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Occupational Pensions – a Matter of European Concern
Published online by Cambridge University Press: 17 February 2009
Abstract
As old age security has become a major concern, supplementary pensions are an issue of great political interest, debated heavily at the national level within the EU Member States as well as at the supra-national level of the European Union. Increasing labour mobility has made supplementary pension systems, suited for transnational work, a subject of European social policy. The European capital market and the Euro promise access to capital for all pension schemes operating on the basis of accumulating and investing capital, thus directing the economic development of pensions towards capital-based systems.
This article deals with the European legislation on supplementary pensions in the context of both their “social dimension” and their “economic dimension”. The “Safeguard” Directive 98/49/EC is aimed at eliminating obstacles to labour mobility resulting from the specific legal design of national systems of supplementary pensions and diversity in Member States. In contrast, the proposal for a Directive on Institutions for Occupational Retirement Provision (IORP) is aimed at liberalising cross-border investment and management services of IORPs, and to prepare the liberalisation of capital investment, by setting a common standard for supervisory systems, funding requirements and investment rules. Both Directives are analysed in the wider context of the European legislation on supplementary pensions, also assessing, in particular, their likely impact on the German system of retirement provision.
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References
1 It is an open question whether the latest social reform in Germany, i.e. the Alters-vermögensgesetz [Law on Old-Age Capital], BGBI. I, 1310 of 29 June 2001, providing for a voluntary capital funded private pension financed by the employee himself, should be regarded as a fourth pillar added to the traditional system. Alternatively, the second pillar – occupational pensions – will be further eroded when employers decide to co-finance the new system rather than to invest in an occupational pension system at enterprise or group level.
2 According to Art. 137 (6) EC the Community has, however, no competence to enact legislation on compulsory supplementary pensions as this would be a direct regulation of “pay” within the meaning of this paragraph.
3 Hailbronner, , “Die soziale Dimension der EG”, Europäische Zeitschrift für Wirtschaftsrecht [EuZW] [1991] 171Google Scholar; Buchner, , “Das deutsche Arbeits- und Sozilarecht unter dem Einfluß der Europäischen Gemeinschaft”, Vierteljahresschrift für Sozialrecht [VSSR] [1992] 2Google Scholar; Strohmeier, , “Die soziale Dimension des Binnenmarktes”, Der Betrieb [DB] [1992] 38Google Scholar; Kuhn, , Die soziale Dimension der Europäischen Gemeinschaft (Berlin: Duncker und Humblot 1995)Google Scholar; Arl, , Sozialpolitik nach Maastricht (Frankfurt: Lang 1997) at p. 23.Google Scholar
4 COM (89) 568 final, Council Doc No 9978/89 = Bundesrats-Drucksache 717/89.
5 For the protection in the event of the employer's insolvency see Art. 6 of Directive 80/987/EEC and Bittner, , Europäisches und internationales Betriebsrentenrecht [European law and conflict of laws on supplementary pensions] (Tübingen: Mohr Siebeck 2000) at pp. 37–38.Google Scholar
6 COM (2000) 507 final of 11 October 2000. Note that the Commission issued a second document, the “Proposal for a Directive on the coordination of laws, regulations and administrative provisions relating to institutions for occupational retirement provision [COM (2000) 507 provisional]” on the very same date, 11 October 2000. The numbering of articles in the provisional document differs largely from that of the final document.
7 The main exception is supplementary pensions on the basis of collective agreements declared generally binding. See Bittner, supra n. 5, pp. 229 et seq.
8 Durchführungswege as listed in §§ 1 (2), 1b (2) – (4) BetrAVG [Law on Occupational Pensions].
9 This system of internal financing is unusual or even legally not accepted in other Member States, Austria and Luxembourg excluded.
10 Pensionsfonds as defined in § 112 (1) VAG (Law on the Supervision of Insurance) are a newly accepted form of financing supplementary pensions, see Altersvermögensgesetz [Law on Old-Age Capital], BGBl. I, 1310 of 29 June 2001.
11 For the latter opinion C-113/89 Rush Portuguesa, [1990] ECR I-1417 para. 16; C-43/93 Vander Elst, [1994] ECR I-3803.
12 See Bittner, supra n. 5, pp. 114-115, with additional references.
13 See Regulation (EEC) 1251/70 of 29.6.1970, OJ [ 1970] L 142/24 on the right of workers to remain in the territory of a Member State after having been employed in that state; Directive 90/365/EEC of 28.6.1990, OJ [1990] L 180/28 on the right of residence for employees and self-employed persons who have ceased their occupational activity.
14 See Schneider, , Les régimes complémentaires de retraite en Europe: Libre circulation et participation [Supplementary pension schemes in Europe: Free movement and participation] (Bâle: Helbing & Lichtenhahn 1994) pp. 53–86Google Scholar; Bittner, supra n. 5, pp. 53-60.
15 Which labour law applies is a question of conflict of laws that cannot be discussed here.
16 In some Member States – France, Spain and the Netherlands – there is immediate vesting; in the UK there is a 2 years vesting period; and in Ireland and Portugal – a 5 years vesting period calculated from the promise of a pension. In Germany the vesting period used to be between 3 years and 10 years. See Bittner, supra n. 5, pp. 126-127. The Altersvermögensgesetz [Law on Old-Age Capital], supra n. 1, has changed the vesting period to 5 years.
17 Preservation of rights is guaranteed in the exceptional cases of applicable collective agreements on supplementary pensions, when both the old and the new employer are covered, or the agreement is declared generally compulsory and, consequently, the employee is treated as if he were not changing employers.
18 Bittner, supra n. 5, pp. 126-133.
19 Community Charter of 9.12.1989, COM (89) 248 final.
20 Bittner, supra n. 5, p. 53.
21 See Article 10 (1).
22 COM (97) 283. The “freedom of movement” considerations in the Green Paper are largely based on the Report of the High Level Panel on Free Movement of Persons of 18 March 1997 chaired by Mrs Simon Veil.
23 See from a French point of view Brunet, , “Retraites complémentaires: La directive ‘sauvegarde’ [Supplementary pensions: the “Safeguard Directive”], La lettre de l'Observatoire des Retraites, No. 11, 03 1999, pp. 7–9.Google Scholar
24 Art. 95 EC [Art. 100a ECT] on the Single Market could not have served as a rule of competence. According to Art. 95 para. (2), para. (1) shall not apply to measures with regard to the freedom of movement and the rights and interests of employed persons.
25 This legislative technique was accepted by the ECJ in Case C-300/84 van Roosmalen [1986] ECR 3097, on extending the scope of Regulation (EEC) 1408/71.
26 Bittner, supra n. 5, pp. 58-59.
27 See section 2.1 supra.
28 It was uncertain, in particular, whether the French system of supplementary pensions on the basis of collective agreements (AGIRC, ARCCO) should be regarded as part of the first pillar of old age security and therefore covered by Regulation (EEC) 1408/71, or as part of the second pillar, consequently falling within the scope of the safeguard directive. France opted for the former solution. See OJ [1999] C 215/1.
29 Bittner, supra n. 5, p. 122
30 Art. 14 No 1 of Regulation (EEC) 1408/71, OJ [1971] L 149/2. A further extension is possible under the frequently used exception procedure of Article 17 of Regulation (EEC) 1408/71. See Steinmeyer, Nomos-Kommentar, 1.17, p. 1 No. 3.
31 Allgemeinverbindlicherklärung according to § 5 TVG [Law on Collective Agreements].
32 See Bittner, supra n. 5, pp. 434 et seq, 446.
33 This was not controversial and is now expressly stated in the recently enacted § 1b (1) BetrAVG [Law on Occupational Pensions].
34 See section 2.2 supra.
35 See Consideration No. 11 of the Directive.
36 Communication by the Commission SEC (91) 1332 final; Steinmeyer, , “Arbeitsrechtliche Probleme der betrieblichen Altersversorgung im europäischen Binnenmarkt” [“Labour law problems of supplementary pensions in the European Internal Market”], in: Festschrift Ahrend (Köln: Schmidt 1992) 481.Google Scholar
37 This idea has already been formulated in the Working Document XV/2040/92-DE rev. 1, pp. 13et seq.
38 Following the ECJ decision in Case C-118/96 P Safir (28.4.1998) [1998] ECR I-1897 on Swedish legislation establishing different tax regimes, according to the place of establishment of the undertaking providing services of life assurance, a number of multinational companies have formed a committee to set up a test case on pan-European pensions. The test case shall be set to provoke a reaction from tax authorities, which shall then lead to a referral to the ECJ. The aim is to obtain a court decision allowing companies to set up pan-European pensions lawfully even without a directive. See Baker, & McKenzie, , Pensions Law Newsletter, October 1998.Google Scholar
39 See Bittner, supra n. 5, pp. 363-364.
40 This is the case in Germany whenever an employer makes a direct commitment, uses an Unterstützungskasse (support fund), and, under certain conditions, direct insurance, to finance supplementary pension benefits.
41 Freedom to provide services can also be seen as a counterpart to the free movement of workers in so far as natural persons move from one Member State to another in rendering their services or labour, see Bittner, supra n. 5, p. 167.
42 See section 1 supra.
43 This form of funding is economically sound only if the Unterstützungskasse enjoys a general tax relief. If that is not the case and foreign law does not accept the Unterstützungskasse as a privileged vehicle of retirement financing, it does not make sense to have such a support fund incorporated outside Germany.
44 COM (91) 301 final – S YN 363 (12.11.1991). Due to the separation of the economic and the social dimensions, the initial issues of cross-border membership and pensions portability no longer played a role in this proposal. See Zavvos, , “Pension Fund Liberalization and the Future of Retirement Financing in Europe”, 31 Common Market Law Review [CMLR] (1994) 609.Google Scholar
45 Communication 94/C 360/08, OJ [1994] C 360/7.
46 Case C-57/95 France v. Commission, [1997] ECR I-1627. See Brunet, , “Retraite, liberté de mouvement des capitaux et libre prestation de services” [“Pension, free movement of capital and freedom to provide services”], La lettre de l'Observatoire des Retraites, No. 11 (03 1999) pp. 10, 11.Google Scholar
47 COM (97) 283. For a reaction from the UK point of view see the National Association of Pension Funds' (NAPF's) response to the Green Paper: Partnership on Pensions of 1 April 1999 <www.napf.co.uk/green>. Inter alia the NAPF argues that the Green Paper contains insufficient measures to safeguard existing employer-sponsored schemes or encourage new ones to be set up and that the interface between the second state pension, stakeholder pensions and occupational pensions has not been clearly worked out.
48 COM (99) 134 final/2.
49 COM (2000) 507 provisional of 11 October 2000 <europa.eu.int>.
50 Explanatory Memorandum, p. 3. In the beginning, the Commission used to speak of “pension funds”. Then it changed to the concept of “institution for retirement provision”, COM (91) 301 final – SYN 363 (12.11.1991).
51 Article 95 does not apply to fiscal provisions, to provisions relating to the free movement of persons and to those relating to the rights and interests of employed persons.
52 Explanatory Memorandum, p. 2; Frequently asked questions, p. 2: <www.europa.eu.int/comm/internal_market/en/finances/pensions/faqen.htm>;
53 It has already been questioned whether the minimum-funding requirement (MFR) under UK law meets the standard required by the Directive's technical provisions, i.e. the provisions on funding levels. See Ward, , “European directive on occupational pensions”, Investment Adviser (13.10.2000)Google Scholar. See also National Association of Pension Funds (NAPF), press release (11.10.2000).
54 Jürgens, , “Pensionsfondsrichtlinie: Ein vielversprechender neuer Anlauf der EU-Kommission” [“Pension fund directive: A promising new start by the EU-Commission”], Betriebliche Altersversorgung [BetrAV] [2000] 613, at p. 614.Google Scholar
55 The concepts of “harmonisation” and “co-ordination” are used interchangeably in the Treaty. Co-ordination does not, by definition, interfere less with national law. See Bittner, supra n. 5, p. 23, with additional references.
56 See Explanatory Memorandum, p. 14.
57 Jürgens, supa n. 53, at p. 614.
58 Explanatory Memorandum, p. 14. Communication from the Commission “The elimination of tax obstacles to the cross-border provision of occupational pensions”, OJ [2001] C 165/4.
59 Explanatory Memorandum, p. 12.
60 Explanatory Memorandum, p. 14; Kuckelkorn, , “Pensionsfondsrichtlinie und Direktversicherung – was bringt Europa?” [“Pension fund directive – what is Europe up to?”] BetrAV[2000] 619, at p. 621.Google Scholar
61 Explanatory Memorandum, p. 9. As the term is an example of a very technical “Euro speak”, the Commission will not be able to prevent people from continuing to refer to the “pension fund directive”. In fact, the Commission does so itself: see Communication “The elimination of tax obstacles to the cross-border provision of occupational pensions”, OJ [2001] C 165/4, n. 4.
62 See also Hessling, , “Die Pensionsfondsrichtlinie und ihr Einfluß in Deutschland” [“The Pension Fund Directive and its impact in Germany”] BetrAV [2000] 622, at p. 623.Google Scholar
63 Explanatory Memorandum, p. 11.
64 This was different in the case of the life assurance directives. See Article 1, Directive 19/261/EEC, OJ [1979] L 63/1.
65 This is, arguably, not a defining element under German law. See Blomeyer, BetrAVG [Commentary on the Law of Occupational Pensions] (1997) § 1 n. 11.
66 Critical Kuckelkorn, supra n. 59, at p. 620.
67 See the Comité Européen des Assurances (CEA) – i.e. a federation representing national insurance companies associations in 29 European countries – Position paper “Supervision of institutions for occupational retirement provision” of 7.2.2000, p. 3. <www.cea.assur.org>.
68 See the take-over bid of Allianz AG for Dresdner Bank AG.
69 Explanatory Memorandum, p. 12.
70 The separation requirement in no way prevents neither the employer nor the company employees from being members of the board of an institution, e.g. a Pensionskasse; Explanatory Memorandum, p. 12. Therefore, IORPs subject to the German laws of co-determination are included in the definition.
71 Frequently asked questions, p. 2.
72 See Bittner, supra n. 5, p. 344.
73 Explanatory Memorandum, p. 11.
74 Bering, , “Neue Entwicklungen und Tendenzen auf dem Gebiet der Vermögensanlagen und Versicherungsunternehmen” [“New developments and tendencies in the field of capital investment and insurance companies”], BetrAV [1992] 36, at p. 38.Google Scholar
75 Preliminiary Consideration No. 8.
76 Kuckelkorn, supra n. 59, at p. 620. See also Frequently asked questions, p. 2. Jürgens, supra n. 53, at p. 614 (possibly covered).
77 Explanatory Memorandum, p. 10. This is the only exception that cannot be formulated by naming a certain institution, which is not an IORP, within the meaning of the directive. The exception should be interpreted as referring to the entity demanding investment services, thereby changing the perspective from the positive/active side of the freedom of services to the negative/passive side.
78 In addition, any legislation regarding this way of financing would require tax rules that need unanimous decisions on the European level which could not be based on Articles 47 (2) and 55 EC. See Jürgens, supra n. 53, at p. 614.
79 See Großmann, Die flexible Finanzierung der betrieblichen Altersversorgung mit Hilfe von Spezialfonds [The flexible financing of occupational pensions through “special funds”] (Frankfurt: Lang 1992).
80 See Explanatory Memorandum, p. 10.
81 See section 3.4.2.2 supra.
82 See Explanatory Memorandum, p. 10.
83 See Explanatory Memorandum, p. 10.
84 See decisions by the Bundesarbeitsgericht, BAG [Federal Labour Court] of 5.6.1984 and of 18.4.1989, AP (Arbeitsrechlliche Praxis) § 1 BetrAVG Unterstützungskasse, No. 3 and No. 23.
85 Explanatory Memorandum, p. 10.
86 See Jürgens, supra n. 53, at p. 614.
87 Kuckelkorn, supra n. 59, at p. 620.
88 Hessling, supra n. 61, at p. 623.
89 See § 117 VAG (Law on the Supervision of Insurance).
90 Jürgens, supra n. 53, at p. 614. It would be interesting to know to what extent these potentially international actors have continued to act provincially with regard to the Direktversicherung and to which extent they have made use of the liberalised market for life assurances.
91 This is the case in France and Italy. See Hessling, supra n. 61, at p. 623.
92 More than 56% (300.3 billion DM = 153.4 Euro) of the overall capital invested or reserved for supplementary pensions in Germany is in book-reserve schemes. Urbitsch, , “Deckungsmittel der 2. Säule wiederum gestiegen” [“Capital stock of the second pillar increased again”], BetrAV [1999] 73.Google Scholar
93 Urbitsch, ibid., at p. 73.
94 Explanatory Memorandum, p. 7 on protection of beneficiaries.
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96 The Commission refers explicitly to the prevention of a situation comparable to the Maxwell pension scandal in the UK (see Frequently asked questions, p. 3.) that lead to the Pensions Act 1995. Under this Act the employees' protection is mainly guaranteed by a minimum funding requirement; supervision by the Occupational Pensions Regulatory Authority (OPRA); and the additional safety net of the Pensions Compensation Board. Strict investment rules are not a feature of the Pensions Act 1995 and it remains to be seen whether it needs to be amended in this respect if the proposed directive becomes law.