Chapon and Euzéby (2002) propose to develop a “Social Europe” by a system that reflects a greater solidarity at the EU-level. A European minimum pension could be an example of that.
The differences in tax treatment of pensions in the EU can lead to inefficient migration (Stevens, 2003). The cash-flow treatment of pensions (the contributions and capital income from these contributions are tax-exempt while pension benefits are taxed) is part of the problem.109 People have an incentive to tax free save for their pension and migrate to a country where pensions are not (or less) taxed. Therefore a harmonisation of pension policies in Europe may be welfare improving. However, Stevens states that measures must be in line with the free movement of goods, persons and capital and therefore e.g. an exit tax for pensioners is not preferred. Or stronger, following EU directives an exit tax is even forbidden. Stevens (2003), thus proposes a right of tax for the country where pensions were build up. So, application of the source based tax instead of a residence based tax on pension benefits.
Ferrera (2003) also considers this second-pillar of pensions. He discusses the evolving regulatory developments and evolving laws in the EU and states (p. 639):
“The final and more general conclusion (…) is that the case law and regulatory
developments so far have had a differential impact on distinct areas or tiers of national social protection. Regarding pensions, member states have been able to preserve effective barriers around the principle of compulsory membership in public schemes in their first- pillars (an essential bulkwark for domestic redistribution) but have lost considerable grounds at the second-pillar level”.
The residence principle holds for redistribution, but not (or less) for occupational pension benefit. Therefore there is room for EU intervention in the second-pillar, Ferrera (2003) argues.
Furthermore uncertainty about pension benefits, because of different pension rules and regimes in different countries, may result in over savings by international mobile
109
workers.110 This problem can be related to the proposal of Pieters and Vansteenkiste (1993) for a “thirteenth state” with respect to migrants. Ferrera (2003) described that European influence on the second-pillar pensions is greater nowadays than it was and he expects that pressures on current pension systems will rise. Therefore a voluntary
European pension system may lead to economies of scale (due to less administrative problems and more certainty). Van Groezen et al. (2006) also support a flexible
integration of pension policies. The authors investigated that opinions about the kind of provision of pensions differ to a great extent between – but also within- European countries. They state therefore that a complete centralisation of policymaking for
pensions is not feasible in Europe. However, groups of people and / or countries have the same preferences.
Disadvantages of a flexible pension provision are technical (the compatibility with national pension systems) and practical problems (who is responsible, when there are fund shortages (Goudswaard and Vording, 1996))? Furthermore, the question must be raised if from a political point of view this is the “Social Europe” the different authors want. Indeed, possibly the high skilled, high incomes will use this system first, which are not the groups that can cause warm feelings by social feeling politicians and scientists.111 Even the feeling that Europe is only good for the lucky can be strengthened. However, this is not the benchmark of this study. The benchmark in this paper is the public economic approach. The question is, if the proposals for different kinds of European social security can be welfare enhancing and with respect to supplementary pensions this seems to be the case.
Minimum pension standards
Atkinson et al. (2002) investigate the consequences of European minimum old age pension standards. Indeed, the income of the elderly consists to a large extent of social security. A European minimum pension is meant to prevent poverty under elderly. The authors set a minimum pension in purchasing power parities of 40 percent of mean equivalent disposable household income in the United Kingdom and show that the introduction of a European minimum pension will reduce the number of poor pensioner households substantially.
However, Atkinson et al. (2002) do not look at the dynamic consequences of their proposal. What are the behavioural effects of introducing a (relative) minimum pension in the member states? The risk of slowing economic and in the end social convergence, combined with financial troubles for new member states with respect to minimum social security levels, articulated by Sinn and Ochel (2003), are also relevant here. Thereby the feasibility problems with minimum standards raised by Goudswaard and Vording (1996) come into being. Furthermore the authors themselves doubt whether the goal (reducing the number poor) is reached in an efficient manner with this proposal. Given these
objections, the minimum pension harmonisation does not seem to be a welfare-enhancing alternative.
110
When people have to insure themselves, over saving is the usual result (see Heijdra and Van der Ploeg, 2004).
111
On the other hand, the free movement of people in the enlarged European Union could –depending on the specific institutional form- make such a voluntary pension system interesting also for lower skilled people (from new member states) who work in old member states.
Nonetheless, differences in pension systems between countries may lead to inefficient migration (Lejour and Verbon, 1994; Uebelmesser, 2003). The PAYG income-solidarity based systems can –in combination with ageing- get under pressure due to labour
migration and moving pensioners. Therefore, some co-ordination with respect to public old age pensions is needed. A combination of OMC measures and / or delayed rights for public old age could provide an optimal policy mix to prevent inefficient migration flows. Developments in the relevant production factors (especially labour mobility) should be followed, but currently the European policy seems to be adequate.