EUROPE - The European Federation for Retirement Provision (EFRP) has given ‘qualified support' to the proposal for a portability directive put forward today by the European Commission today, but warned of increased costs.
The proposal modifies member states’ social and labour law to make occupational pensions flexible.
Chairman Jaap Maassen said that “increasing the coverage of affordable and adequate occupational pension provision calls for simplification and cost-effectiveness”.
He added: “Increased costs ultimately mean lower pensions unless contributions increase significantly and increased contributions would risk endangering the competitiveness of the European economy.”
The EFRP said it still had “many reservations” when it comes to putting the concept into practice because of the “large diversity” in occupational pension schemes and types of funding vehicles across the EU.
According to the federation, a number of principles underpinning the directive will not only bring about changes in member states’ social and labour law but will also increase the costs of occupational pensions.
The EFRP cited concern over:
-Shortening qualifying and vesting periods-Granting the right to transfer, which it said may not always be the best option available-Imposing more information requirements on plan sponsors or pension providers
The cost impact could be dramatic considering that 1 percentage point indexation of both deferred pension entitlements and pensions in payment corresponds to a 15% increase in liabilities, the EFRP added.
Maassen added: “To avoid policy failures in times of ageing societies the functioning and long term effects of the different types of occupational pensions funding need better understanding by policy makers and the working population.
“Collective capitalisation offers the most cost-efficient way to fund occupational pensions. A difficult balance needs to be achieved between providing affordable and adequate occupational pensions and increasing the flexibility of labour markets.”
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