Other institutions, in particular the European Investment Bank (EIB), have already taken precautionary measures. Indeed, the EIB recently switched from a notional pension scheme similar to the pension scheme of EU officials to a fully-funded pension scheme (see here).

Some more clairvoyant managers (as well as younger managers) are trying to move the lines on pensions. The Commission reviewed in February 2012 four scenarios to create a real pension fund (see here).

The basic idea behind these scenarios is to move beyond the current “notional” fund, for instance by allocating all new pension contributions to a real pension scheme. However, the inertia of the pension scheme is such that MS and the decision makers in general, failed to take any action during the reform. In practice, setting up a real pension fund would mean that MS would have to pay real money to this fund, which is difficult to do while they are paying the huge cost of pensions of those who are already retired. However, some measures (see below) could help to kick-start a real pension fund.

In this context and in order to avert a potential disaster for our EU service pensions, Generation 2004 requests that without further delay, the Commission explore the following options:

1. Introduce some form of special levy on current pensions. As this would formally entail a new reform of the staff regulations, which the current senior management of the institutions (in liaison with the old unions) will oppose at all cost, one possibility would be for the Council and the EP to introduce changes to the EU protocol on privileges and immunities. Indeed, the protocol specifies the rates of community tax. The protocol could be modified so that high pensions would be taxed at higher rates than salaries. A reform of the protocol, which is totally outdated anyway, could be carried out without opening again the Pandora’s box of the staff regulations.
2. Introduce a separate calculation of the actuarial balance [1] of the pension scheme according to the pension benefits that one can anticipate: those with a high accrual rate [2] of pension rights (2%/year), a low retirement age (60) [3], and who benefitted from favourable conditions for “transfers-in” (before 2009) should contribute a higher fraction of their salaries to sustain the actuarial balance of the pension scheme than those who ended being lumped with the worst conditions. As long as the staff as a whole, 1/3 contributes overall to the actuarial balance of the pension scheme, changing contributions of different categories of staff to the scheme could be “internal cuisine” that could be implemented without touching the staff regulations (in particular without touching  Article 83). Differentiated calculation of actuarial balances would be a way to ensure that those who have already paid the price of the 2004 and 2014 reforms do not pay again to sustain the pension rights of those who are more privileged in the likely event that MS embark on a new wide-ranging reform.
3. A review of the retirement age is foreseen for January 2019. The retirement age could be differentiated according to the pension benefits that one is entitled to (those who receive the highest benefits would be asked to work longer).
4. Introduce a fully-funded pension scheme. Such a scheme could either replace the current notional fund – like in the EIB (requiring a new reform of the staff regulations) or could supplement the current notional fund. In the latter scenario, the notional fund could become a first pillar and the fully-funded one a second pillar, as is in place in many MS. The second pillar could be designed so as to allow transfers-in/transfers-out in a more flexible and fairer manner than what is currently possible with the notional fund. This would allow newcomers (actually anyone who has not yet transferred-in pension rights) to transfer-in their rights under decent conditions and those who leave (either voluntarily or because their contract comes to an end) not to be penalised.
5. Notwithstanding the proposal above, the Commission should propose a financial product to which employees who in total have worked less than 10 years in the Institutions could subscribe to when “transferring-out”. Such a fund would obviously be of use to the many precarious colleagues under contract and temporary agent conditions. It would also be of use to the ever-growing number of officials who are actively considering leaving the institutions and looking for better opportunities elsewhere. Directorate-General for Economic and Financial Affairs (ECFIN) already manages funds for the Commission and could propose a fund that would be much more favourable than the few funds that are currently available from the private sector (which are in most cases run by small financial institutions that might no longer be around when comes the time to pay the pension). Moreover, the possibility to transfer-out to several funds should be offered, so that no one would be forced to put more than €100000 into any individual fund (€100000 being the guarantee provided by MS on deposits in the EU in case of bankruptcy of a financial service provider).
6. We particularly invite the new Commissioner for Human Resources – Vice-President Georgieva – as well as all responsible policymakers in the European Parliament (EP) and the Council to explore these proposals with us. In order to fuel the debate, Generation 2004 welcomes additional suggestions from its members and will study them in depth. In particular, those who have a good knowledge of their national pension schemes are invited to contact us as it is becoming more and more obvious that the senior management of DG HR has no clue as to how the national pension schemes function. In order to negotiate a solution with MS, it is important to understand how their schemes function and to understand how their reform could lead to a reform of our own pension scheme. Let’s not wait until our pension scheme hits the iceberg to think about whether there is a life-boat!!

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[1] The annual pension contribution of the staff as a whole is designed to finance one third of the service cost under the pension scheme, i.e. a series of payments that will arise in the future. For that purpose, the series of payments for European civil servants has to be evaluated at its present value (using an interest rate “discount rate”). The computation is thus an actuarial valuation.

[2] ‘Annual accrual rate of pension rights: The rate at which an employee build up pension benefits whilst working (2 %, 1.9 % or 1.8 % per year). For example, an annual accrual rate of 2 % means that, for each year of service, the employee accumulates 2 % of pension benefits.’ ECA, 2019, Special report no 15/2019: Implementation of the 2014 staff reform package at the Commission – Big savings but not without consequences for staff

[3] Pensions rights amount to 2% of the last salary accumulated per year of service for the pre-2004 staff, 1.8% for the post-2014 staff, 1.9% for the rest of the staff who presently represent the majority of staff members.

Annual pension accrual rates and retirement age were made worse with each staff reform (see Slide 13).

• For those who choose to leave the institutions before reaching 10 years of service, “transfer-out” of pension rights to a private scheme is possible but under very strict conditions that limit the range of financial products available for the transfer (see here). In particular, the available private schemes charge a high entry fee because they are fully aware that their customers have no viable alternative.

• For those who remain for more than 10 years in service, the “transfer-out” of pension rights can only be back to national systems where the applicable conditions are left to the discretion of national authorities. In particular, there is no transparency on the amount of pension rights that the “transfer-out” will generate in countries where pensions are based on an annuity principle (countries where in order to get a pension, you need to have contributed for a number of years).

Continue reading SOS your pension! – The EU pension scheme is a barrier to mobility →

The service cost of EU staff pensions is rising very quickly while cost of salaries is decreasing rapidly because of the hiring of new officials at low grades, the massive recruitment of underpaid CAs and the reduction in staff numbers. As a result, Generation 2004 reckons that the service cost of pensions will exceed the cost of salaries around 2025. It is unlikely that MS will accept to spend more on pensions of retired staff than on salaries of active staff. Since MS do not seem to find any value in increasing our salaries, the most likely decision will be drastic reduction of pension benefits. Continue reading SOS your pension! – Generation 2004’s analysis: drastic further reductions are looming →