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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 these differ significantly from each other. Because of this lack of coordination at European level, a cross-border worker who has worked in several member states is faced with different entry dates and a wide range of options and impossibilities to make these entry dates more flexible. The effective date of a frontier worker’s full pension – which consists of a number of different pensions, each with its own effective date – is determined by the highest retirement age. As a result, depending on their personal income situation, frontier workers may face an income shortfall in the period between leaving the labour market and the retirement phase, which may jeopardise the adequacy of the pension as an old-age pension. An estimated 2,000 former cross-border workers are affected. In addition, existing flexible options are insufficient. The earlier bill to make the state pension commencement date more flexible could have been positive, as it would have allowed cross-border workers to synchronise the commencement of their state pension in the Netherlands with the commencement date of their statutory pension abroad.
Frontier worker: need for overview and insight
In addition to this fragmentation of pension rights, cross-border workers face a lack of overview and understanding of their statutory and supplementary pensions, including the different retirement ages. This could mean that frontier workers are left in the dark about the age at which they can draw their pension. Moreover, in the absence of a complete overview, frontier workers cannot determine whether they will receive sufficient pension benefits at retirement to maintain their standard of living after retirement. The individual also faces a high degree of uncertainty – including legal uncertainty – regarding net pension income arising from pension contributions in one member state and tax payments in another. A cross-border or European pension register is therefore necessary to enable this cross-border worker to have a clear and accurate overview of his or her accrued cross-border pension, provide action perspectives and ensure an adequate income after retirement. Such a pension register is a positive incentive for workers’ labour mobility.
People receiving two pensions: more information as a first step
One of the main consequences of differences in retirement ages – and the main reason for a multidisciplinary analysis – is the disccoordination of tax- and social security taxation 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 authorisation to tax is not always granted to only one member state. This obligation to pay double contributions is particularly problematic in the European single market. In some cases, taxation is levied in the state of residence and social security taxation in the pension state, or vice versa. Moreover, pensioners in more than one member state can contribute to financing care. They are thus disadvantaged in the form of double economic burdens. The obligation to pay double contributions means that equal treatment of current and retired frontier workers is not guaranteed. In many cases, cross-border workers are unaware that they are switching from one social security system to another (“driving against traffic”). This problem can be solved through information and advice from the tax authorities and other organisations (such as the Border Information Points and the Cross-border Working and Business team of the Tax Administration in Maastricht).
Pensions: correlation between taxes and social charges
One possible way to improve consistency in tax and social security levies related to pensions, is to abolish the special provisions for pensioners in the Regulation, together with the exclusive application of the main rule for the taxation of pensions (Article 18 of the OECDModel Tax Convention) and the allocation of insurance liability to the State of residence (Art. 11, (3) ( e) of Regulation (EC) No. 883/2004). Both taxes and social security contributions would then be taxed in the state of residence, leading to “equality in the street” as guaranteed by the Treaty on the Functioning of the European Union (TFEU). In this case, the arguments for and against taxation in the state of residence are weighed against each other. A less far-reaching solution of adapting and improving the current regime could also be considered. One suggestion could be to use the duration of insurance as a starting point for designating the competent pension state. In addition, cross-border workers could opt for a tailor-made solution, such as accepting a piecemeal pension and/or a small working position. However, if a Dutch or Belgian pensioner takes a part-time job across the border, this will affect his or her social security position. A single pensioner can change social security status by working in the country of residence. This may affect rules related to things like health insurance, which may have advantages or disadvantages.
Pro rata right to tax between state of residence and source state
An alternative is a proportional (pro rata) right to 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 contributions. On the other hand , this does not seem a very realistic option from a Dutch perspective given the international efforts during treaty negotiations to impose taxation in the source state on tax-facilitated pensions. In addition, an unaffiliated agreement could be concluded under 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, there is also the possibility of limiting the pension state ‘ s power to collect contributions or limit the tax powers of the state of residence. In addition, the right of the country of residence to tax could be limited. While this option would contribute to the equal treatment of frontier workers, questions can be raised about the technical implementation aspects and the administrative burden on implementing bodies.
Care funding by pensioners: discount scheme
Moreover, in some member states, healthcare is financed from general resources (taxes) from taxes and social contributions, or from a combination of both. Pensioners can therefore contribute to the financing of care in more than one member state, leading to economic double taxation that is at odds with free movement. This problem can be solved unilaterally, for example by means of a reduction of the tax assessment (equal to the part of the tax used by the state of residence to fund healthcare ) as permitted by a state of residence.
Differences in retirement age: implications for the application of national law
The lack of harmonisation of retirement ages between Member States also affects national legislation, for example, in relation to insurance periods in other Member States. For example, if a worker can take his statutory pension in the Netherlands or Germany, this is not automatically the case in Belgium. If the worker chooses to take his Dutch pension and stops working, this may result in the option to retire in Belgium being postponed. In addition, the differences in retirement ages lead to a lack of income continuity for Belgian resident cross-border workers who have worked in the Netherlands for a long time and become unemployed after age 65 .
New legislation: cross-border impact must be assessed pre-emptively
The above makes it clear that it is necessary , when preparing legislative and regulations to take into account the impact of new legislation on cross-border workers and border regions as this will avoid the need to adapt and correct existing legislation at a later stage . This not only saves administrative tasks and time, but also avoids inconvenience for those involved. New laws and regulations relating to cross-border workers and border regions generally still do not get the attention they deserve; in other words, national legislators still underestimate the cross-border impact. We support the need for preventive research on cross-border impacts early in the legislative process, and the inclusion of findings in the Intergraal Assessment Framework – IAK (the integrated impact assessment framework for policy and legislation). A preventive cross-border impact assessment should be part of new Dutch and European legislation and be multidisciplinary in nature. This assessment can be made even more concrete if statistical agencies can use can make use of coherently collected data on cross-border employment and pensions. In this way , the extent of current problems and their impact on the sustainable economic development of the border regions and the business environment in a more focused way.
