EFRP's Brussels scene
The Pension Fund issue became the focus of European debate with the publication of the Green Paper on Supplementary Pensions in June 1997. The European Commission re-launched the liberalisation of pension fund management but put it in a much wider context taking into account the sustainability of retirement provision during the continuation of demographic decline in all member states.
Although the Commission obviously did not want to exclude any pension provider, the Green Paper mainly focuses on pension funds as the financing mechanism necessary to ensure sustainable retirement provision given the trends in
demographics and the financial market conditions.
The first objective of the Green Paper was to start a large consultation round within a set framework.
The Green Paper considered four different aspects of pension funds:
p the macro-economic role of pension fund as institutional investors
p the appropriate prudential framework needed at EU level
p the removal of obstacles to free movement of persons relating to supplementary pensions
p the taxation hurdles for the free movement of persons when it comes to occupational/supplementary pension contributions
EFRP provided a substantial response to this Commission paper and has put a considerable amount of effort into communicating its response to all relevant parties and decision making bodies, including the European Commission and Parliament and the Economic and Social Committee.
A second round in the preparatory process for a regulatory framework for pension funds at EU level has now started and the debate is much wider than in 1990 when the first proposal of a Directive regarding pension funds’ activities was mainly dedicated to liberalisation of pension fund asset management.
In 1999 EU action and policy development, with regard to pension funds, can be seen divided into four areas as set out in the Green Paper:
1. liberalisation of financial services industry
2. prudential supervision of pension funds
3. cross border membership of occupational pension schemes and safeguarding of beneficiaries’ entitlements
4. addressing taxation barriers
All four items are on the current agenda of activities for the EFRP with an initial focus during 1998 and 1999 on the preparatory process for pension fund
prudential regulation, which is also at the core of the EU Commission working
The Action Plan for the financial services single market implementation (May 1999) has moved attention onto the need for freedom of portfolio management and for freedom to appoint service providers such as asset managers and custodians.
Simultaneously with this above-mentioned Action Plan, the EU Commission published the long awaited Communication on the single market for supplementary pensions (May 1999). It builds further on the consultation obtained from the Green Paper and proposes an EU prudential framework for pension funds as a pre-condition to cross-border pension fund membership of beneficiaries. Pension funds consider their activities require a specific regulatory framework that takes into account their long-term perspective. The Communication contains a strong recommendation to move away from a quantitative to a more qualitative type of prudential supervision doing away with investment restrictions. This has been a long held objective of the EFRP and the seeds of our work over many years appear to be bearing fruit.
Taxation receives a lot of EFRP attention too because cross border membership of pension funds is seriously impeded by adverse and uncoordinated tax regulations and practices. Therefore, it is important to make sure that the issue remains high on the agenda. To this end, EFRP has provided input to the EU Commission informing officials about the barriers in practice and the possible remedies. An ECJ test case could come under consideration if legislative action fails to become a reality as a result of member states’ inertia on
The latest EU Commission paper also announces further steps for facilitating the free movement of workers without jeopardising their entitlements in occupational pension schemes. Here the solution is far from identified and the Commission will set up a Pensions Forum and launch a study to examine in detail which way the difficulties of cross border affiliation could be overcome. The EFRP will have a seat on the Pensions Forum.
The goal of EFRP’s action is to make sure that any pan European pension vehicle can operate smoothly to the benefit of the labour force and European industry.
Chris Verhaegen, Permanent Representative of the EFRP in Brussels