EUROPE - Members of the ABSL voluntary pension fund for Members of the European Parliament (MEPs) have been told they will have to retire later, as part of a number of reforms aimed at reducing the growing pension deficit.

The supplementary pension scheme has seen its deficit quadruple from €30m at the end of 2007 to around €120m by the end of 2008, following the financial instability in the markets although the scheme has refuted suggestions that the decline has been driven by "highly speculative investments".

In a letter to MEP's earlier this year, the pension fund, based in Luxembourg, confirmed it had "never invested in Lehman Brothers, Bernard Madoff's hedge fund or for that matter any other hedge funds or highly speculative investments".

It added: "Unlike many pension funds, we did not have catastrophic losses in 2008. Nonetheless, as with all funds, the overall value of our investments went down last year".

The letter also noted that the benefits of the scheme are underwritten by both the Member's Statute and the opinion of Parliament's Legal Service.

The scheme, which had 1,113 members as of spring 2008, including 468 active MEPs, pointed out that the European Parliament "has always been the guarantor of these benefits but that guarantee is now enshrined in EU Law as part of the Members Statute".

Last month, however, the Bureau of the European Parliament implemented a series of reforms to the scheme including the removal of early retirement at age 50 and the ability to take a 25% tax-free cash lump sum.

The changes were confirmed on 1 April 2009 at the same time as the Bureau announced an increase in retirement age for all members from 60 to 63, and even though the removal of the early retirement and lump sum options could actually have a negative impact as the scheme does not give full valuations on these payments, so it currently pays slightly less than the actual value of the benefits saving money over the long-term.

Reforms to the pension scheme are aimed at avoiding the need for the Parliament to allocate extra money to the fund, as the Budgetary Control committee voted in March that the Parliament should "under no circumstances provide extra money out of the budget to cover the fund's deficit".

However, it is believed because of the rules on acquired rights and 'reasonable expectations' members could challenge the reforms, particularly those who are turning 60 in the next few months and will suddenly have to wait an additional three years to retire.

The report on the account of EU institutions, including Parliament, is scheduled for debate next week, and part of the document compiled by the Budgetary Control Committee noted that "if it has to guarantee pension rights Parliament should have full control over the fund and its investment policies".

The pension fund, which lost around 30% on investments in 2008, is based on a 1/3 to 2/3 contributions ration, with the MEPs paying €1,194 a month and the Parliament contributing €2,388. This, for example, means after a five-year term a member would receive a pension of around €1,344 a month for life.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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