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The EU and supplementary pensions

A general increase has taken place in the role and weight of supplementary pensions in the provision of protection against old-age and other risks. In Europe a development in this direction is observed in countries with different pension systems and institutional backgrounds. In both ‘veterans’ and ‘newcomers’ (the former with a long tradition of supplementary schemes interacting with public basic pensions; the latter with more recent innovations consistent with the progressive curtailment of public pensions and the parallel increased role of second- and third-pillar funds) supplementary pension funds do in fact play an important role in protecting against old age. The changing balance between first, second and third pillars (with a shift from public forms of old-age protection to occupational and individual schemes) is paralleled by the European Union (EU) action in shaping pensions policy, with a particular focus on supplementary funds.

This paper aims to shed light on the complex map of pensions policy across the EU. One focus will be on the growing role played by European integration in the field (whether through legislation or through other forms of hard and soft coordination), while attention will also be paid to the status quo of the European pension markets. In the case of occupational pensions, there indeed exists considerable scope for interaction between these two issues. In many countries, occupational funds represent a key institution in social protection (and pensions in particular). The EU, meanwhile, has intervened to foster completion of the single market for private insurance with a specific reference to pension funds. As such, the case of occupational pension funds is of particular interest in any attempt to assess the role of the EU in the pensions field, the scope for development of a truly EU common market in pension funds (through the setting up of cross-border schemes) and the present and future challenges to this particular aspect of pensions policy.

Section one briefly summarises the key policy tools that the EU has used to intervene in pensions policy. Reference is made to direct (and positive) integration through legislation on fundamental social rights, anti-discrimination and equality; direct (and negative) integration in order to grant freedom of movement for workers and provision of services through the market-building process; indirect pressures through the completion of a single market in occupational pensions; indirect but hard coordination through the Stability and Growth Pact and direct (but soft) coordination through the OMC process on Social Protection and Social Inclusion. This section is particularly focused on the content and expected outcomes of Directive 2003/41 on Institutions for occupational retirement provisions (IORPs), the purpose of which was to boost the single market for occupational pensions. Section two provides a summary of occupational pension markets in both western and eastern Europe. Section three looks at the first steps in the development of crossborder occupational funds in EU countries and the way Directive 2003/41 has influenced such trends. Section four concludes.