Squaring European workers’ mobility with occupational pensions?

Igor Guardiancich
Igor Guardiancich

In 2013, the University of Southern Denmark hired me together with a young Romanian colleague. While I was able to join straight away, she had to delay her arrival and extend her contract in Germany for an extra two months. Otherwise, she would have partly lost the entitlements accruing from her previous university’s pension scheme. This is because the minimum period to acquire occupational pension rights in Germany is five years. Hence, her right to the free movement of workers, guaranteed by the EU since 1958, was infringed.

The main problem lies with the coordination of social security rights across the EU. Even though the Coordination Regulations are the most advanced system worldwide that guarantees the portability of social security benefits for migrants, they cover statutory pension schemes only. By excluding supplementary, occupational pensions, they leave a regulatory gap in the protection of migrant workers under EU law. After decades of inertia, this suddenly changed in 2014 with the Supplementary Pension Rights Directive.

There are several reasons why addressing the gap was crucial. From a macro-systemic viewpoint, unhindered labour mobility underpins healthy economies by allowing workers to fill skill shortages where needed. From a micro-individual perspective, the right to social protection should be portable across countries and professions. In its absence, individual labour mobility decisions and sound family planning are impaired.

The regulation of portability at EU level rests on two rationales. From a legal perspective, the free movement of workers is not just an economic freedom. It has a social dimension that requires protective EU secondary legislation. Within the realm of economics, European citizens are ever more inclined towards working abroad. The growing scores of employees who rely on occupational pension benefits, hence, require measures that facilitate their acquisition and protection against inflation.

In 2013, 10.3 million European citizens of working age lived in another Member State, a considerable increase compared to 2005. According to Eurobarometer, 1 in 4 EU-27 residents may consider job opportunities in another EU country in the next 10 years. Additionally, unemployment rates rose during the Great Recession, ranging from below 5% in Germany and Austria to 20-25% in Spain and Greece. Workers started moving from troubled areas to countries with unfilled vacancies.

As for pensions, less generous public benefits encouraged the proliferation of private occupational pension schemes. Coverage varies. In Denmark, the Netherlands and Sweden, 75-90% of the workforce is insured through occupational schemes. In Belgium, Germany, Ireland and the UK, coverage is average (40-65%), while in the rest of EU-15 it ranges from 4% in Portugal to 17% in Italy. The share of occupational pensions in an individual’s future income is set to grow in Cyprus, Belgium, Denmark, Germany and the UK.

Notwithstanding the need to close the regulatory gap, the EU Council was unable to reach an agreement. Occupational schemes are far too complex and diverse. The main bone of contention was whether to treat occupational pensions as instruments that reward loyal employees and promote the retention of skilled workers (a view held in Bismarckian countries, such as Austria, Germany and Luxemburg) or to regard them as deferred income and an essential component of social protection, as the European Commission does.

Ultimately, the latter view prevailed, meaning that acquisition periods have to be short in order to encourage labour mobility. A compromise was found in 2013 on a Directive that was declared dead five years earlier. How was that possible? The Lisbon Treaty relaxed the voting requirements in the Council. Hence, the Member States’ different standpoints, which prevented unanimity in the first place, became a blessing in disguise. The reluctant countries, with Germany at the helm, could not form a blocking minority any longer. Hence, their strategy switched from upholding the status quo (no European legislation) to limiting the damage.

Several compromises were found. The Directive’s application was restricted to cross-border movements of workers only, thereby reasserting the Member States’ sovereignty on social protection matters. The three years to have one’s pension rights vested were even acceptable to Germany. Finally, Commissioner Michel Barnier dropped the most controversial parts of another, concomitant Directive on Institutions for Occupational Retirement Provision. This pleased the Council, which immediately gave the green light.

Even though the new Directive falls short of full portability (there are no physical transfers of capital), its implications are nontrivial. It affects most funds and covers all movements of workers – applying different rules to internal, within-state movements would be extremely impractical and would soon raise eyebrows in the Court of Justice. The equal treatment in the preservation of pension rights awards greater protection against inflation to mobile workers. Finally, the most notable breakthrough is the relaxed acquisition rules, which were a tangible drag on mobility. In this sense, the Supplementary Pension Rights Directive bears witness to and reaffirms the greater fluidity of traditionally static European labour markets.

Igor Guardiancich is Assistant Professor at the Centre for Welfare State Research, part of the Department of Political Science and Public Management at the University of Southern Denmark in Odense, Denmark.

If you enjoyed this blog entry, you may be interested in a similar article: Repoliticising depoliticisation: theoretical preliminaries on some responses to the American fiscal and Eurozone debt crises by Bob Jessop

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