Information Note on the Court’s case-law No. 145
October 2011
Valkov and Others v. Bulgaria - 2033/04
Judgment 25.10.2011 [Section IV]
Article 1 of Protocol No. 1
Article 1 para. 1 of Protocol No. 1
Peaceful enjoyment of possessions
Capping of retirement pensions: no violation
Facts – The Social Security Code 1999, which came into force on 1 January 2000, made significant changes to the Bulgarian retirement pension model, introducing a three-tier pension system. The first-tier, or basic, pension scheme is mandatory, public and financed mainly by social-security contributions and subsidies from the State budget. First-tier pensions are exempt from taxation but a cap is imposed on the maximum amount of pension payable (caps also existed in various forms under previous pension schemes*). In addition to retirement pensions, contributions to the first-tier fund are used to pay out survivors’ and disability pensions, and certain health related benefits. The second-tier scheme, for individuals born on or after 1 January 1960, is mandatory and tax exempt. The third-tier scheme is voluntary with contributions freely decided by participants in the scheme, which is open to all. Contributions to both second- and third-tier pensions are directly linked to the expected benefit returns.
The applicants were pensioners who had retired on various dates between 1979 and 2002. In their application to the European Court, they complained under Article 1 of Protocol No. 1 of the statutory cap on their retirement pensions which operated whenever the nominal monthly amount of their pensions exceeded the maximum amount specified in the legislation. They also complained under Article 14 of the Convention, in conjunction with Article 1 of Protocol No. 1, of discrimination both in relation to pensioners whose pensions fell below the cap and in relation to certain high ranking officials whose pensions were exempted from the cap.
Law – Article 1 of Protocol No. 1: While Article 1 of Protocol No. 1 did not guarantee, as such, any right to a pension of a particular amount, where a Contracting State had in force legislation providing for the payment as of right of a pension – whether or not conditional on the prior payment of contributions – that legislation had to be regarded as generating a proprietary interest for persons satisfying its requirements and the reduction or discontinuance of a pension could therefore constitute interference with the right to the peaceful enjoyment of possessions. In the applicants’ case it was not in dispute that the interference was lawful under both domestic and Convention law.
The interference pursued a legitimate aim in the public interest. In upholding the validity of the cap the Constitutional Court had taken the view that it was based on the “requirements of social justice”. For its part, the Court did not consider that it was illegitimate for the Bulgarian legislature to have had regard to social considerations, or that its judgement in that respect was manifestly without reasonable foundation. The pension systems of different countries varied in the relative emphasis they placed on redistributive vis-à-vis insurance elements. Comparative studies by the World Bank and the OECD showed that, while some Contracting States attached more importance to providing the same or very similar pension replacement rates to all workers, with a strong link between pensions and pre-retirement earnings, in others the accent was on pension adequacy, with little or no connection between pensions and pre-retirement earnings. That was primarily a matter for the national authorities, which had direct democratic legitimation and were better placed than an international court to evaluate local needs and conditions.
As regards proportionality, imposing a cap on the maximum amount of pension under the first tier was not in itself disproportionate, but instead fell within the State’s margin of appreciation in regulating its social-security policy. In coming to that conclusion, the Court took into account the following considerations: Firstly, unlike the second- and third-tier schemes, where contributions were directly linked to the expected benefit returns, the first-tier contributions the applicants had been paying did not have an exclusive link to their retirement pensions and so could not be regarded as a sufficient ground for entitlement to matching pension benefits. Indeed, in the case of some of the applicants, the bulk of the contributions had been paid under a different economic regime when the pension fund had been an inseparable part of the general State budget and the general framework of the economy very different. Secondly, the pensions cap had been put in place and maintained at a time when the Bulgarian pension system was undergoing a comprehensive reform as part of the country’s transition from a wholly State-owned and centrally planned economy to private property and a market economy. Maintaining the cap could be seen as a transitional measure accompanying the overall transformation of the pension system towards a global levelling of the amount of benefits provided and States had a wide discretion when passing laws in the context of a change of political or economic regime. Thirdly, the applicants had been obliged to endure a reasonable and commensurate reduction rather than a total loss of their pension entitlements. They had not suffered an actual decrease in the monthly payments they received or been totally divested of their only means of subsistence. As the top earners among Bulgarian pensioners, they could, therefore, hardly be regarded as having been made to bear an excessive and disproportionate burden, or as having suffered an impairment of the essence of their pension rights. Fourthly, public-pension schemes were based on the principle of solidarity between contributors and beneficiaries. Like other social-security schemes, they were an expression of a society’s solidarity with its vulnerable members and thus could not be likened to private-insurance schemes. Finally, the amount of the cap had gradually increased over the years, with the result that, as a general trend, considerably fewer pensioners were affected by it.
Conclusion: no violation (six votes to one).
Article 14 of the Convention in conjunction with Article 1 of Protocol No. 1: As regards the applicants’ allegation that they had been treated differently to pensioners whose pensions fell below the cap and were thus not affected by it, the Court saw no reason to depart from its finding under Article 1 of Protocol No. 1 that, having regard to its margin of appreciation, the Bulgarian legislature had not transgressed the principle of proportionality. As to the allegation of alleged discrimination vis-à-vis retirees from high office, who were exempt from the cap, the Court noted that the holding, or otherwise, of high office could be regarded as “other status” for the purposes of Article 14. However, the applicants were not able to demonstrate that, for pension purposes, they were in a relevantly similar situation to retirees from high office. They had argued that it was impossible to draw a valid distinction, for pension purposes, between the character of the respective employments of the two groups. However, the Court was not prepared to draw conclusions based on the nature of the respective tasks. These were policy judgements that in principle were reserved for the national authorities, which had direct democratic legitimation and were better placed than an international court to evaluate local needs and conditions.
Conclusion: no violation (unanimously).
* Under the Pensions Act 1957, as amended from time to time.
© Council of Europe/European Court of Human Rights
This summary by the Registry does not bind the Court.
Click here for the Case-Law Information Notes
Full & Egal Universal Law Academy