Report for the Hearing delivered in Case 64/85

I — Facts and written procedure

Article 11 (2) of Annex VIII to the Staff Regulations, which was adopted pursuant to Article 24 of the Treaty establishing a Single Council and a Single Commission of the European Communities of 8 April 1965, provides as follows:

As amended by Article 7 of the Law of 14 March 1979, Article 18 of the Luxembourg Law of 16 December 1963 provides as follows:

The appellant in the main proceedings, who was born on 30 May 1933 and resides at Bertrange, is an official at the European Parliament. Prior to his establishment, he was employed in the private sector in Luxembourg, where he acquired pension rights at the Caisse de pension des employés privés (Pension Fund for Clerical Staff in the Private Sector), hereinafter referred to as the Fund. On 27 November 1980 he applied to transfer his contributions to the pension scheme of the European Communities pursuant to Article 18 of the Law of 16 December 1963, while, however, reserving the right to revoke that request and apply for the actuarial equivalent instead in the event that Mr Bodson, another official of the European Parliament, should be successful in his proceedings against the Fund, in which he sought to have transferred to the Community scheme the actuarial equivalent of the pension rights which he had acquired with the Fund. As a result, the Fund kept the matter in suspense. On 26 January 1984 the Fund dismissed Mr Watgen's application to have the actuarial equivalent transferred, and transferred to the Community scheme the amount of contributions paid to the Luxembourg scheme, plus compound interest at 4%.

Mr Watgen brought an action against that decision before the Conseil arbitral des assurances sociales (Social Security Arbitral Tribunal). When that action was dismissed he appealed to the Conseil supérieur des assurances sociales (Social Security Appeals Tribunal). In view of the difference of views between the parties, that court decided, by order of 27 February 1985, to suspend the proceedings under Article 177 of the EEC Treaty until the Court of Justice had given a preliminary ruling on the following questions:

The order of the Conseil supérieur des assurances sociales was received at the Court Registry on 12 March 1985.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the appellant in the main proceedings, represented by Victor Biel, of the Luxembourg Bar; by the Commission of the European Communities, represented by Henri Etienne, Principal Legal Adviser, and Dimitrios Gouloussis, Legal Adviser, acting as Agents; by the Fund, represented by François Beissel, of the Luxembourg Bar; by the Government of the Grand Duchy of Luxembourg, represented by the Ministry of Foreign Affairs; by the French Government, represented by Gilbert Guillaume; and by the United Kingdom, represented by B. E. McHenry, of the Treasury Solicitor's Department.

On hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry. Nevertheless, it asked the Commission to answer certain questions in writing. The Commission complied with this request within the time allotted to it. In addition, the Court asked the Luxembourg Government to provide, by the same date, the relevant texts of the pertinent Luxembourg legislation, without receiving a response.

II — Written observations submitted to the Court

Mr Watgen considers that the essential question and the only question to be settled in this case is whether European officials have or have not the right to choose freely and according to their own interests between transferring the sums repaid to them, on the one hand, and the actuarial equivalent, on the other, even if the latter alternative is not provided for by the law of the Member State concerned for purely domestic transfers. Mr Watgen bases his view primarily on the wording of the provision in question, that is to say, Article 11 (2) of Annex VIII to the Staff Regulations. In his opinion, since that is a provision of a Community regulation it has direct effect binding on, above all, previous social insurance funds and the various Member States of origin of officials. Any other interpretation would not only deny the direct effect of the provision in question but would also be detrimental to officials' individual rights to transfer their pension rights, as recognized by the Court in its judgment of 20 October 1981 in Case 137/80 (Commission v Kingdom of Belgium [1981] ECR 2393). He argues that, furthermore, the choice provided for in that provision is not unreasonable, since it was necessary to obviate discrimination as between officials according to their national origin.

According to Mr Watgen, the actuarial equivalent can in any case be calculated by any actuary, even if the concept of actuarial equivalent was unknown to the legislation of a particular Member State, which adopted the distributive financial system only. The Fund's refusal to transfer the actuarial equivalent was motivated solely by its financial interest even though the payment of the sums due to be repaid is no less a burden on the situation of the Fund. Furthermore, as far as former national officials are concerned, express provision is made for the transfer of the actuarial equivalent in Article 8 of the Luxembourg Law of 27 August 1977 relating to the status of officials who have been engaged by international organizations, provided that provision is made for such transfer by the pension scheme of the international institution in question.

Mr Watgen therefore proposes that the questions referred by the national court be answered as follows: Article 11 (2) of Annex VIII confers upon European officials the right to choose freely and according to their own interests between the two methods of transfer of rights acquired under national schemes, even if the alternative chosen by the official is not provided for by the national law to which the national social security institution is subject or is incompatible with the system by which the Luxembourg schemes are financed.

Mr Watgen's view is shared by the Commission, which refers to the views which it stated in that connection on 1 December 1982 with regard to all the Member States. According to the letter in question,

Since then, the Commission has conducted negotiations with all the Member States with a view to obtaining agreements on that basis and, where necessary, it has initiated the procedure for failure to fulfil an obligation with a view to having its interpretation of the provision in question recognized. It has initiated such proceedings against, among other countries, the Grand Duchy of Luxembourg, to which it submitted a reasoned opinion on 30 April 1985. Although admittedly the Luxembourg legislation recognizes the principles underlying the Commission's reasoning, it only applies them in part. Whilst the Law of 27 August 1977 set out, for officials, the alternative incorporated in Article 11 of Annex VIII, the Law of 14 March 1979 concerning transfers of rights under a contributory scheme to the European Communities scheme made provision solely for the option relating to sums repaid. Consequently, that law did not deal with that matter exhaustively.

The Commission considers that the actuarial equivalent and sums repaid are objective concepts and are the subject of Community definitions such as those given by the Court in its judgment of 18 March 1982 in Case 212/81 (Caisse de pension des employés privés v Léon Bodson [1982] ECR 1019). According to those definitions, the two concepts are distinct as regards their aims, the technique used to calculate them and their outcome. The concept of the actuarial equivalent is common to any system and can be calculated in each case. In contrast, the repayment of contributions is characteristic of a contributory system, although it can also be calculated in the case of a noncontributory system. The function of the actuarial equivalent is to capitalize the value of a future, contingent periodic benefit, whereas the other alternative is characterized by the aggregation of the contributions paid by the insured person and, possibly, by his employer plus the possible addition of interest.

The Commission contends that it is not possible to maintain that the transfer of the actuarial equivalent should be confined to noncontributory schemes and that contributory schemes should fall outside that formula. In point of fact contributory schemes are supplemented, in varying ways depending on the Member State concerned, by noncontributory elements. That is the case in particular in the Grand Duchy of Luxembourg, where the State and the local authorities assume responsibility for the basic pension of LFR 15000 a month (Index 100), adjustment in the light of the level of wages and salaries and the adjustment of the above elements (and also of the contributions paid and of the rate of increase) in the light of variations in the cost-of-living index. It follows that major components of pension rights are liable not to be transferred in the event that the formula of sums repaid is applied whereas the correct calculation of the actuarial equivalent takes in all pension rights. For that reason the application of the actuarial equivalent is considered in general to be the more appropriate formula.

The Commission considers that the Court's case-law to date must be taken as meaning that officials may in the circumstances in question elect for the transfer of the actuarial equivalent. The objective of the provision in question is to place officials of the Communities, irrespective of their Member State of origin, on an equal footing as regards the system of transfers of pension rights. Equality of opportunities between nationals of Member States in joining the European Public Service from the point of view of retaining their pension rights is based on freedom of choice.

Having regard to the aims of the Staff Regulations and to the principles set out by the Court, that power of election should extend not only, on the one hand, to the transfer and, on the other, to the retention of national rights but also to the method of calculating the rights to be transferred. Since the formula which should be adopted is the one which is the most favourable to the person concerned, transfer of the actuarial equivalent is indeed the rule in the context of the Staff Regulations, the transfer of sums repaid being merely a safety net. In any event, the requirement for Member States to implement the provision in question does not depend on whether a particular body of legislation makes provision for the methods of transfer in question.

The Commission therefore proposes that the second question should be answered as follows :

Officials have the right to choose freely and according to their interests to transfer sums repaid where the pension scheme to which they were affiliated provides for that concept.

As regards the first question, the Commission suggests that it be answered as follows :

In contrast, the Fund contends that the option provided for in Article 11 (2) of Annex VIII to the Staff Regulations is exercised by each Member State, which chooses the system which is compatible with and best adapted to its national legislation.

The Fund concedes that the provision in question gives the interested party a choice but considers that that choice is rather between the branches of the alternative which are provided for in the national law, on the one hand, and the retention of his national rights, on the other hand. The Luxembourg Government has in fact made that choice and in so doing went so far as to exceed the bounds of its own legislation in a very generous manner. Whereas on the date of the implementation of the amendment to Luxembourg law (1979) normal insured persons affiliated to the Fund were entitled to be reimbursed (repaid), after a period of 30 months, half the contributions paid by the insured person without interest, insured persons transferring to a pension scheme of an international organization were entitled, without the condition of the 30-day period, to the reimbursement of all contributions plus compound interest at 4% per annum.

In the Fund's view, the choice left to the official is between one of the branches of the alternative (or possibly both, where national law allows this) and the maintenance of rights acquired under the national insurance scheme. Account must also be taken of the fact that the overlapping of national and Community benefits is nowhere prohibited and the persons concerned might wish to increase the amount of their pension rights by continuing to be insured on a voluntary basis under the national scheme.

Furthermore, the Fund argues that Luxembourg legislation on contributory pension insurance schemes does not provide for the concept of the actuarial equivalent of acquired rights and no precise provision relates to such a calculation, since the Luxembourg Law of 23 May 1984 reforming the system for the financing of contributory pension schemes definitively adopted the financial system of distribution and abolished the system of capitalization. In such a system, where the pensions of persons presently insured will be paid by the contributions of future insured persons, it is hard to conceive of rights which are immediately realizable now becoming a burden on the financial situation of the pension fund in question.

It therefore proposes that the first question should be answered as follows: the transfer procedures provided for in the Luxembourg legislation are compatible with the right of election given to the official, in so far as his choice is limited exclusively to maintaining his acquired rights under the national legislation, on the one hand, and transferring acquired rights to the European Communities, on the other hand. The second question should be answered as follows: the provision of supranational law in question provides for a choice between the payment of the actuarial equivalent and the payment of sums repaid. That option is exercised by each Member State, which selects the system which is compatible with and best suited to its national legislation.

For its part the Luxembourg Government also considers that Article 11 (2) of Annex VIII to the Staff Regulations has the sole object of enabling officials to transfer their pension rights to the Community system or to maintain their rights under the national system. The provision is simply a coordination measure to cover transition from the national scheme to the Community scheme. The Luxembourg legislature has taken the necessary measures in that connection by amending Article 18 of the Law of 16 December 1963 and by choosing a method of transfer which is compatible with its financing system, which is based mainly on the method of distribution and not on the method of capitalization. As far as the first question is concerned, it must therefore be answered in the sense that the Luxembourg legislation is compatible with the provision in question.

As for the second question, the Luxembourg Government argues that, by providing for two different transfer procedures, the Community legislature sought to take account of the variety of systems which exist in the various Member States and within individual Member States. That point of view was also adopted by the Commission in Bodson.

By choosing the method of the payment of sums repaid, the Luxembourg legislature adopted a method of transfer which is compatible with its financing system, based mainly on distribution. In contrast, the actuarial equivalent is unknown to the Luxembourg pension schemes and even incompatible with the system of financing in force. Furthermore, the transfer mechanism adopted for Community officials is the same as, if not even more favourable than, the transfer mechanism which is provided for in the Luxembourg internal coordination law for the transfer of contributions paid into contributory pension schemes to the noncontributory pension schemes of the Luxembourg public sector.

The Luxembourg Government therefore suggests that the second question should be answered in the sense that the official's choice is limited to the possibility of transfer but does not extend to the methods of calculation, which are a matter for the national legislature alone. Whereas the national legislature is under a duty to provide for the possibility of transfer, it retains the possibility to choose the means of implementing that transfer.

The French Government fully shares the view of the Luxembourg Government. It further adds that in a distributive system (as adopted by the French insurance schemes) the concept of acquired rights to an amount of benefit has no sense. Under such a scheme, interested parties simply have rights to the distribution of a financial fund to which it can have access when they retire depending on the total contributions paid by the active population at that time. Their actual contributions only serve to calculate their proportion of rights to draw on that fund. Hence it is impossible to transfer acquired rights.

The French Government therefore proposes that the first question be answered as follows: Article 11 (2) of Annex VIII to the Staff Regulations enables methods for transferring pension rights such as are provided for in the Luxembourg legislation to be established. The second question should be answered in the sense that that article does not give European officials the right to choose freely between two methods for transferring acquired rights under national schemes.

Lastly, the United Kingdom, referring to its own occupational pension schemes, states that an occupational pension scheme may refund contributions to a member leaving employment early only in strictly limited circumstances, and that the refund is restricted to the employee's contributions. If the early leaver has at least five years' qualifying service, the scheme must provide benefits for him as for members who remain in employment until pensionable age and cannot fulfil that obligation by refunding his contributions to him.

If and when the provisions of the Social Security Bill currently before Parliament enter into force, the worker will, with certain qualifications, have the right to transfer the cash equivalent of those rights, to be calculated in a manner to be determined, to any other scheme which accepts him as a member. There is therefore a fundamental antithesis between, on the one hand, refund of contributions and, on the other, an actuarial or cash equivalent available where pension rights have been acquired. The refund of contributions is not, and cannot be, a method of valuing acquired occupational pension rights but merely a form of reimbursement.

As for Community law, the United Kingdom observes that the Community scheme, like the United Kingdom occupational pension schemes, draws a distinction between those employees, generally with a minimum period of qualifying service, who acquire pension rights and other employees who merely receive a refund of contributions (see Article 77 and Articles 3 and 12 of the Staff Regulations). It concludes that if a refund of contributions is merely a reimbursement, it constitutes a method of transfer which will be appropriate only where no pension rights are acquired. In contrast, it is the presence or absence of acquired occupational pension rights which determines which of the two methods of transfer is appropriate and also whether or not the method actually provided is compatible with Article 11 (2).

As for the second question, the United Kingdom states that, if it is the presence or absence of acquired occupational pension rights which determines which of the two methods of transfer is appropriate, it must follow that provision of the appropriate method, with or without any element of choice for the official, must be compatible with Article 11 (2). In any event, there is no need to grant the European official special and preferential rights as against other members. The rights available to him under the national legislation should be sufficient in themselves to achieve the objective of the provision in question, as it has been interpreted by the Court in the aforementioned judgments of 20 October 1981 and 18 March 1982. It is therefore the national system which determines the nature of the rights acquired by the Community official and it is the national system which can choose between the alternatives provided by Article 11 (2).

The United Kingdom therefore proposes to answer the first question as follows: restrictive rules governing the transfer of the occupational pension rights of persons who become European officials will be compatible with Article 11 (2), as previously interpreted by the Court, if the appropriate method of transfer is provided. It considers that the second question should be answered in the following terms: the right afforded to an official under Article 11 (2) is the right to request that a transfer be made on his behalf to the Community scheme by the method which is appropriate in his case having regard to the nature of the right acquired under the national scheme.

III — Answers to the questions put by the Court

By letter dated 4 March 1986 from the Registrar, the Court asked the Commission to answer the following questions in writing :

The Commission is asked to provide a table showing in particular whether or not the Member States use the concepts of actuarial equivalent and of sums repaid and whether or not those national concepts correspond to the definitions provided by the Court in its judgment of 18 March 1982 in Case 212/81 Bodson.

The Commission is asked to show the differences existing between the methods of calculation used in the Member States which employ those concepts and the practical effects of those differences as regards entitled persons and to indicate in that connection if there are differences between national rules as regards the methods of calculation applicable to former officials, on the one hand, and former employees in the private sector, on the other.

The Commission is also asked to state whether or not it matters, in its opinion, whether a contributory or a noncontributory system is involved. Can it illustrate any differences in calculation methods by setting out a specimen calculation?

By letter of 25 March 1986 which was received at the Court on 27 March 1986 the Commission answered the questions put by the Court.

As regards the question whether or not the Member States employ the concepts of actuarial equivalent and of sums repaid, the Commission submitted a detailed table to the Court.

As regards those Member States which do not make transfers, the Commission took as its criterion the relevant national legislation, the arrangements or agreements concluded with the Member States concerned or draft laws or agreements or exchanges of letters.

In addition the Commission sets out the differences between the methods of calculation used in the Member States which employ the concepts of actuarial equivalent and of sums repaid and the differences between the methods of calculation applicable to former officials and to former employees in the private sector in the case of Member States making transfers to the Community scheme.

As regards the question whether or not it matters whether the system involved is contributory or noncontributory the Commission replies, in the first place, that the concept of actuarial equivalent is common to all systems, that is to say it represents a faithful and objective reflection of the pension rights acquired or potentially acquired by the person concerned irrespective of whether the system of financing the pension scheme in question is contributory or noncontributory. That also applies to a system like the Community scheme, which is financed by budget line, where it is nevertheless possible to calculate the actuarial equivalent on the basis of the rights acquired or potentially acquired by the person concerned.

As for the calculation of the actuarial equivalent and possible differences in calculation methods, the Commission refers to the definition provided in Article 8 of Annex VIII to the Staff Regulations, which provides that actuarial equivalent means the capital value of the benefits accruing to the official, where benefits is to be understood as the benefits provided to the officials under the pension scheme.

Lastly, the Commission provides an overview of the calculation of the actuarial equivalent without making a comparison with the calculation of sums repaid.

1 Language of the Case: French.