GERMANY – German occupational pensions lobby group Aba today lambasted the proposed EU directive on pensions portability, arguing that it would raise costs to German employers by at least 20%-30% in its current form.

It’s the latest broadside the measure has faced, following criticism from Members of the European Parliament and other member states.

The proposed EU directive, currently being debated by the European Parliament, contains two provisions to which Aba strongly objects.

The first one is that accrued pension benefits must be protected against the effects of inflation by regular adjustments. The process is known as “dynamic sampling”. The second provision is that the period that an employee must wait before enjoying full pension rights (vesting period) has been shortened to two from five years.

According to Aba’s calculations, dynamic sampling would, on average, raise ultimate costs on employers by up to 30%.

“One should, however, regard this figure with caution. It’s a rough average, and not every employer will see his or her costs rise that much,” Alfred Gohdes, managing director at pensions consultant Buck Heissmann, told Aba’s spring meeting in Fulda.

“In particular, the costs relate to effects on final salary plans under which the vested rights would be subject to full indexation,” Gohdes added. In presenting the calculations, Gohdes was joined by Klaus Stiefermann, Aba’s managing director.

Aba also said the shortening of the vesting period would raise costs on employers, but noted that they typically varied between 1% and 5% and could go as high as 20%.

“Unless these costs are compensated for by increased expenditure on pension plans, the consequence will be a reduction in benefits as well as in the number of pension plans financed by employers,” commented Stiefermann.

“In Europe, 40% of employees still do not own a corporate pension. The directive in its current form would decrease their chances of obtaining one,” Stiefermann added.

Amid fierce opposition from Germany’s pension industry, the European Commission last autumn agreed to exempt book reserve-funded schemes (Direktzusage) from the transfer of accrued pension benefits in the event of job change. These schemes account for 60% of total German corporate pension assets.

Gohdes also told delegates that in his view, Brussels probably viewed the German response to the draft directive as “emotional”.

“I like to characterise their attitude toward us in this way: the country singer Johnny Cash once sung of his jail, ‘I hate every inch of you and may you rot and burn in hell’.”