The current thinking seems to be that up to a half of all member states will fail to notify the Commission of full implementation by the deadline. But EU sources say that such slippage may not necessarily indicate a serious problem with implementation – member states may simply have forgotten to send in their notification. Much more worrying, and much harder to verify, is the fact that some member states who have claimed full implementation of the directive may not have done so properly.
The Commission has said that, immediately after 23 September, it will write to all member states who have failed to comply with the deadline, reminding them of their obligation to implement the directive. Member states will probably be given three months to respond. Theoretically, member states can be taken to ECJ for continued non-notification, but this is unlikely to happen. The Commission expects just one reminder letter to be enough to motivate the less effectual member states into action.
However, the Commission is much less optimistic about what might happen afterwards. It is one thing to have notified the Commission of implementation and quite another to have introduced a set of laws that do exactly what the IORP directive intends.
The real work of the Commission - assessing the adequacy of implementation in member states - will not start before the end of the year. Once it does, the general feeling is that there will be at least one or two member states rapped on the knuckles for non-compliance, although things may not go as far as the EU courts.
What the Commission is trying to decide - even ahead of the deadline - is how best to proceed with an in-depth investigation across all 25 member states of what is, essentially, a very complex piece of legislation.
“It is just not possible to scrutinise every single clause in every single member state,” commented one EU official.
The situation is further complicated by the fact that there are now 20 working languages of the EU, and not all of these languages are spoken by the team dealing with the IORP. This means that the law in some of the countries will have to first be translated into a more widely-used language before it can be evaluated.
Officials have a number of possible follow-up strategies they are looking into at the moment. One option may be to examine one or two particularly tricky articles in all member states - perhaps Article 20 on rules governing the application of national and social labour law - and see how the various EU countries have applied it. Another possibility could be to pick out some of the member states where the pensions market is biggest - for example, the UK and the Netherlands - and scrutinise them for non-compliance. Or, following similar thinking, the Commission could decide to look at those countries - such as the Czech Republic - where specific problems have come to light during transposition of the directive, to make sure that appropriate solutions have been found.
The Commission has not yet decided which strategy to follow, but hopes that tip-offs from third-party bodies will make its job easier. In particular, the Commission is urging pension funds - particularly IORPs - to get in touch if they see a particular problem with a piece of legislation. Tip-offs are also likely to come from consultancy firms that will be closely involved in setting up IORPs.
For example, consultancy firm Watson Wyatt, which has been closely monitoring implementation of the directive, already has some feelings for problems that may lie ahead for the UK. The UK has already sent in its notification, but according to one voice at Watson Wyatt “is still grappling with the cross-border issue”.
Another option for the Commission is to make use of studies carried out by third-party institutions, such as ongoing research commissioned by the European Association of Paritarian Institutions (AEIP) to look at the differences of national social and labour law between certain member states.
Judging from the sounds coming out of the Commission recently, the EU’s legislator is likely to take any non-compliance of the directive very seriously. Since coming to office last year, internal market and services commissioner, Charlie McCreevy, has repeatedly stressed that he is determined to focus all efforts on getting existing law properly implemented in member states. He is also mindful of Europe’s ticking pension time bomb, and has marked the development of a pan-European market for pensions as one of his top priorities. “We will develop a coherent strategy, supported with a full range of tools, to ensure that tangible results are delivered by member states,” he said in a recent speech in Paris. “Companies that want to undertake cross-border business must be able to do so.”
The procedure for dealing with non-compliance of EU law is set out in the relevant treaty texts, although the Commission still has discretion over the timetable.
First of all, once a possible infringement of legislation has come to light, the Commission sends a so-called ‘formal letter of notice’ to the member state in question, highlighting what it sees as the problem and asking for more information about it. The member state usually has about two months to respond to this inquiry.
If the Commission is dissatisfied with the response from the member state, it may then follow up its initial letter with a much stronger ‘reasoned opinion’, detailing the nature of its complaint. The member state in question has a further two months to respond to this letter.
If the Commission is still not satisfied with the response legal proceedings can follow in the ECJ.
It is worth bearing in mind that this procedure is iterative, and may entail many more exchanges than those listed above, depending on the complexity of the problem.
Although the Commission always has the
option of pursuing an infringement in the courts, things rarely get so far. The very idea of being hauled before an EU judge is usually humbling enough to bring member states back into line. Few relish the negative image that comes with legal action.
From all of this, it seems likely that the discussions over implementation of the directive will continue long after the deadline has passed. The Commission remains confident that, with a few gentle nudges here and there, all 25 member states will have sent in their notification by the end of the year. The executive body is not quite so optimistic, though, when it comes to how well the legislation in question may have been implemented. But, as McCreevy has been making clear in recent speeches, pensions are too much of an important area for the legislation now on the table not to be enforced. So it seems fairly likely that those member states which have not yet fully implemented the IORP directive will do so - or will be compelled to do so - eventually. It may just not happen by the 23rd.