News that the European Commission is delaying the release of its directive on supplementary pensions until September comes as the result of sensitive political manoeuvring at both the parliament and full union level.
France’s current tenancy of the EU presidency has led to suggestions – confirmed at Commission level – that the timing of the directive and its subsequent referral to the parliament could have embarrassed the French, who have taken a firm stance against jeopardising the solidarity aspect of their social security regime with Anglo-Saxon type supplementary funded pensions.
The second major issue concerns the debate over biometric risk cover within the supplementary pensions framework. April’s parliamentary response to 1999’s draft directive from the Commission states that inclusion of biometric cover would be ‘favourable’ for supplementary pension products.
This has been a major point of contention and compromise within the parliament. There is little to suggest that it won’t be again when the parliament is finally faced with the Commission’s directive.
Speaking at the southern European leg of the Rebuilding Pensions European tour in Rome last month, Martin Merlin of the Commission, nevertheless signalled their intention to bring as many pension providers as possible under the directive umbrella. “The essential issue is that our definition of a pension fund is one where savings cannot legally be touched until retirement age.
“We don’t want to prejudice any provider – thus the reason for the generic concept of the ‘institute for retirement provision’, which can incorporate the different bodies used for pension provision in each country.
“We would like to have third pillar schemes brought under the directive, but it is not going to be easy. The parliament agrees with us on the majority of points, but it is true that on the idea of biometric risk they have shown themselves to be in favour of this.
“Can we incorporate life insurance into the directive? This is an issue we are considering at the moment.”
Merlin, however, gave clear indications on the directive’s content concerning slightly less sensitive issues. “Many of the points here will be in the directive although nothing is set in stone yet.”
The proposals, he said, would include fund-specific prudential rules on investment – ie the need for full funding of schemes and asset/liability modelling – but thereafter a free hand on investment.
Other proposals in the directive, he added, would include requirements for more open scheme information and greater powers of intervention and co-ordination between national supervisory authorities.
The directive, he noted, would not be adopting the formula suggested by Koen De Ryck’s Rebuilding Pensions report for a dynamic minimum funding requirement (DMFR),
“The dynamic minimum funding requirement is just too difficult a step to take at the moment – but we will be reviewing this in the future. On the other hand, we cannot just have one set of quantitative rules for Europe either. With the continuing integration of capital markets we want to see no investment restrictions – unless justified – as this would hamper the size and liquidity of markets.”
The backbone of the directive, he noted would be EU-wide freedom of choice over investment managers and custodians for pension products. “We are also seeking mutual recognition of supervisory practices. The key objective is to get the harmonisation of prudent principles and their recognition by member states.”
And while the Commission is looking closely at tax harmonisation issues and mutual pensions recognition, Merlin added: “At this stage we want to establish the right for a company to set up a pension fund in another European country. But we would also need to co-ordinate tax issues for this to work properly.”
He added that problems of integrating a system like the UK with its trustee law and that of Italy with its paritary – employer/employee /union boards, would also be difficult to broach.
“We would like to see a memorandum of understanding introduced at a later stage to cope with these issues.”
In terms of the broader picture, Merlin also pointed to initiatives within the Commission to ensure tax co-ordination for migrant workers to avoid double taxation and loss of supplementary pension rights.
“This is being looked at by another DG and proposals are expected by the end of the year.”
“Social security protection for migrant workers is also another question and this is being looked at. A pensions forum has been set up between member states and social partners to address the issue, although this will take a lot longer to come to fruition.”

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