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Single Market News

General Publications Single Market News Edition 30

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Financial services

Pension Funds Directive:
In the final straight

Illustration of the article On 5 November, the Council adopted the common position on the proposal for a pension funds Directive. The proposed Directive on institutions for occupational retirement provision was put forward by the Commission in October 2000 (see Special feature in SMN 23). The aim is to create at the level of the European Union a prudential framework strong enough to protect the rights of future pensioners and to increase the affordability of occupational pensions. The proposal for a Directive also seeks to enable an institution in one Member State to manage company pension schemes in other Member States. Second reading in the European Parliament will now start.

The text agreed by the Council maintains the core principles of the Commission's proposal:

Scope

Book reserves schemes where benefits are paid by the employer directly to the employee from company funds continue to be excluded. Nor does the text cover Pay-As-You-Go schemes.

Technical provisions

The global prudential framework proposed imposes on-going prudential control and requires that funds hold sufficient assets to cover their commitments. The text agreed by the Council recognises the qualitative approach to the calculation of technical provisions proposed by the Commission and would introduce two alternative bases for the definition of the maximum interest rate. It would require the Commission to present every two years a report on the development of the situation.

Cross-border membership

The proposal establishes a mechanism for co-operation and notification between supervisory authorities of the home Member State (where the pension fund is located) and the host Member State (where the enterprise and the members are located). A large multinational could save up to €40 million if it could pool all its pension schemes in one fund instead of running different funds in each Member State.

Investment rules

A qualitative approach to investment rules is proposed. Allocation of assets must be prudent and decided in the light of the liabilities entered into by each fund and not in the light of a single set of quantitative rules ("prudent person rule".) The Council text confirms the prudent person rules as the main principle and introduces some general qualitative principles that explain what is meant by prudence in asset allocation. It confirms the possibility for Member States to have at national level more detailed requirements, within certain limits. It would also allow host Member States to ask home Member States to apply certain quantitative rules to the assets corresponding to the pension scheme run on a cross-border basis, provided the host Member State applies the same (or stricter) rules to its own domestic funds.

DIXIT:

"The rights of future pensioners must be protected by strict prudential standards. But pensions must not become too costly through low returns or excessive administrative constraints. We need to allow institutions for occupational retirement provision to benefit fully from the Internal Market and the euro. I am pleased that the text on which the Council has agreed preserves the Commission's twin objectives of security and affordability of occupational pensions, without interfering with the organisation and efficiency of Member States' pension systems."

Frits Bolkestein - Internal Market Commissioner

INFORMATION:

Jean-Yves Muylle
DG Internal Market - F.3
Tel.: + 32 (0) 2 296 75 37
Fax.: + 32 (0) 2 299 30 75