Guest blog post by Niko Väänänen, Special Advicer for pension systems in other countries, EU at the Finnish Centre for Pensions.
A couple of weeks ago I had the opportunity to sit down and chat with a young researcher. Over a pint of beer, having briefly explained my professional background, he confessed to me that he hasn’t paid much attention to whether he has accrued a pension for his short stints in academia in different EU countries.
Is he to blame? By nature, we humans are myopic lacking long-range perspective in planning, and pensions are too distant an issue to be thinking of when you are focusing on getting an extension to your work contract. However, the longer he goes on doing short stints in different countries, the more this might impact his future pension. We ended up discussing different pension types and how they treat a mobile researcher.
Statutory Pensions Facilitate Labor Mobility
Statutory pension systems are the backbone of the European pension landscape. They might differ in nature and level, but regardless of country, they are the main component of pension provision. They are in the hands of national institutions and legislators, and according to the subsidiarity principle, they ought to remain so.
Pension systems are embedded in the character of the welfare state and heavily dependent on the structure of labor markets. Reforming them is a delicate process involving many variables and institutions; EU level interference is not usually welcomed. Instead, member states have agreed to common goals, the success of which is monitored through the open method of coordination.
Regarding mobile workers, statutory pension schemes support labor mobility, and the rights of the workers are ensured through the coordination rules. Contributions or taxes are paid and later insurance periods from other EU countries are taken into account when calculating the right to an old-age pension. Fair play!
Occupational Pensions Might Pose Some Barriers
Occupational pension schemes (built on the basis of an employment relationship) play an important role in the pension provision in some member states. They are intertwined with the structure of the statutory pension system. A low statutory scheme leaves space for an occupational pension scheme that is in the hands of social partners. They negotiate national collective agreements with interests within a single state. As such, they do not have much to gain from EU-wide schemes.
In addition, adding an EU-level layer or bloc to an existing national pension structure is by no means easy. Statutory and occupational pensions complement each other. Proposing an extra layer merely to introduce a common European component could be perceived negatively by national institutions. One of the leading motivations behind an EU scheme would be economies of scale and portability issues.
Getting back to our young researcher, occupational pensions are often unfavorable to short-term mobile workers. These schemes often have stipulations that regulate how workers acquire, preserve and transfer pension rights. The rules favor long-term and non-mobile workers. However, portability issues are best addressed through legislative ways such as directives, not by layering up schemes.
The EU commission has already thought of mobile researchers. A few years ago it introduced, the EU-wide Resaver, a retirement savings vehicle for researchers that specifically targets mobile researchers. However, it is more of a personal financial product and it is only active in two countries.
Private Pension Products Best Bet
The European Communities was originally founded to remove trade barriers and to establish a single market with standards and common products. The very nature of European integration leads to single market approaches having the best bet. As the structure of private pension saving is different in every member state, an EU level private pension initiative would be the most likely to succeed. A Pan-European pension would be a financial product common to all EU member states.
Any such scheme would need to be carefully studied. It would have to respect national pension and taxation legislation. Moreover, a Pan-European pension product should not jeopardize commonly agreed goals of extending working lives, reducing early retirement or decreasing the gender gap in pensions. We will know more about how these issues can be tackled later this year when the Commission publishes its proposal concerning a Pan-European Pension Product (PEPP).
Not That Bad After All
So what about the young researcher? I was able to reassure him by telling him that, when he works in Finland, his pension is safe. He will accrue a pension for every euro he earns in Finland, no matter how often he leaves the country or for how short a period he stays.
Chatting over a beer, this seemed to be a cold comfort to him. None the less, I am confident that later on in life, he will find it a positive surprise.Blogactiv Team