1. EU competence on pensions
2. Common Challenges
3. EU work on pensions

EU competence on pensions

According to the Treaty on European Union, pensions fall within the competence of the Member States. Nonetheless, in this policy domain, European Member States share common concerns and challenges: ageing population, sustainability of public finances, adequacy and modernization of pension systems.

This is why, in September 2009, President BARROSO identified pensions as one of the strategic issues for his second mandate as President of the European Commission. [back]

The Common Challenges:

• Ageing: the proportion of elderly people in the EU is increasing quickly, mainly because of the growth of life expectancy, combined with low fertility rate; i.e.: people live longer and have fewer children.
• Sustainability: more and more citizens are living longer in retirement, thus burdening governments with an unexpected increase in public pension expenditures. The economic and financial crisis has exposed the budgetary limits of the Member States, showing that cuts in different areas of government spending, including pensions, may be inevitable in the near future.
• Adequacy: the above mentioned expected budgetary cuts combined with growing longevity increase the risk of old-age poverty. Therefore, it is essential that Member States modernise their pension systems and establish safe, sustainable and adequate pension systems in Europe. [back]

With its Green Paper the Commission seeks to stimulate this debate in Europe.

 What is the EU doing ?

The EU seeks to assist Member States in reforming their pension systems towards the common goal of providing adequate and sustainable pensions.

Through the Open Method of Coordination (OMC), the EU defines common objectives; Member States submit national strategy reports; the Commission analyses national strategies and drafts a joint report; the Council approves the finalized joint report.

In parallel, commonly agreed indicators to monitor the whole process are developed by Member States and the Commission. Yet, the outcome has been rather limited, since peer pressure does not seem to be sufficient to move Member States into a common policy. However, with the recent proposals to strengthen economic governance in Europe and especially in the Eurozone, there might be a process in which EU-level agreed economic policy lines could also touch on pensions.

Over the last years, the Commission relentlessly has tried to create awareness of the ageing challenge in Europe. The Commission has published a number of interesting studies such as the 2009 Ageing Report and the Sustainability Report.

The EU has been particularly active in the work related supplementary pensions sector, setting the legislative framework for occupational pension providers. This framework is represented by the Institutions for Occupational Retirement Provision (IORP) Directive, adopted in 2003. The IORP Directive foresees the possibility to establish pan-European institutions for occupational retirement provision (EIORPs), thus allowing pension institutions based in one country to provide their services in different EU countries. In some Member States occupational pensions can also be provided through life-insurance contracts having their own set of EU level legislation. However, Member States have the option to treat life-insurers' occupational pensions activites as an IORP.

A second area of work at EU level is the objective to improve labour mobility by i.a. improving the portability of occupational pensions. The Commission has tabled a proposal for a Directive (20 October 2005) which was quite ambitious and tried to establish an harmonization of waiting periods for vested rights as well as for the calculation of those vested rights. It encountered opposition from Member States as well as from employers. The initiative has been lingering and may become topical once again if the Green Paper consultation finds out there is support for the idea and perhaps can bring in a fresh approach of it.

Since work place pensions are financed by sponsoring companies or employers, it is critical that the contributions to the work place related pension schemes are paid up and the pension is delivered ultimately. Already in 1980 a Directive was adopted to protect the retirement benefits of employees from their employers' insolvency. It was the European Court of Justice with the Robins case (27 January 2007) that brought the protection granted back to the center of attention. Since then the Commission is investigating how the protection granted by that Directive can be given more substance. [back]