14 Portability of supplementary pension
rights
| (26962)
13686/05
COM(05) 507
+ ADD 1
| Draft Directive on improving the portability of supplementary pension rights
Commission staff working document: impact assessment
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| Legal base | Articles 42 and 94 EC; co-decision; unanimity
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| Department | Work and Pensions
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| Basis of consideration | Minister's letter of 1 May 2007
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| Previous Committee Report | HC 34-xii (2005-06), para 5 (30 November 2005)
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| To be discussed in Council | 30 May 2007
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Legal background
14.1 Article 39 of the Treaty establishing the European Community
(the EC Treaty) declares that "freedom of movement for workers
shall be secured within the Community". Article 42 requires
the Council to adopt such social security measures as are necessary
to provide freedom of movement.
14.2 Article 94 of the EC Treaty authorises the Council
to adopt Directives for the approximation of the laws, regulations
and administrative procedures of the Member States which affect
the establishment or functioning of the common market.
The present position
14.3 Since 1971 there has been extensive Community
legislation on the protection of the statutory rights to social
security of workers who move between Member States.[35]
But EC legislation on supplementary pension schemes is confined
to a Directive which requires Member States to ensure that the
treatment of the supplementary pension rights of a worker who
moves to another Member State is not less favourable that the
treatment they would have received if the worker had moved within
the Member State where the pension rights were accrued.[36]
Previous scrutiny of the draft Directive
14.4 We considered this draft Directive in November
2005.[37] The Commission
proposed it because some occupational pension schemes contain
obstacles to free movement of workers either within or between
Member States. For example, workers may be deterred from moving
if there is a waiting period of several years before they can
join their employer's pension scheme.
14.5 Accordingly, the Commission's objective was
to facilitate the exercise of the right of workers to freedom
of movement by a Directive which would require Member States to
ensure that:
- there are minimum standards
for the acquisition of supplementary pension rights (acquisition);
- pension rights left in pension schemes after
the employee has left are not penalised compared to the rights
of active members (preservation of dormant rights);
- workers leaving their employment have the option
of transferring their pension rights to another pensions vehicle,
such as an occupational scheme or personal pension (transferability);
and
- workers have access to the information they need
to make an informed choice about the effect that a move would
have on their pension rights (information).
The Government's view
14.6 The Government told us that the draft Directive
was largely in line with existing UK legislation and so it appeared
unlikely that the measure would create any significant new costs
or benefits. The Government would be seeking clarification of:
- the definition of "supplementary
pension scheme"; and
- whether the provision on transferability (Article
6) would make it mandatory for schemes to offer a transfer sum
to outgoing workers on request, but would not require supplementary
pension schemes to accept an incoming transfer.
14.7 The Government had consulted the CBI, TUC, Association
of British Insurers and National Association of Pension Funds
in 2004 about an outline of the Commission's proposal. The Government
would now consult them on the draft Directive.
14.8 We could see no objection, in principle, to
the Draft Directive. The legal base appeared to be appropriate
and the proposal consistent with the requirements of subsidiarity
and proportionality. We asked the Minister for progress reports
on the negotiations and, in particular, on the clarification of
the definition of "supplementary pension scheme" and
the provision on transferability. Meanwhile, we kept the document
under scrutiny.
The Minister's letter of 1 May 2007
14.9 The letter from the Parliamentary Under-Secretary
of State at the Department for Work and Pensions (Mr James Plaskitt)
provides the information for which we asked. He also encloses
the Presidency's revised draft of the Directive and an Article
by Article commentary on it.
14.10 The Presidency's draft contains a large number
of amendments. Most of them clarify or elaborate provisions of
the text we considered in November 2005. But some are substantial:
- "Supplementary pension
scheme" is defined as any pension scheme established in conformity
with national legislation and practice and intended to provide
a supplementary pension for employed persons. The Government is
content with the revised definition.
- The Article on transferability has been omitted.
So the Government's concern about the provision in the Commission's
draft of the Directive falls. Transfer provisions would remain
at the discretion of Member States.
- The Commission's draft provided that, where a
minimum age is specified for the acquisition of supplementary
pension rights, it should not be more than 21. The Presidency's
draft provides that the age should not exceed 25.
- The Presidency's draft also provides that where
the supplementary pension scheme stipulates a vesting period,
the period should not exceed five years ("vesting period"
is defined as a period of active scheme membership required either
by national legislation or by the rules of the scheme for entitlement
to a supplementary pension).
- The Presidency's draft sets out the circumstances
in which the treatment of any "dormant pension rights"
should be regarded as fair (pension rights that remain in an occupational
scheme when a worker leaves the scheme without taking retirement
are known as "dormant rights".
14.11 The Minister says that the Government is content
with the Presidency's draft subject to two points:
- It wishes to amend the text
to ensure that the UK can continue to set an upper limit or cap
on the revaluation of dormant rights. The Minister comments that
there "is broad support for this in Council and it has become
an issue of finding the right words".
- The Government thinks that Article 7 may place
an undue burden on schemes to provide members of schemes with
information about, for example, the conditions governing the preservation
of dormant rights. The Government is seeking amendments to bring
the text closer into line with UK legislation and practice.
The Minister adds that neither of these points is
particularly contentious in the Council. He also says that the
Government is confident that the UK would not need new primary
legislation to implement the Presidency's text, if adopted. A
few revisions of secondary legislation might be required.
14.12 The German Presidency intends to seek a political
agreement on the draft Directive at the Council meeting on 30
May. The Government wishes to give the Presidency full support
and asks us to clear the latest draft, subject to the two further
minor amendments summarised above.
Conclusion
14.13 We share the Minister's view that the Presidency's
text is to be preferred to the draft we considered in November
2005. We note that there are only two points, both minor, on which
the Government will aim for further amendments. We have no other
points to raise. We are content, therefore, to clear the deposited
document from scrutiny and we see no objection to the Government
taking part in a political agreement on the Presidency's draft
of the Directive at the Council meeting on 30 May.
35 Council Regulation (EEC) No. 1408/71, OJ No. L 149,
5.7.71, p. 2 (updated reprint in OJ No. L 230, 22.8.83, P.8.). Back
36
Council Directive 98/49/EC, OJ No. L 209, 25.7.98, p. 46. Back
37
SeeHC34-xii(2005-06),para5(30November2005). Back
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