Long and rocky road
The 1997 Green paper drawn up by internal commissioner Mario Monti is often seen as seminal in getting today’s proposed directive underway. In many ways this is true but the paper, and subsequent discussion, drew heavily on the mistakes and lessons learnt from the first unsuccessful attempt.
A fairer assessment of last month’s political agreement goes as far back as the late 1980s when EC financial services commissioner and UK MEP Leon Brittan floated the prospect of financial integration in Europe.
The commission extended this to cover supplementary pensions, particularly for companies keen to establish a single pension scheme for their mobile employees.
Since the pensions proposal emanated from plans for financial integration, social aspects – worker mobility and transferability etc – were overshadowed by financial elements. This bias eventually proved the first directive’s nemesis.
Under the first proposed directive managers were, or would have been allowed to invest prudently and to ignore investment restrictions. Eight years on, this issue almost torpedoed the second attempt at a directive.
Initial drafts suggested funds could increase their exposure to equities and invest outside the matching currency regulations required by many continental European countries.
The Commission realised that, without further analysis and inclusion of social aspects, the directive was doomed and so in December 1994 pulled it.
It then pushed through a less legally contentious communication that the French promptly killed off by taking the Commission to the European Court of Justice and winning.
Simone Veil, a former chairman of the European Parliament, was meanwhile working on a report on free movement across Europe that recommended individuals moving around Europe should have the right to retain their pensions entitlements.
Veil’s report succeeded where the previous directive failed in that it espoused pension security and mobility on top of the prudent man principal.
The commission and Italy’s Mario Monti worked Veil’s recommendations into the 1997 green paper which produced a prolonged public consultation.
Those recommendations that survived consultation were bundled together and issued 18 months later as a communication which provided the bedrock for today’s directive.
This second attempt proved more resilient and successful for numerous reasons. More thought went into its creation and an increasingly bleak demographic outlook added a sense of urgency.
But the main thrust of the directive was no longer purely investment and instead included prudential arrangements applicable to funds to ensure security.
This development allowed mutual recognition between supervisors in different member states and workers could consequently move around the union while remaining in the same pension scheme. Equally important was a greater emphasis on the social elements of retirement provision.
The next milestone in the directive’s development was publication of the Financial Services Action Plan in 1999 which listed a supplementary pensions market as one of 43 measures necessary for the creation of a single integrated capital market.
John Mogg, director general DG internal market, says from this point on the Commission began working around a set of principles- affordability, security and labour mobility and cross border provision of services.
The commission then finally proposed the directive in October 2000. It was, however, not until the Spanish presidency this year that the directive looked like becoming a reality.
In the second half of 2001, the Belgian presidency all but washed its hands of the matter by issuing a conveniently lengthy consultation paper to member states.
When the Spanish took over in January, they injected a sense of purpose into the proceedings by saying they wanted to see a directive passed within their six months tenure.
A decision by the Spanish to go back on the European Parliament’s endorsement of prudent man caused a ruction earlier this year with the likes of Ireland, the UK and Netherlands deeply opposed to any quantitative investment restrictions.
Jostling and negotiating in the last three months has resolved the differences (with the exception of Belgium who has not agreed to the directive) and the council of ministers reached political agreement in June.
Establishing a starting point is difficult but the directive is, at a charitable estimate, the product of a decade’s work. Now all that’s needed is tax harmonisation. That’s another story and one that may make the directive’s progress appear snappy.