Cross-border Impact Assessment 2018

Dossier 3: Retirement ages in NL/BE/DE

Entire dossier

Schemes relating to retirement ages in NL/BE/DE: a multidisciplinary analysis

Prof. dr. Anouk Bollen-Vandenboorn

Dr. Hannelore Niesten

Sander Kramer, LL.M.

There is no standard European retirement age within the European Union. The different European Member States all have their own retirement ages for both statutory and supplementary pensions, and they differ considerably from one another. Because of this lack of coordination at the European level, a cross-border worker who has worked in different Member States is faced with different start dates and a wide range of options and impossibilities for making these start dates more flexible. The start date of the full pension of a cross-border worker – which is composed of a number of different pensions, each with its own start date – is determined by the highest retirement age. As a result, depending on their personal income situation, cross-border workers may face a shortfall in income in the period between leaving the labour market and the pension stage, which may jeopardize the adequacy of the pension as a provision for old age. An estimated 2000 former cross-border workers are affected by this. In addition, the existing flexible options are inadequate. The former legislative proposal for the flexibilization of the state old-age pension start date could have worked out positively as this would have offered the cross-border worker the option to synchronize the start of his or her state old-age pension in the Netherlands with the start date of the statutory pension abroad.

Cross-border worker: a need for overview and insight

In addition to this fragmentation of pension entitlements, cross-border workers are faced with a lack of an overview of and insight into their statutory and supplementary pensions, including the various retirement ages. This could mean cross-border workers are left in the dark as to the age at which they can start taking their pension. In addition, due to the lack of a comprehensive overview, cross-border workers are unable to determine whether they will receive a sufficient level of pension payments upon their retirement to maintain their standard of living after retirement. The person concerned also faces a high degree of uncertainty – including legal uncertainty – regarding the net pension income resulting from pension contributions in one Member State and tax payments in another. A cross-border or European pension register is therefore necessary in order to enable this cross-border worker to gain a clear and accurate overview of his or her accrued cross-border pension, to offer perspectives for action, and to guarantee an adequate income after retirement. Such a pension register is a positive incentive for the labour mobility of workers.

People receiving two pensions: provision of more information as a first step

One of the main consequences of the differences in retirement ages – and the main reason for a multidisciplinary analysis – is the discoordination of the tax and social security levy in the case of people receiving two pensions. In essence, the conflict rules in the bilateral tax treaties are not aligned with the conflict rules in Regulation (EC) 883/2004 and the authorization to tax is not always granted to just one Member State. This obligation to pay double contributions is particularly problematic in the European internal market. In some cases, the tax levy is charged in the state of residence and the social security levy in the state of retirement, or vice versa. In addition, pensioners may be contributing to financing care in more than one Member State. They are therefore put at a disadvantage in the form of double economic charges. The obligation to pay double contributions means that the equal treatment of current and retired cross-border workers is not guaranteed. In many cases, cross-border workers are not aware of the fact that they are switching between social security systems (‘driving against the traffic’). This problem can be solved by means of information and advice provided by tax authorities and other organizations (such as the GrensInfoPunten (border info points) and the Grensoverschrijdend Werken en Ondernemen team (cross-border work and business team) of the Tax and Customs Administration in Maastricht).

Pensions: coherence of tax and social security charges

One possible way of improving coherence in taxation and social security levies relating to pensions is to abolish the special provisions for pensioners in the Regulation along with the exclusive application of the main rule on taxation of pensions (Art. 18 of the OECD model tax convention) and to assign the obligation to insure to the state of residence (Art. 11, section 3, part e of the Regulation (EC) No 883/2004). Both tax and social security contributions would then be subject to taxation in the state of residence, which would lead to ‘equality in the street’ as guaranteed under the Treaty on the Functioning of the European Union (TFEU). In this case, the arguments for and against the taxation in the state of residence are weighed up. A less far-reaching solution could also be considered for an adjustment and improvement of the current regime. One suggestion could be to use the duration of insurance as a starting point when designating the competent pension state. In addition, cross-border workers could opt for a tailor-made solution, such as accepting a fragmented pension and/or a small employment position. However, if a Dutch or Belgian pensioner takes on a part-time job across the border, this would have an impact on his or her social security position. A single-pension pensioner can switch their social security position by working in their country of residence. This may affect rules relating to matters such as health insurance, which may bring advantages or disadvantages.

Pro rata right to levy tax between the state of residence and the source state

One alternative is a proportional (pro rata) right to levy tax, divided between the state of residence and the source state. However, this is not a solution if it is not linked to the exclusive levying of social security contributions. On the other hand, from a Dutch perspective this does not seem to be a very realistic option in view of the international efforts made during treaty negotiations to impose taxation in the source state on tax-facilitated pensions. In addition, a non-affiliated agreement could be reached on the grounds of Article 17 of Regulation (EEC) No 1408/71 or Article 16 of Regulation (EC) No 883/2004 in which the social security levy is linked to the tax levy. In theory at least, there is also the possibility of limiting the power of the pension state to collect contributions or limiting the taxation powers of the state of residence. In addition, the right of the country of residence to levy tax could be restricted. Although this option would contribute to the equal treatment of cross-border workers, some questions could be raised regarding the technical implementation aspects and the administrative burden for the implementing bodies.

Care financing by pensioners: discount scheme

In addition, health care in some Member States is financed either by general resources (tax), by tax and social security charges, or by a combination of means. Pensioners may therefore contribute to the financing of care in more than one Member State, resulting in economic double taxation which is at odds with the freedom of movement. This problem can be solved unilaterally, for example by means of a discount on the tax assessment (equivalent to the proportion of the tax used by the state of residence to finance health care) as permitted by a state of residence.

Disparities in retirement ages: impact on application of national legislation

The lack of harmonization of retirement ages between Member States also affects national legislation, for example with regard to insurance periods in other Member States. For example, if an employee can take their statutory pension in the Netherlands or Germany, this not automatically also the case in Belgium. If the employee opts to take his Dutch pension and stops working, this may result in the option of retiring in Belgium being postponed. In addition, the differences in retirement ages lead to a lack of income continuity for cross-border workers residing in Belgium who have had a long period of employment in the Netherlands and become unemployed after the age of 65.

New legislation: cross-border impact to be assessed preventively

The above makes it clear that it is necessary to take account of the effects of new legislation on cross-border workers and border regions in the process of preparing legislation and regulations because this will prevent existing legislation from having to be adjusted and corrected at a later stage. In addition to making savings in terms of administrative tasks and time, this also prevents inconvenience being caused to the people affected. New legislation and regulations concerning cross-border workers and border regions still do not generally receive the attention they deserve; in other words, national legislators still underestimate the cross-border impact. We support the need for preventative research into the cross-border impact at an early stage of the legislative process, and the incorporation of the findings into the Intergraal Afwegingskader – IAK (the integrated impact assessment framework for policy and legislation). A preventative cross-border impact assessment should form part of new Dutch and European legislation and should be multidisciplinary in its nature. This assessment could be made even more concrete if statistical offices were able to use coherently-collected data on cross-border employment and pensions. This will make it possible to identify more specifically the scale of the current problems and their impact on the sustainable economic development of the border regions and the business climate.