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Thursday, April 23, 2009

So what exactly is wrong with that second pension?

Today the European Parliament voted on whether taxpayers should foot the bill for a hole in the controversial second pension fund. While this is a mere show vote, the report has been approved 419 to 106, meaning MEPs have said that "under no circumstances will Parliament in the prevailing economic situation provide extra money from the budget to cover the fund's deficit, as it did in the past" (note 105). This is definitely a show vote, as the only way to change whether the pension fund is guaranteed by the EU budget, and therefore by taxpayers, is through a unanimous decision by the European Council, meaning every country has a right of veto to block this.

The pension fund dates back to 1989 and has received considerable media coverage recently. The bullet points below aim to clarify exactly what is wrong with it:

1. It is a second pension fund for MEPs: apart from MEPs from France and Italy all MEPs receive a pension from their member states already. However, in spite of this over the years MEPs from all countries have joined this 'bonus' pension scheme.

2. This is not just an extra pension whereby MEPs contribute using their own means. Two thirds of any contribution is being paid by the European Parliament (meaning the EU taxpayer) and only one third by MEPs themselves.

3. It is not even certain that they all pay one third. No one checks whether the politician actually pays anything into the fund from his or her own salary. Many in Brussels believe that a "large proportion" of Euro-MPs are using their office payments to get a free second pension on top of national schemes. The European Court of Auditors repeatedly pointed out that there is no sufficient legal basis for Parliament's additional pension scheme. However, The Bureau are claiming “that Parliament has a legal obligation to guarantee the pension rights of the current members of the fund”. They are referring to the EU legal principle of acquired rights and legitimate expectations.

4. In total there are 1113 members of the fund, however the exact names remain secret (!). Included are 478 active MEPs (61% of the total number of MEPs), 493 pensioners (of whom 56 were the dependants of deceased members) and 142 deferred members. We disclosed some of the MEPs who are part of the scheme, but this is restricted to those registered in Luxembourg where the fund is based. Today, the European Parliament called upon the Bureau (the EP President and 14 Vice Presidents) to reconsider its position and to publish the full list. Interesting that they are criticising the Bureau for lack of transparency - when they are not exactly the biggest fans of transparency themselves!

5. That the pension fund is based in Luxembourg, a known tax haven, is bizarre. It is strange that MEPs, who otherwise are the first to demand tax harmonisation and complain about tax havens, change their minds when it comes to their own money.

6. Part of the fund has been lost, partly through investments allegedly associated with the disgraced American financier Madoff, causing a hole of more than 200 million euros.

7. As if it weren't bad enough that they speculate with public money, they now expect the taxpayer to bail them out.

8. However, just when the voter has the chance to hold the Parliament to account, MEPs pretend to want to improve the situation by organising a "vote" on whether the decision by the Bureau was wise and whether the taxpayer has to pay for the losses. Nevermind that this scam has been ongoing since 1989.

9. As noted above, todays vote will change nothing: the fund has been set up under a Council decision, so only if all Member States agree can the terms of the pension fund (which states that the European taxpayer must cover all losses) be modified. So not only is the EP tackling the problem way too late, it is also trying to fool the voter. As the leader in Sueddeutsche Zeitung argues, this is simply a dishonest attempt by MEPs to try anything "to hide this disaster".

10. The Bureau of the Parliament has made some minor decisions, trying to divert attention, by deciding to increase the age at which MEPs become eligible for the additional pension and ending the option to withdraw 25% of the value of the fund as a lump sum in order to increase liquidity. This is the “too little” part of “too little, too late”.

11. Even these minor improvements are unlikely to happen. The managers of the fund in Luxembourg (including the fund's manager, former MEP Richard Balfe) have said that these decisions are in fact illegal: In an email sent to all 450 active members of the fund they said “We believe the proposed changes are not permissible under European law”.

12. Suppose the European Council does agree to abolish this fund: an angry MEP could then go to the judge and on the basis of "acquired rights and legitimate expectations" try to get the pension he was promised.

All of the above are presumably good enough reason to get rid of this scheme. At least the European Parliament agrees on this: from June onwards the second pension will not be available to new MEPs. Meanwhile, the taxpayer will be obliged to uphold the principle of acquired rights and legitimate expectations, whatever the EP votes.

1 comment:

Anonymous said...

"That the pension fund is based in Luxembourg, a known tax haven, is bizarre"

Not so. The Parliament's headquarters are in Lux, though as is very well known it sits in Strasbourg and Brussels.

For the record, I despise the ruinous EU.