BRUSSELS — EU taxpayers could soon be coughing up €23 million per year to bail out a pension scheme for hundreds of former European parliamentarians that is poised to implode.
Top European Parliament officials are racing to try and rescue a legacy pension fund that faces a €308 million shortfall and could run out of money as soon as 2024.
“The fund will run out of capital soon,” states an internal document prepared by the Parliament’s top civil servant Alessandro Chiocchetti, and seen by POLITICO, which says the fund benefiting hundreds of former EU lawmakers faces a “dramatic financial situation.”
Senior MEPs discussed the document at a closed-door meeting in Strasbourg on Monday last week, but have not yet decided what to do.
“The option of doing nothing about it is clearly off the table,” a Parliament spokesperson said.
The Parliament set up the supplementary pension scheme in 1990, and it ran for 30 years until being closed for new members in 2009 when a unified pension scheme came into force.
Due in part to lawmakers’ contributions stopping 14 years ago, the fund is now in dire straits.
“I think that no more taxpayer money should be wasted on a structure that quite honestly [is] set up a bit like a Ponzi scheme,” said Daniel Freund, a German Green MEP. Ponzi schemes are a form of fraudulent investment that can only survive by continually bringing on new members.
“This borders on criminal energy,” Freund said.
Stephen Hughes — the fund’s chairman, who was a U.K. MEP with Labour from 1984 to 2014 — said Parliament should honor its commitment to paying the pensioners.
“The Parliament walked into this with their eyes wide open, and I think they’re being very unfair,” Hughes said.
“Those members gave years of loyal service to the European Parliament and they feel aggrieved to be treated in the way they’re being treated right now,” he added, arguing that the fund has been “very well managed” but was bound to run out of money after being closed in 2009.
Unclear future
The fund — investments of which are managed separately by a company based in Luxembourg — only has around €55 million of the €363 million it is foreseen will need to be paid out beyond 2074. MEPs used to pay in one-third of the contributions, with the Parliament topping up the rest.
“Owing to the termination of contribution payments by Members and the Parliament, insufficient investment returns and the effects of successive financial crises as well as geopolitical instability, the situation of the fund has since 2009 rapidly deteriorated,” the secretary general’s note says.
“This amount is insufficient to meet its future pension payment obligations,” the document adds.
That means the taxpayer-funded EU budget could be raided to pay about €23 million per year.
The secretary general’s document, drafted for the perusal of 14 parliamentarians at a meeting chaired by President Roberta Metsola on April 17, outlines three potential options.
The first would be to do nothing and let the fund go bust, meaning the Parliament — and the taxpayer — will “most probably” have to take over the pension obligations. The second option would be to liquidate the fund and then offer a large lump-sum payment to beneficiaries. Thirdly, disaster could be staved off through a series of tweaks to tighten up the pension entitlements, such as by raising the eligible pension age or simply reducing the amount beneficiaries receive.
The longer a person had served as parliamentarian, the higher the entitlement — 914 people, most of them long-serving MEPs, ex-MEPs or their surviving family members, are currently receiving an average of €2,206 per month.
The Parliament spokesperson added that members have requested further legal and financial information in order to examine all the options.
The Parliament has fought several legal battles against beneficiaries of the fund — and won — after raising the retirement age and tightening up some other terms and conditions in order to stop the legacy fund from draining the institution’s finances.
After appeals by representatives of the fund, the Court of Justice of the European Union in March delivered a final ruling siding with the Parliament and confirming that the Parliament’s Bureau has the legal right to reduce entitlements in a proportional way.
Hughes said, “The worst outcome for this would be for the Bureau to make a decision that would lead to yet another round of litigation.”
Lara Wolters, a Dutch MEP from the Socialists and Democrats group, wrote to POLITICO that any “way forward should not come at a cost to European taxpayers.” Even if “the Parliament may be obliged to keep this Fund ‘alive’ — it is not legally obliged to guarantee current levels of payouts.“
