The summer recess couldn’t have come at a better time for the prospects of the European supplementary pensions directive.
If the mid-year break allows time for European parliamentarians, commissioners and politicians to reflect on the events of the year so far and ponder those to come, then they’ve had plenty to chew on over pensions.
Prior to the vacations – and with surprising alacrity, the European Parliament voted by a landslide two-thirds majority to adopt the report by Austrian MEP, Othmar Karas, for a directive on occupational pensions. This, the parliament commented – often in no uncertain terms – gave a clear message to the Ecofin Council of Ministers that speedy progress was needed to bring the directive into legislation.
It’s worth recapping on the final shape of the Karas proposals. A significant and controversial move was his re-introduction of a motion on a level playing field for providers, ensuring that insurance companies would be covered by the directive.
Parliament argued that legally accepted institutions in member states could offer pensions if they met the necessary requirements, noting that in some countries the second pillar pensions field was based on insurance contracts. It also said the inclusion of insurers would leave the choice of provider to scheme members, increase competition and reduce administrative costs.
The adoption of proposals relating to biometric risk cover and guarantees on redemption of pensions paid, also raised hackles within the industry. The European Federation of Retirement Provision (EFRP) claimed that it would hinder development of pension funds instead of promoting them.
A warmer welcome, however, met the inclusion of the prudent person investment rule and a commitment to phase out quantitative investment rules, possibly within three to four years.
Parliament also proposed to grant certain flexibilities in defining funding requirements and solvency margins, which it pointed out was particularly relevant in the context of the on-going debate on the Myners review in the UK.
Karas was pleased with the parliament’s endeavours: “The result is a very good compromise between more liberalisation for the financial services and European financial markets and for the social security for employee pensions.”
Immediately after the parliament vote, he called for swift action in the European Commission and the Ecofin Council of Ministers.
“The council is not working very hard but the parliament is.
“It is now very important for the commission to see the problems in the council and take the viewpoint of the parliament. I hope the commission is on our side because it needs a directive for the second pillar.”
With the directive requiring the bilateral support of the parliament and the Ecofin council before it can become law, Karas was in no mood to lose the parliament’s élan:“We need a common decision between the two. We can discuss this very quickly, but when the position of the council is very different from ours or they don’t have one, then it is very hard for us.”
Nevertheless, the European pensions industry seemed in no hurry to be bowled over by th parliament’s progress.
The EFRP came out strongly against the inclusion of life insurers, claiming that under the Karas findings they would receive ‘special advantages’ when operating in the occupational pensions’ market.
The lobby group added that the directive should be limited to financial institutions used for supplementary pension funding that do not already have an EU framework for prudential supervision.
Pointing out that the banking, insurance and UCITS sectors have existing legislation in this area, EFRP chairman, Kees van Rees, commented: “The EP is inclined to grant life-insurers themselves the option to decide whether to operate for their pension business according to the life insurance directive or the IORP directive. The life-insurers would be able to decide whether they want to operate such business in a separate legal entity – with full compliance under the IORP directive – or, alternatively to ring-fence the “pension business assets” and have a selective set of rules from the IORP directive applied to those ring-fenced assets.”
Van Rees continued by arguing that the directive should also be scaled back in line with the original Commission proposal and eliminate all benefit related requirements.
“This is needed if the directive is to become an effective tool in developing pension funds in the EU and, more in general, to promote occupational pension funding in a cost effective way.”
By deviating from the European Commission’s financial services logic and shifting to a social reform influenced directive, the EFRP said that the parliament had rendered much of its directive proposals ‘unworkable’.
So where does this leave us going forward?
Rumours of resistance from at least six countries in the Ecofin Council over the issue of investment rules will undoubtedly dominate the post-holiday gossip prior to October’s scheduled meeting.
In July, just after Belgium took up the presidency of the EU, Henk Becquaert, advisor to Belgian social affairs and pensions minister Frank Vandenbroucke, said the Karas report on was meeting partial resistance in most member states.
“There is no country that I know that says the directive is completely OK, they each have their different remarks. We (Belgium) also have some problems with the directive.
“There are social issues that are not solved. Maybe they don’t need to be by this directive, but we have to be sure that the social and labour law is used correctly and we don’t know how it will be organised if you work and pay contributions in Belgium, but then the pension fund is, say, in Italy. How you can control this?
“We have to be sure that our social laws are not diminished by the use of a financial directive.”
In the debates ahead, much will be made of the arrival of the euro currency as an incentive to more transparent labour mobility and a catalyst for solving the pensions directive issue. Indeed, the scheduled resolution of the supplementary pensions question by 2005 under the Lisbon Financial Services Action Plan demands a quick response – bearing in mind the timeframe needed to implement such legislation.
The Lamfalussy report and its call for swift arbitration on financial services issues between the various European bodies will also be waved about to spur things on.
But, according to a prominent figure in the European Commission, both the prudent person rule and guidelines on technical provisions for the safeguarding of benefits are still major bones of contention within the Council of Ministers.
Furthermore, the Commission itself has already indicated that it may not accept as much as half of the parliament’s amendments to its original directive proposals.
As so often with European legislation, a sudden flurry of activity does not mean the end is in sight. Nowhere is this perhaps more evident than with the highly contentious issues of national labour law and taxation that overlap in the occupational pensions directive.
Let’s just hope those vacations have done the trick and given pause for thought whilst focusing minds on the work still to be done.

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