Speaking at the Brussels press conference on the launch of the directive, European internal market commissioner Frits Bolkestein noted that ‘obligation’ was a difficult tack for the Commission to take with member states regarding pensions, when questioned about the directive in the light of Europe’s demographic problems.
“At the time of the Lisbon conference it was expressly stated by the parties that the Commission come forward with this kind of proposal, which would allow companies to benefit from the full use of the financial markets.
“However, there is no obligation here to member states to encourage a greater role for funded pension schemes. How member states do this is a matter for themselves.”
He flagged up the essence of the directive as an important step forward, nonetheless: “The important aspect is the fact that companies may now sponsor pension funds in other member states. We wanted to ensure that there is the possibility to do this.”
Asked whether a shift toward pension funding might have an impact on competitiveness in countries like Germany where such a culture doesn’t exist, Blokestein replied: “There is no reason why pension funds should not come into existence in Germany, but we are not laying down a vehicle for this – it will be important though if the demographic situation remains as it is now.”
On the question of book reserves, Bolkestein pointed out that it was not the job of the Commission to be prescriptive on the vehicles used in members states for pensions.
“If Germany wishes to continue providing pensions in the way it does now, then so be it, imposing something on them is not what the directive is about.”
On investment restrictions , Bolkestein made clear that the 70% equity level was a guideline not a rule: “The freedom given to pension funds to invest 70% in shares does not mean that they have to do this. It is not correct to say that this means every pension will have the possibility to invest up to 70% in shares.
“I hear, for example, that the pension fund for the Guardian newspaper in the UK invests all its assets in shares. What it does mean is that funds must lay down more detailed rules about how they invest.”
On taxation , Bolkestein recognised that his toughest work is to come.
“The question is whether pension contributions are deductible for income tax purposes or not.
“There is the possibility that there could be a situation of double or zero taxation – both of which would be unfortunate scenarios in any members state. We are working on this and hope to produce something on it early next year.”
However, he was less than enthusiastic about the support he has received from member states in trying to resolve the issue.
“Member states are not particularly willing to discuss these matters at the moment despite the reasonable proposals we have put before them.”
Noting the issues at stake in any domestic fiscal compromise, he added: “Member states cherish their own taxation systems and we have to ease them towards harmonisation, particularly as changes to these systems can have important budgetary consequences – for example, if you remove the taxation of contributions.”
But he was scathing in the lack of support received to date.
“The first sounds that I hear on this issue are not all that hopeful and therefore if member states continue to cherish their home tax systems to such a degree then the commission is left empty handed.
“Responsibility should be placed where it belongs – with the council of ministers.”
To finish, he placed the directive in a much larger sphere – as part of an overall change in the way retirement and social security is financed today.
“What we are witnessing in Europe is a shift from bank financing to stock market financing, which is good because the former was expensive and we need to make more use of the markets.
“The higher share of investment by pension funds will be good for the stock markets.”
Anna Diamantopolou, commissioner for employment and social affairs, added that the Ecofin council was also currently looking at the problems of first pillar provision.
“We await the final results of a report on this, but it will be an outline of the problems concerning future generations.”
She noted the importance of the Commission’s linking of state and supplementary pensions systems though: “This link between the first and second pillars which are intrinsically connected to each other is one of the biggest challenges we face.”
The report from the Social Affairs Committee on first pillar systems and taxation, she said would see the light of day in the spring.
However, she offered some pointers as to the direction any Commission moves in this direction might take
Raising the issue of early retirement in some member states, Diamantopolou commented: “We believe this cannot continue, particularly the fact that in some member states it is more advantageous to be retired than to work.”