Generation 2004’s position on pensions

As explained in our campaign manifesto, Generation 2004 defends the EU civil service but with a difference: we do not aim to defend the acquired rights at all costs. Instead we are in favour of equal pay for equal work. We do not want to open the Staff Regulations –although we have no doubt that this will happen again – but we try to promote concrete and realistic measures to go towards a more egalitarian treatment of all staff and pensioners.

With respect to pensions, our position is clear: no more cuts in the retirement conditions of the newcomers but instead, if necessary, tax the higher pre-2004 pensions. Indeed, pensions are the part of our remuneration package that was most severely damaged by the 2004 and the 2014 reforms. Most of us will never reach full pension rights of 70% of our last salary and anyway the highest salaries are just out of range for us. In contrast, the bulk of pre-2004 ADs are retiring with full pension rights and have reached the AD13-14 grades.

One issue to have in mind is that pension expenditure eats up a growing part of the administrative budget. Indeed, pension expenditure grows about 6%/year whereas the total administrative budget remains roughly constant. All pensions are paid-out of the administrative budget, no matter the staff categories and the institutions. Out of the administrative budget, salaries currently represent roughly 50%, pensions about 25% and the rest (buildings, IT, etc.) 25%. So far, the Commission has managed to preserve the “acquired” pension rights, the bulk of them being owed to high-ranking pre-2004 staff, by cutting salaries (as a matter of fact, pension expenditure will catch up with salary expenditure as pre-2004 staff retires, if nothing changes in the administrative budget). The growing army of contract agents replacing permanent officials is the most obvious consequence of this policy. Not only CAs are paid less than permanent officials, but unlike the bulk of permanent officials, most CAs are paid out of operational budgets rather than out of the administrative budget, thereby artificially lowering the share of salary expenditure in the administrative budget.

The risk with this policy is that eventually the EU civil service may lose its independence and be replaced by a precarious work force that cannot say no to senior managers parachuted from the Member States. Whence Generation 2004’s pledge to look into alternative solutions within the constraints of the current Staff Regulations. Since pension expenditure is the fastest growing component of the administrative budget, it makes sense to start with a reflection on this topic. Of course, in an ideal world, the MS would simply increase the administrative budget in order to accommodate any increase in our pension expenditure. Unfortunately, Commissioner Oettinger regularly recalls that several MS, including Germany, France and the Netherlands want to reduce this budget rather than increase it. So an increase in the administrative budget appears to be nothing but wishful thinking.

A second issue to have in mind is that precarious CAs, for the most part, do not have access to our pension scheme. At the end of their 6-year contract, they are forced to transfer-out to one of the available private capital-based pension funds put in place by various financial institutions in the Member States (some of these institutions laying on shaky foundations). It would be fairer to make available to precarious CAs a public capital-based pension fund for their transfers-out. Such a public fund could also be of use for permanent officials who do not ambition to spend the rest of their careers in the institutions. However, setting-up a public fund would require the funding of 2 schemes in parallel: our current notional (virtual) pension fund which has not been provisioned since its creation in the 1950-60s and the new contributions to the capital-based fund. Indeed, the Member States are supposed to pay 2€ to our pension scheme every time we contribute 1€ so if the EU staff start contributing say €100 million/year to the new capital-based fund, the MS will have to disburse €200 million/year, on top of the €2 billion/year they already have to disburse to pay current pensions that were not provisioned in the past. A tax on the highest pensions would keep the administrative expenditure at bay, which is the Member States’ main (sole?) concern at the moment. We do not want to target all pensions, but only the highest bracket ones. One can think of various mechanisms for that purpose, for instance a general increase in the highest income tax rates together with an abatement on the taxable salary but no abatement on taxable pensions. The basic mechanism of the notional fund would not be questioned but those who get the highest pensions would have to return some of their benefits to the EU budget via this tax. We assume that with the very high benefits they currently enjoy, a limited “hair-cut” will not jeopardise the future of the most well-off pensioners. As to the argument that a pension tax would amount to double-taxation, we should remember that the special levy used to be applied to pensions in the 1980s. Moreover, currently pensions are subject to the income tax but nobody complains about double taxation. So the issue of double taxation appears to us as a smoke-screen aimed at preventing a rational debate on the pensions.

In Generation 2004, we refuse to stick our head in the sand while awaiting for the perfect storm. Instead we try to think out of the box and design proposals which, although far from perfect, will allow the changes that are bound to be imposed on us to be as fair as possible to all colleagues. Pensions is the most unfair part of our post-2004 remuneration package, therefore, we will not shy away from opening the discussion on this issue.

One comment

  1. Hipo Crates says:

    One comment and two questions.
    Comment on “pension fund which has not been provisioned “, that is normal for a notional pension fund.
    question 1: it’s not only about future 200M€/year, how are you going to ask MS to inyect the 1-2b€ needed to set up the fund?
    question 2: where did equal treatment go? another divide?

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