO-

ORGANISED BY ALDEMEPS MARIAN HARKIN AND DIRK STERCKX

EUROPEAN PARLIAMENT,BRUSSELS

PANEL 2MOBILITY AND SOLVENCY RULES FOR PENSION FUNDS

CHRIS VERHAEGEN

SECRETARY GENERAL EFRP

CHECK AGAINST DELIVERY


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ALDE SEMINAR2011 -02-10CHRIS VERHAEGEN, SPEAKING NOTES

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Honourable Members of Parliament,

Commissioner ANDOR,

Dear Ladies and Gentlemen,

Introduction

I would like to thank and congratulate Mr. Guy VERHOFSTADT, Ms. Marian

HARKIN and Mr. Dirk STERCKX, as well as the ALDE (Alliance of Liberals and

Democrats for Europe) Group to organise this seminar on pensions.

It comes extremely timely since the Parliament is expected to adopt next week its

response to the Commissions Green Paper: Towards adequate, sustainable

and safe European pension systems. In our view, a strategic document raising

fundamental questions and going beyond a to do list for the Commission.

I believe the relevant Committees, Rapporteurs and Shadow-Rapporteurs of this

Parliament, have done an excellent good job. They have delivered a draft report

providing valuable leads for the Commission. That is why I hope the Commission

will carefully consider it.

Unfortunately, the extreme time pressure has prevented this House of conducting

the open debate that the Commission was seeking . Why this haste? Whose

agenda is it? This time pressure is a reason for concern for us. It could indicate

that the Commission is tempted to revert to old and wrongful habits of rushed

through legislative action without due preparatory process. 1 It also worries us

because it could indicate that the holistic approach might peter out.

Considering the 1673 responses to the Green Paper, I think the main

recommendation for the Commission when tabling initiatives dealing with

pensions is to carefully consider the diversity of pension systems as well as the

diversity of the various pension institutions and pension schemes. In short: deal

with diversity, please.

1Poorly prepared initiatives could have devastating effects on millions of citizens.


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When I read the draft report this Parliament will adopt next week, I see a

number of very interesting and even compelling recommendations for the

Commission:

The Parliament stresses diversification of pension income from a mix

of public (first pillar) and work-related (most cases second pillar)

schemes to provide () adequate pension provision (17). The draft

report thereby calls on the Commission to make proposals for

promoting the work related pensions (42)

The Commission should come up with a typology of pension systems

as well as with a common set of definitions and criteria in order to

make systems comparable (10).

The Commission should facilitate the establishment of national tracing

systems for work-related pensions while(38) simultaneously submit

proposals for a European tracing system (39)

The report requests the Commission to make impact assessments: 1.

before revising the IORP Dir. (32); 2. quantifying additional costs and

administrative burdens from legislative proposals (40 & 50).

So, I would say there is real meat to this report. And, we hope the Commission

will take due note of it.

Apart from the time pressure here in the Parliament that gives us concern, we

want to draw your attention to the fact that the large majority of stakeholders,

including the social partners, are hugely concerned that concepts borrowed from

insurance legislation would be applied to work-related pensions. Those concepts

and principles focus on short-term security and, hence cannot be applied to long-

term oriented pension institutions. Relying solely on capital requirements as a

risk-absorption mechanism for pension institutions seems inadequate to EFRP.

Such an approach will hamper economic growth by pumping capital out of the

market to store it unproductively without significantly improving beneficiaries

protection or security over the long term.


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Mobility and transferability

Let us now move to pensions mobility.

Many people even experts understate the complexities of this matter. I will

focus on mobility in the second pillar pension arrangements. Those are pension

arrangements that are provided, offered or arranged through an employer.

A first insight one needs to understand is:

pension rights cannot be transferred; only pension capital can be

transferred.

A second insight is: acquisition, vesting and preservation rules belong to the

national social and labour law. Pension rights are benefits provided under an

employment contract. By leaving the employer those benefits no longer can

continue to be provided under such contract.

As long as labour law continues to be considered of Member State competence,

we dont see why part of the labour law should be brought under an EU level

harmonised regime while other parts of the labour law continue to be Member

State specific. It seems inconsistent to us. Therefore one should not pursue

harmonisation of these rules for work related pensions.

Taking these insights into account, the first question to deal with is: What is

the nominal discounted - value of the pension entitlements not rights -

at the moment of transfer?

In DC schemes the answer is relatively simple and requires no

complex calculations.

Entitlements are the sum of the contributions + investment returns -

costs.

In DB schemes the calculation of the entitlements becomes rather

complex. Entitlements are determined by a formula that can

incorporate the employee's final or average salary, the years of

employment, age at retirement, indexation requirements, and other


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factors. This calculation process cannot be harmonised at European

level since it is not only Member State specific but also scheme

specific. When dealing with transfers in a DB scheme it is important to

consider also the interests of the remaining scheme members. I think

in particular to schemes which are in underfunding, in such situations

transfers could be disruptive for the scheme and put remaining

members at a disadvantage.

A second question that needs to be answered is: Where to transfer to?

Within Member States - internal transfer - : in such situation it is rather

easy to identify the appropriate vehicle, even if the new employer does

not offer an occupational plan. In general, citizens are familiar with the

role of the various pension institutions in their country of work.

Between Member States a cross-border transfer - : this amounts to a

difficult issue.

If the new employer offers a scheme the most obvious way

would be the pension vehicle of the new employer.

If the new employer does not offer a scheme, workers need to

identify the appropriate vehicle in the new Member State. This

can be problematic without any guidance from private

consultants. To assist citizens and employers, we need an EU

wide matrix as an instrument to facilitate cross border transfers.

A third question that needs to be answered is Which pension entitlements

do you get from the transferred capital. Thisoperation is relevant for DB

schemes only. Also here, as for transfers out, the calculation formula is

complex. We dont see scope for harmonising it at EU-level as long as social &

labour law remain Member State competence.

Having analysed some aspects involved in the transfer process, I assume you

will agree on its complexity and technicality.


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So what can be done to facilitate this process for the citizens?

First of all, as said, develop an EU typology of pension systems a

European matrix from which, inter alia, citizens and administration

can identify to which pension institution they can transfer their pension

capital.

Secondly, remove discriminatory tax barriers for pension transfers.

Tax requirements need to be considered in both DB and DC situations.

Although tax law is also largely of Member State competence, the

European Court of Justice has delivered some very helpful decisions

facilitating cross border contributions to work related pension schemes.

Some Member States still have an exit tax in place which is reducing

the pension capital.

Do we really have to focus on transfers? This is a perfectly legitimate question.

Given the complexity of the process, some experts advocate preservation in the

scheme with an appropriate register/tracking system would be the better

approach. This is an interesting suggestion indeed. After all, it is the solution

Member States have chosen for the mobility in the first pillar pensions.

Yet, if we want to take this further, it will require well developed infrastructure at

Member State level as well as interconnectivity between Member States systems.

Also under such an approach, a EU-27 pension typology becomes even more

compelling.

Honourable Members of Parliament, the Green Paper has identified the right

issues and challenges. It is now time to give the holistic process started by the

Green Paper time to unfold. We hope the Commission will hear your call for full

scale impact assessments quantifying additional costs and administrative

burdens of any legislative proposal in this area. It is key that European

employers while staying competitive worldwide can continue to sponsor work-

related pensions and more importantly, widen the coverage of their pension

schemes. Let us not forget that 60 % of the European workforce does not benefit

from a work-related pension scheme. We should facilitate and promote them not

stifle their development.

Thank you for your attention.

EFRP - ALDE Seminar - Speech - VERHAEGEN - 2011-02-10

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