The High Level Group Report on Pensions: too high level?

Recently, the European Commission’s High-Level Group (HLG) of experts on pensions published their final report on the role of supplementary pensions in relation to old age incomes, as well as the development of pension markets within the EU.

The report contains a number of sound conclusions, stressing the social factor of pensions as well as the need for complementary savings and the need for sustainable solutions, with corresponding tax breaks. Moreover, it calls for more action on tackling the pension pay gap between ‘flex-workers’ and the traditionally employed as well as the need to focus on women, who face a disproportionate chance of old-age poverty in comparison with men. For the unadjusted Eurostat numbers please see here.

The report calls for a “regular multi-stakeholder forum of structured exchange between social partners, pension providers, beneficiary representatives, independent experts and EU authorities on pensions.”

A very interesting thought, but we think there is more needed to make the European pension markets work.

Despite the good recommendations of the report, there seems to be a divide between some of the detected problems and proposed solutions. In our opinion, this is mainly because the report calls for national solutions for European problems. Notwithstanding the division of competences between the EU and the Member States (for more info, chapter 2 of the handbook EU pension law), some issues might be better handled at EU level.

This is particularly the case when it comes to cross-border pensions via the IORP-directive. Being a – for some parts - minimum harmonization directive (setting minimum standards), it contains a ‘carve out’ when it comes to national social, labor and tax laws (SLT). We share the conclusion of the HLG that cross-border IORPs have had a slow start and most of them are not cross-border active. However, according to a WTW report the Assets under Management (AuM) of cross-border schemes is rapidly increasing and the demand is likely to increase over 2020.

Amongst administrative obstacles such as the communication and exchange between home and host supervisory entities, in our view the main issue is the complexity and unclarity of the application of host state national social, labor and tax laws. Especially in the countries with a deep history in pension regulations, such as in Germany (going back to Bismarck) and the Netherlands (where the role of trade unions is very strong). Often, this may lead to a reluctance in accepting cross-border schemes in fear of losing national control.

The report rightfully acknowledges the burdensome nature of this divide and notes that while the home member state is responsible for the administrative set up of the company, each cross-border plan is subject to the host member states rules on SLT. However, it remains up to the host member state to determine what is, and what isn’t part of their SLT (see for example the Dutch decision to impose the need of a 2/3rd majority approval of the participants for cross-border transfers, which is no requirement for domestic transfers).

In response to these problems, the report rightfully calls on the EU and Member States to continue to tackle the barriers for cross-border provision. However, it doesn’t give clear suggestions on how to balance the needed flexibility of SLT laws and the needed clarity for cross-border provisions. The call for a careful assessment of the IORP II rules before putting forward more legislation seems unaligned with the conclusions made: if there is a need for a more effective way to organize cross-border pension provision, which there is, initiatives such as a well-rounded and flexible occupational ‘PEPP’ should be supported.

Member States of the EU are as such not equipped to deal with European pension problems. This calls for an EU approach.

The HLG report will be discussed in more detail during the Pension Workshop University of Louvain, Belgium, Monday the 25th of May 2020.

Prof. dr. H. van Meerten & J.J. van Zanden, LL.M. - Utrecht University, European Pension Law

This article reflects my personal opinion and not necessarily that of Fidelity International.