CERN Pensions: A constructive proposal


A new endangering of the Pension Fund


In 2010 and 2011 Council adopted a package of measures (see Echo 195 for background information) that commits staff, retirees and the Organization to all contribute to the balancing of the Pension Fund by 2041. In particular, CERN’s Member States agreed to pay a special contribution of 60 MCHF per year for 30 years or until full funding is achieved, if this arrives sooner. Today, less than four years later, some Member States already want to find ways to come back on their commitment. The fact that one of the parties that accepted the package wants to change its commitment unilaterally is in evident disagreement with the 2011 Council resolution(1)  and therefore unacceptable. Nevertheless to be helpful we put forward a constructive proposal.

Special contribution or...


Currently the Fund has a yearly outflow of around 300 MCHF to pay pension benefits of which some 60 MCHF (approximately 20% of pensions received) are transferred as income tax by the pensioners to the tax authorities of the State in which they reside. We observe that this amount corresponds more or less to the special contribution that the Organizations, CERN and ESO, pay into the Fund to restore its balance.

Just return?


We could thus consider that the special contribution is a kind of “compensatory payment” made to the Fund by the Organizations, for a charge that Member States impose on the Fund itself. The taxation problem was already present for active members of personnel and was resolved by the Organization’s levying an internal tax on the financial benefits that it pays to its members of the personnel (CERN Staff Rules and Regulations, SV2.01). Members of the personnel are thus exempt from national taxation on salaries and emoluments paid by CERN. A pension being nothing less than a deferred salary, as the ILO Administrative Tribunal has confirmed (Judgment 2793, § 20, 106th Session, 2009), the analogy is obvious.

Therefore, the current special annual contribution of 61.3 MCHF is justified for two reasons:

- it is the Employer’s contribution to ensure the balance of the Fund at the 2041 horizon,

- it compensates for the additional costs incurred by the Fund for having to take into account the tax factor for pensioners.

Do all pensioners and Member States get a fair deal?


It is thus obvious that the current situation is rather unfair, both for the Member States, and for the pensioners.

Indeed, as we have indicated above, the “compensatory payment” can be seen as a way to neutralize the effect of taxation of pensions paid by the Fund. However, the way a Member State contributes to this payment bears no relation to the amount of tax it collects from pensioners living there. On the one extreme there are states such as Austria, which collect no tax on pensions of some former international civil servants residing there. On the other extreme, there are the CERN and ESO Host States, where the bulk of pensioners reside(2), and which thus receive by far the largest fraction of the tax revenue. And, of course, there is the large majority of Member States where only a very few pensioners reside.
Moreover, for pensioners, the conditions of taxation depend on the country of residence and thus differ quite a lot. For some, as mentionned, their pensions are not taxed at all.

Towards more fairness
We therefore propose to:


-  minimize the expensive need for the Pension Fund to finance the tax paid by pensioners to the Member States,
-  guarantee a fairer treatment between Member States on the one hand and between pensioners on the other.

Two technical solutions are a priori available(3).
1) The first, simplest and fairest, would be to extend to all Member States a tax model that is based on pensions (just like salaries) being subject to an internal taxation by the international Organization in question. Then, owing to the principle of non-double taxation, pensions would be exempt from national taxation(4). The amount thus collected by the Organization is paid into the Pension Fund. For pensioners, the effect of such a measure would be neutral, since this internal tax would amount overall to what  is currently collected as tax on pensions in Member States. For the Organization, the immediate effect would be to largely or completely recuperate the amount now paid as a special contribution to the Pension Fund without compromising the balance of the Fund. This amount could then be reassigned for other purposes in the Organization’s budget.

2) The alternative would be to allow Member States to preserve  their right to treat all residents equally for tax purposes and to continue to levy a tax on pensions paid by the Fund. The Member States would then retrocede part or all of the taxes levied locally to the Organization. In parallel the pensions of those who do not pay tax in the country where they reside would be subject to internal taxation in favour of the Fund (see point 1). 


The proposal, which we prefer, of an internal taxation of pensions, combined with non-double-taxation agreements, or its retrocession alternative, present several advantages. They do away with the effect on the Fund of taxes levied by the Member States on pensions, and, as a side-effect, they eliminate the unfairness in the effort towards special contributions borne by each Member State. On top of that both proposals guarantee an equal treatment of all pensioners for the taxation of their pension.


(1) Council Resolution on the restoration of full funding of the CERN Pension Fund (CERN/2972, Annex 2):
“The Council […] confirms that, as this package constitutes an equitable distribution of efforts between all stakeholders, i.e., staff members, pensioners and the participating Organizations, its individual elements cannot be modified without revision of the entire package, always maintaining the equitable distribution model.”
(2) At the end of 2012, 55.8% of the pensioners resided in France, 32.2% in Switzerland, and 3.8% in Germany.
(3 )It should be noted that these proposals are not completely new, but have already been considered in 2010 in the Final Report of Working Group 2 (CERN/2897, see Echo 196 for background information). These solutions have however not been pursued and were not included in the 2010 package of measures.
(4) For instance, European civil servants’ salaries are not subject to national income tax. Instead, salaries paid by the Commission to its officials are subject to a Community tax which is paid directly back into the EU’s budget. By analogy, pensions of former European civil servants are not taxed in EU Member states since they are taxed by the EU. However, the pensions of retired EU officials spending their retirement in Switzerland, not a member of the EU, were originally liable to double taxation (by the EU and by Switzerland). The Bilateral Agreement between Switzerland and the EU has removed this double taxation as Switzerland has waived the second taxation.



by Staff Association