60 years of social security coordination from a workers' perspective

From 16 to 17 May 2019 took place a seminar about “60 years of social security coordination from a workers' perspective”, organized by HIVA - Onderzoeksinstituut voor Arbeid en Samenleving, with the support of EZA and of the European Union.

Under the Juncker Commission, renewed attention has been directed to Europe’s social dimension.[1] Nevertheless, ‘social Europe’ has always been a reality, not least for people who are mobile in Europe. From 1958, the Treaty included a strong legal basis for legislation in the field of coordination of social security. This legal basis is now contained in Article 48 TFEU. It obliges the legislature - the Council and the European Parliament - to take measures in order to provide, in the field of social security, protection to people who make use of their right to free movement. Regulations 3 and 4, both coordinating national social security systems at EU level, were one of the first domains in which the EU was active. The Regulations currently in place are ‘Basic’ Regulation 883/2004 and ‘Implementing’ Regulation 987/2009.

In May 2019, a conference was organized by HIVA - Research Institute for Work and Society on 60 years of social security coordination from a workers’ perspective.[2][3] It gave us the opportunity to discuss the historical context, the current social and political context as well as the challenges ahead. This summary makes an evaluation of the EU rules on the coordination of social security systems based on the presentations of the speakers at the conference. The evaluation is based on a number of objectives that could be achieved by the Coordination Regulations: 1) individual fairness, 2) financial fairness, 3) administrative ease and finally 4) competitive fairness.

The group of people protected by the European coordination system is certainly not small and cannot be narrowed down to intra-EU migrants. In fact, the Coordination Regulations nowadays protect, in the field of social security, all EU citizens moving between Member States, be it for reasons linked to work or for other reasons (holiday, planned healthcare, moving abroad as a retired person, etc.). As we will see below, the rules of the Coordination Regulations not only apply to EU nationals but also to nationals of Norway, Iceland and Liechtenstein, thanks to the Agreement on the European Economic Area (EEA), as well as to Swiss nationals, by virtue of a bilateral agreement on free movement of persons. Some figures to illustrate the numerical importance of the wide scope of the European coordination system (Table 1). In 2017, there were 19 million EU/EFTA[4] movers in the EU/EFTA, according to Eurostat population statistics, including 14 million persons of working age (20-64 years). They made up 3.6% of the total population in the EU/EFTA and 4.5% of the total working-age population in the EU/EFTA. These figures give us an idea on the stock of EU/EFTA movers but do not say anything about the annual flow of this group of people. For instance, some 2.1 million persons who migrated to the EU/EFTA in 2017 were previously living in another EU/EFTA country. In addition, there were some 1.9 million cross-border workers in the EU/EFTA in 2017, around 1.8 million postings and finally some 1 million persons who normally worked in two or more Member States. Furthermore, roughly 1.8 million EU/EFTA citizens aged 65 or over were living in an EU/EFTA country other than their country of citizenship, making up 1.8% of the population aged 65 or over in the EU/EFTA. Finally, EU/EFTA residents also made around 229 million trips with overnight stays in another EU/EFTA country - some 204 million tourism trips and around 25 million trips for professional purposes (e.g. business trips)).

  1. Individual fairness

The Coordination Regulations guarantee the portability of social security rights in the EU/EFTA. The concept of ‘portability’ has been very well developed in the economic literature. It is understood as the mobile person’s ability to preserve, maintain and transfer acquired social security rights, independent of nationality and country of residence. The social protection status of migrants can be classified into four regimes (Regime I: portability, Regime II: exportability, Regime III: no access, Regime IV: informal).  Regime I is the most favourable in terms of formal social protection for migrants. Research shows that only a quarter of the total number of migrants in the world are covered by such a regime. It applies, however, to all EU/EFTA citizens moving within the EU/EFTA. This is a good example of the well-developed social protection that the EU offers to mobile persons, which is far from guaranteed in the rest of the world.

A high-quality level of coordination techniques has been developed by the EU legislator to coordinate the variety of social security systems, based on four key principles: 1) prohibition of discrimination, reinforced by the equal treatment of cross-border facts and events (i.e. principle of assimilation), 2) aggregation of periods, 3) exportability of benefits, and 4) determination of a single applicable legislation. As a result, the Regulation ‘weaves a seamless web of social protection: wherever they find themselves, migrants have uninterrupted access to many social benefits’, as argued by Rennuy (2019). Not least because the personal and material scope has constantly been broadened since 1959. Moreover, as pointed out by Cornelissen (2019), in some aspects the Coordination Regulations provide social protection which even goes beyond mere coordination, since rights are created which citizens would otherwise not have. It could even be argued that thanks to certain provisions or jurisprudence, the mobile person or the mobile person’s family has the guarantee of a level of social protection which is sometimes better than ‘non-mobile’ persons. This is because 1) the mobile person’s family as a whole is covered by social security schemes of more than one Member State or 2) the mobile person has a right to choose in which Member State to claim a specific benefit or 3) the result of the application of the EU rules has to be compared with the result of the application of the relevant national rules (De Wispelaere, 2019). The above observations give the impression that the overwhelming ambition of Recital 1 of Regulation 883/2004 to improve the standard of living and conditions of employment of mobile persons is (gradually) being achieved.

However, we cannot turn a blind eye to some deficiencies in social protection coordination. Firstly, there is a risk of gaps in social protection occurring when people are moving. This is due to the current EU rules not sufficiently taking into account new forms of employment (Schoukens, 2019). The Coordination Regulations have been set up at a time when it was the norm that workers had a full time and a permanent job. However, over the last decades we have seen a significant rise of new types of employment, such as short time-, part-time-, on call- or framework contracts. Platform work and telework have become common phenomena. In addition, the Coordination Regulations have not kept pace with the introduction of all kinds of new forms of social security in Member States. It is true that several new kinds of benefits, such as parental benefits and long term care-allowances, have been brought into the material scope of the Coordination Regulations. However, this is not thanks to a dynamic legislature, but to a dynamic Court. Although social assistance has always been explicitly excluded from the material scope of the Coordination Regulations, a definition of the term ‘social security’ or ‘social assistance’ cannot be found in the Coordination Regulations. Moreover, there are a number of non-contributory benefits - financed not by contributions but by taxes - which have the characteristics of social security and social assistance. The question therefore arises as to whether the distinction drawn between social security and social assistance is tenable in the future, particularly since the difference between these concepts has become blurred (Verschueren, 2019). The recurring discussion about ‘welfare tourism’ when talking about access to social assistance for recent incoming EU/EFTA movers, definitely raises this question as well. This is further elaborated in the ‘financial fairness’ section. Finally, not only the link between social security and social assistance should be strengthened in the future, but certainly also the link between social security and taxation (Weerepas, 2019).

The same type of ‘mobile persons’ are sometimes treated differently by Member States since this flexibility is allowed by the Coordination Regulations. For example, several Member States limit the export period of the unemployment benefit for people looking for a job in another Member State to three months, while in other Member States it can be extended by another three months. As a result, mobile unemployed persons are treated differently depending on the competent Member State. Likewise, some Member States apply different policies as regards aggregation of periods for entitlement to unemployment benefits, as well as concerning the export of family benefits. The fact that Member States determine their own national legislation, irrespective of the provisions of the Coordination Regulations undermines the EU rules and may restrict the social rights of mobile persons. Such national rules show that one of the main aims of the Coordination Regulations, making the right to free movement a reality by ensuring that a person is not penalised in the field of social security for having moved from one Member State to another, is under increasing pressure. They are being implemented under the pretext of countering the risks of welfare tourism. However, figures show that these are myths rather than facts (Pacolet et al., 2019). Nonetheless, this does not mean that the Regulation should not seek to achieve a more balanced relationship between social contributions and social expenditure (see next section).

Finally, despite the good social protection guaranteed by the Coordination Regulations, it is a reality that mobile persons do not always take up their social rights in practice. Figures on the extent of this phenomenon are, however, hardly available. The figures reported by Pacolet et al. (2019) only give an overview of the persons who have actually made use of the EU rules. This number is not necessarily equal to the group of eligible persons. Nonetheless, research shows that there can be significant barriers to claiming rights (Fingarova, 2019; Seeleib-Kaiser, 2019). In this context, there is still room for improvement in the provision of information about the social rights of mobile persons. The lack of knowledge of their social rights can be an important informal barrier for mobile persons (Berki, 2019).

  1. Financial fairness

The financial implications for individuals and Member States are another important part of the evaluation of the Regulation. The observation of Schoukens and Pieters (2009) that “the present Regulations pay little attention to the financial side of coordination” still applies today. This is a missed opportunity since part of the solution to the challenges and controversies facing the regulation today lies in the financial aspect. Coordination should attempt to ensure a balanced relationship between contributions and benefits/social rights. After all, we should not forget that Article 48 TFEU itself, as worded after the Lisbon Treaty, attaches importance to the issue of potential financial implications of the Coordination Regulations. Moreover, this attention to the financial impact is present, both with the legislator and the judiciary, with regard to access to social assistance for recent EU movers (Verschueren, 2019; Devetzi, 2019). The interpretation of the notion ‘unreasonable burden’ is a frequent point of discussion here.

In order to be able to analyse the financial impact of the mobility of persons through the application of the Coordination Regulations, it is important to have a good understanding of the variables that will determine this. There are three important variables: 1) the extent of mobility in the EU/EFTA; 2) national social security legislation; and 3) the provisions defined in the Coordination Regulations. This summary only addresses the impact of the EU provisions themselves. Nonetheless, it is certainly also useful to examine the impact of the other two indicators in detail.

When talking about financial fairness, we must first and foremost talk about fair burden sharing between Member States. Scholars point out that the Coordination Regulations do not properly deal with burden sharing between the Member States concerned in a given situation. This is mainly due to the fact that the determination of a single competent Member State is one of the key principles of the Regulation. The determination of the applicable legislation is an important issue both for the mobile person, since it has an impact on what social protection can be enjoyed, as well as for the employers and Member States concerned, since it determines where social security contributions have to be paid. However, the legislator, in determining the competent Member State, has provided little or no financial compensation from other Member States. Nonetheless, the need for better financial burden sharing does not necessarily apply to all social benefits to the same extent. This depends to a large extent on the type of benefit and how long it will have to be paid by the competent Member State. This automatically draws attention to healthcare and pensions (De Wispelaere, 2019). However, in view of the discussion on ‘welfare tourism’, it may be better to take other benefits into account as well.

The payment of pensions is an important exception to the general principle of a single competent Member State. Pensioners are entitled to a partial pension from every Member State where they were insured for at least one year, provided that the conditions under national law are fulfilled. The amount of these pensions correspond to the insurance periods completed in each of the Member States concerned. They are not subject to any reduction, amendment, suspension, withdrawal or confiscation on account of the fact that the pensioner resides in a Member State other than that in which the institution responsible for providing pensions is situated. The objectives of ‘individual fairness’ and ‘financial fairness’ for the pension branch therefore seem to be achieved by the Coordination Regulations. In contrast, the objective is not achieved in the area of healthcare since there is no arrangement to share the health costs of a migrant who contributed to the public health institutions of various Member States. Workers moving between Member States have immediate access to the healthcare system of their new Member State without having contributed to the social security system. For instance, a person who worked 30 years in Slovenia and moved to Italy is immediately entitled to healthcare in the latter State at its expense, although the person never contributed to the healthcare system in Italy.

Furthermore, the payment of healthcare to pensioners is very relevant, particularly given its increasing importance in an ageing society. Special conflict of law rules have been created for pensioners with regard to access to healthcare. These special rules not only have an impact on which healthcare can be enjoyed by the pensioner, but they also determine which Member State has to bear the costs for the pensioner’s healthcare. For instance, a pensioner who receives a pension under the legislation of two or more Member States, of which one is the Member State of residence, will receive healthcare from and at the expense of the institution of the place of residence. A pensioner who has worked successively for 1 year in Slovakia and then 39 years in Austria and who returns to Slovakia after his retirement will receive two pensions, one from Slovakia and one from Austria. He is entitled to healthcare provided in accordance with Slovakian legislation, the costs of which will be borne entirely by Slovakia. Especially those Member States with a high number of outgoing frontier workers, but also Member States receiving a high number of return migrants, may be negatively affected by this EU provision, as it is likely that the main share of both groups will also have a partial professional career in their Member State of residence.

Furthermore, when the principle of aggregation for entitlement to unemployment benefits is applied, the objective of a fair burden sharing may not be achieved when a person only worked for a very short period of time before becoming unemployed. Frontier workers who become wholly unemployed could be seen as another example. Their Member State of residence is competent to pay the unemployment benefit while social security contributions were paid in the Member State of employment. Although it is true that the EU rules provide for a system of reimbursement, this system is not always seen as a satisfactory compensation. Finally, the provisions on the coordination of family benefits also give rise to financial concerns in some Member States. However, there does not seem to be an immediate imbalance between contributions and benefits in this branch of social security.

The above examples illustrate the weight that is attached to the determination of the competent Member State. Its determination has important financial consequences, both for the receipt of social security contributions and for the payment of social benefits. The importance of these EU provisions may be too great. In any case, there is a need to strike a better balance between what Member States receive in terms of contributions and what they have to pay in terms of benefits. Possible solutions are diverse and can differ according to the type of benefit or situation. It is essential that their impact is assessed ex ante. However, not only the financial impact has to be taken into account, but also the social, legal and administrative impact.

  1. Administrative ease

The administrative burden should be dealt with as efficiently as possible between the competent public authorities as well as between the mobile person and the competent public authorities.

Today, most documents are still exchanged on paper by post or by mail among the competent public authorities in the EU. This will change through the implementation of the Electronic Exchange of Social Security Information (EESSI) (Rentola, 2019). It is an IT system that helps social security institutions with the exchange of electronic cross-border documents. EESSI will connect social security institutions across Europe and support the international data exchanges between these institutions in a secure and reliable manner. The data exchange will be performed by using predefined messages and in accordance with the business rules agreed by Member States. EESSI was made available by the European Commission in July 2017. Since then, Member States had two years to finalise their national implementation of EESSI and connect their social security institutions to the cross-border electronic exchanges. The system will replace paper-based exchanges of social security files with electronic exchanges by so-called Structured Electronic Documents. It can be expected that the implementation of EESSI will have a major impact on the administrative burden of social security institutions. By the end of 2019 / beginning of 2020, it will become clear which impact EESSI has on the administrative cost and burden of Member States.

Furthermore, there are still formal barriers to the access and portability of social rights (too long waiting periods, application forms only available in the official language of the Member State of application, outdated application procedures, ...) (Fingarova, 2019; Matyska, 2019; Kasarova, 2019). Many public authorities still do not offer the possibility to apply for documents and/or to register electronically. Today, this should be the standard way to facilitate contact between citizen and competent authorities. This should not exclude personal contact at a desk, especially in view of the complexity of certain cases.  In view of this complexity, it is also extremely important to step up efforts in the field of communication between the competent authorities and the mobile person. For instance, just to avoid a non-take up of social rights. It is hoped that the newly established European Labour Authority (ELA) will also play a prominent role in the area of better information.

Cooperation can certainly be seen as one of the key principles of the coordination of social security systems (Morsa, 2019). The technical and complex provisions that allow coordination can only be successful in practice if there is loyal and intense cooperation. Not only the competent Member States have a responsibility in this respect, but certainly also the citizens themselves. In addition to cooperation, it is of course important that simple but clear provisions are defined. Here, too, there is room for further progress.

Finally, to facilitate the identification of persons across borders for the purposes of social security coordination, the idea has been launched by the European Commission to introduce a European Social Security Number. This was, however, not elaborated further. Hopefully this idea is not buried as there is definitely a need for a unique identification of persons. This should benefit both mobile persons and the competent authorities, while of course taking into account European and national privacy legislation.

  1. Competitive fairness

The highly politicized topic of ‘social dumping’ has not yet been addressed in this contribution. This could be classified under ‘financial fairness’, but it might be more useful to include it in a separate objective of ‘competitive fairness’. It is the pursuit of a level playing field for all actors involved. Under the main rule of the Coordination Regulations, a person is subject to the legislation of the Member State where s/he works (‘lex loci laboris’). This rule entails that all persons employed in a Member State are subject to the applicable employer and employee social security contribution rates in that State. Consequently, this principle prevents that employers would employ foreign employees under lower social security contribution rates than national employees. However, the ‘lex loci laboris’ principle does not apply when a worker is sent by his employer for a short period to another Member State to work there on the employer's behalf. The posted worker and his/her employer are exempt to pay social security contributions in the host Member State during a posting period of maximum 24 months and thus remain subject to the social security system of the Member State of origin. This legal framework gives posting undertakings a competitive advantage or disadvantage in terms of social security contributions when they temporarily provide services in another Member State. Moreover, social security contributions levied on the higher wages of posted workers earned in the host Member State might be capped at a maximum level when an income ceiling is exceeded.

Contrary to popular belief, social security contribution rates do not differ so much between the ‘old’ and ‘new’ Member States. The lowest contribution rates even apply in Denmark. Nevertheless, the question arises as to whether the exception to the ‘lex loci laboris’ principle is also tenable in the future, although it seems unlikely that this will be revised in the short term. After all, this point of discussion has not really been raised during the discussion of the Commission's proposal to revise the Coordination Regulations.

The objective of ‘competitive fairness’ must be achieved in the first place by focusing much more on the fight against fraudulent posting. This presupposes better information, registration, enforcement and monitoring as argued by Jorens (2019). A first step in the enforcement process is to ensure that all conditions for being posted are respected and thus checked in detail before a Portable Document A1 is issued by the competent public authorities. All posting conditions individually can disrupt the labour market of the host Member State if they are not respected. This disruption will occur in the first place in labour-intensive/price-sensitive sectors. Strict monitoring of compliance with the conditions of posting is certainly necessary in these sectors, while in others it  is less necessary. The question therefore arises as to whether the posting conditions should not be defined from a sectoral approach. Otherwise, in the case of a general revision, there is a risk that sectors where no problems occur will be affected as well as, while the adjustments might not be tailored enough to the sectors in which an adjustment is desirable. In this respect, the expression “one size fits all” may not apply here. These conditions can then be defined more strictly in labour-intensive/price-sensitive sectors such as the construction sector, but more flexibly in other sectors. Bluntly speaking, the phenomenon will probably continue to be a divisive issue in the EU as long there is no such sectoral approach (De Wispelaere, 2019). 

  1. Conclusion: the Coordination Regulations cannot solve everything

Figures on the number of people who benefit from the Coordination Rules reveal a ‘hidden European Welfare State’ (Pacolet et al., 2019; Fries-Tersch, 2019). This well-developed European social protection system for mobile persons, based on a high-quality level of coordination techniques, has been developed over a period of 60 years. Nevertheless, the European provisions seem to be under pressure, mainly due to fears about ‘welfare tourism’ and ‘social dumping’. However, these fears cannot always be justified on the basis of facts. Future amendments to the Coordination Regulations should therefore only be made if they are really necessary. This can be done by carrying out a legal and socio-economic impact assessment of the current rules and possible amendments in advance. Nonetheless, public and political pressure will also have to be taken into account. Or this must be refuted on the basis of figures. A solution certainly lies in having more eye for a better balance of financial responsibility between Member States who receive or have received social security contributions / personal income taxes and the obligation to pay social benefits. In this respect, the question ‘Where and for how long have social security contributions been paid?’ is of great importance. The 2016 proposal of the Commission to revise the Regulation already takes this remark into account and tried to facilitate an equitable distribution of the financial burden among Member States for a number of branches.

However, one cannot expect that the Coordination Regulations will solve all problems and challenges. In order to counteract phenomena of ‘social dumping’ and ‘welfare tourism’, Member States should further develop their social security systems so that they converge towards each other upwards. The question is whether Europe should take the lead here by laying down minimum criteria (Debroey, 2019; Van den Brande, 2019; Meesters, 2019). After all, there are still major differences in the development of social security systems between Member States