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Supplementary pensions

Supplementary pensions are an important source of income for many Europeans. As the social security coordination does not apply to most supplementary schemes, the EU has agreed upon special rules to protect the supplementary pension rights of mobile workers. These rules apply to pension schemes linked to employment ('occupational pensions').

Why is it important to protect supplementary pension rights?

Certain rules of supplementary pension schemes may cause workers to lose out on their pension rights when they move in the EU.

Schemes may require participants to fulfil certain conditions before their pension rights are irrevocably acquired, or 'vested'. For example, an employee who leaves the job and moves to another Member State may not earn any pension rights if he has not worked for the employer long enough.

Even if the pension rights have been vested when the worker leaves the scheme, their future value may be eroded by inflation, unless the pension rights are adequately preserved by adjusting their value over time.

Equal treatment and cross-border payments

Directive 98/49/EC on safeguarding the supplementary pension rights of employed and self-employed persons constituted a first step in removing obstacles to free movement relating to supplementary pensions. The principal provisions could be summarised as follows:

  • The vested pension rights of a person who leaves a pension scheme because he moves to another Member State must be preserved to the same extent as for a person who remains in the same Member State.
  • Beneficiaries of a supplementary pension scheme are entitled to receive their benefits in any Member State.

Acquisition and preservation of supplementary pension rights (to be transposed by 2018)

Directive 2014/50/EU on the acquisition and preservation of supplementary pension rights was adopted on 16 April 2014. It establishes the following minimum standards for the protection of mobile workers' pension rights, which Member States must transpose into national law by 21 May 2018:

  1. Acquisition
  • Pension rights are irrevocably acquired ('vested') no later than after three years of employment relationship.
  • Employees' own contributions can never be lost. I.e., if an employee leaves a pension scheme before his rights are vested, his own contributions are repaid.
  • Schemes are not allowed to set a higher minimum age for vesting than 21 years.
  1. Preservation
  • When leaving a pension scheme, a worker is entitled to keep his vested pension rights in the scheme, unless he agrees to receive them as a capital payment.
  • The pension rights of the former worker must be preserved fairly compared to the rights of current workers. The method of preservation may vary depending on the nature of the scheme. For instance, the value of pension rights may be adjusted in accordance with:
    • inflation rate or salary levels (typically in a defined benefit scheme);
    • return from investments derived by the scheme (typically in a defined contribution scheme).
  1. Information
  • Workers are entitled to information about how potential mobility might affect their pension rights.
  • Former workers and their survivors (if the scheme provides survivor's benefits) are entitled to information about the value and treatment of their rights.

The Directive applies to workers who move between Member States, however Member States may extend the same standards to workers who change jobs within the country.

The Directive does not cover the transferability of supplementary pensions, i.e. the possibility to transfer one's pension rights to a new scheme in the event of professional mobility.

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