EMAC's surprise boost for directive
There is light at the end of the seemingly perpetual European pensions directive tunnel.
The unanimous vote of the European Monetary Affairs Committee (EMAC) on June 19 to adopt the Karas report on the occupational pensions directive, brings the possibility of a supporting vote by the European Parliament a decisive step closer.
In a vote that was certainly no foregone conclusion - upwards of 250 amendments were tabled against Karas’ report – the prospects of the directive’s success have been given a genuine boost.
And the Parliament is certainly not dragging its heels.
The Karas report will now be heard and voted on at the Plenary session of the European Parliament from July 2-5. Its chances of ratification by the Parliament are high, with resistance predominantly focused amongst the outnumbered European Socialist Party.
Readers who have followed the European directive saga over the last 10 years may be somewhat astounded at the swift turn of events!
Equally surprising perhaps, considering the large number of proposed amendments, is the fact that Karas’ report on the preliminary findings of the European Commission, remains virtually intact.
In many ways the Austrian MEP’s proposals – seen largely as a compromise themselves – have been given a little extra bite in terms of investment liberalisation.
The crux debate on the transition to prudent investment rules has now been given a time frame of five years for member state incorporation, where once the talk was of a 10-year window to allow national regulators the necessary acclimatisation period.
Indeed, this may be speeded up by the European Commission, which will now issue a report after three years with a view to a possible reduction of the deadline.
As expected, EMAC endorsed the suggestion that member states set up a committee by January 1, 2003, to inform peer authorities in Europe of all relevant labour and social law to ensure the workability of any directive.
Should the directive be passed, from 2005 this would be the body via which regulators will be obliged to inform one another of labour, social and pension changes.
On cross-border taxation for pension funds, Commissioner Bolkestein’s recent shift to a communication based on existing EU non-discriminatory law, negated the need for any controversial attempts at a fiscal directive on pensions.
Consequently, EMAC had only to endorse the EET taxation model (exempt, exempt, taxed) as the way ahead for member states to prevent tax evasion or double taxation on pensions in the union.
The committee also called for the abolition of long vesting periods sometimes required for migrant workers, which they also noted ran counter to the principles of free movement in the Treaty of Rome.
Controversially, however, the Karas proposal that life insurance companies be included within the occupational pensions directive – a move heavily criticised by many in the pensions industry – was retained.
The question of the mandatory inclusion of ‘biometric risk’ – one of the big left/right battles in the Parliament also veered in the liberalisation direction, with adoption of the Karas position that these can be offered but should not be obligatory.
Finnish MEP Piia-Noora Kauppi of the centre-right European Peoples Party (EPP), concluded after the debate: “It was a compromise with the liberals.
“The very necessary option of biometric risk is now the model proposed by Mr Karas, so there will be no obligatory coverage.
“On longevity, the form says that ‘usually’ lifelong payments have to be there, but it says ‘usually’ – it is not exhaustive, so there might be other possibilities like lumps sums or whatever.”
She added that the EPP was relatively happy with the outcome of the EMAC vote: “I’m quite happy. I’m not fully happy because it was a compromise. Some amendments, which I would have rejected, were in the compromise. For example, there is the remark that basic decisions in pension schemes in the second pillar have to be made collectively.
“Of course, I think that basic decisions can be made collectively, but what is a basic decision? For example, is the coverage of biometric risk a basic decision? Because I think that it should be done individually,”.
Karas himself, commented: “We will discuss my report on July 3 in the morning with the draft agenda and I hope we can decide it on the 4th.
“I am happy that the Parliament has a decision. I think it is a good basis for the next discussion. It was hard work, but it is a good base between more liberalisation for investment to have the basis for cross-border activities of companies, but also with a fundamental compromise for social security.”
He was less generous towards the Ecofin Council of Ministers – part of the joint EU process required for any legislation to be passed.
Slamming its lack of progress in taking a position on the proposed legislation, he said: “Firstly the Ecofin Council must have a proposal – a decision. That is the point. Then I hope that the Ecofin Council of Ministers will discuss the position of the Parliament, because this is a co-decision process. The Council needs a compromise with the Parliament and the Council now has the chance to discuss also the position of the Parliament.
“I am very angry that the Council is so late, because the proposal of the European Commission was made public in October last year.
“There are many council working groups which are discussing this, but we need a decision!”
The rapporteur added that Ecofin’s tardiness flew in the face of agreements under the Lamfalussy report on securities market regulation.
“Look what the Lamfalussy report says. It says we must be quicker in the area of financial services. The Ecofin council in Sweden two months ago decided that they agreed with the Lamfalussy report. First, there is a main agreement for a directive, then the parliament decides its position. But now we have no position from the Council!”
He continued: “This is not a problem of the Parliament – we have decided very early and we have a clear position.
“The problem now is not the Commission or the Parliament it is the timetable of the Ecofin Council. If the Ecofin Council discuss the Commission’s proposals and the position of the Parliament in October – that is very late.”
Underlining the sense of urgency in the Parliament for the adoption of a directive, Karas concluded:” We need this directive as a first step for cross-border membership of companies and also for the beginning of the euro coins introduction.”
His wishes may be favoured by the fact that EMAC has voted to place the directive under the rules for adoption of financial services proposals - a decision that effectively prevents a minority of member states from blocking its passage.
Financial services directives can be voted by qualified majority in the Ecofin Council of Ministers as opposed to a unanimous decision, which is the case for social legislation.
Neither the European Commission and European Parliament can be accused of a lack of will of late for a resolution to the directive.
It remains to be seen whether the Council of Ministers can match the grandiose rhetoric of the Financial Services Action Plan - endorsed in Lisbon and primed in Sweden, with swift action to find a solution that will finally bring occupational pensions into the European framework.