Different pension systems operate in all EU member states and there are also very different legal structures and regulatory cultures. To date, the EU Commission has accepted the right of member states to decide on their national pension systems, and the main EU initiatives on pensions appear to have been driven by the aim to achieve a single market for pensions and to facilitate cross-border pensions movement.


Regulation to date

The EU initiatives on pensions during the 1990s were not successful and the first formal legal instrument was the EU communication on ‘The elimination of tax obstacles to cross-border provision of occupational pensions' in April 2001. This was followed by the EU Pensions Directive on ‘The activities and supervision of Institutions for Occupational Retirement Provision' in September 2003. Effectively, these outlawed tax obstacles for cross-border pension activity, set a common minimum level of pension supervision, moved towards freedom of investment and facilitated cross-border pension schemes.


Response to regulation

The greatest barrier to the creation of pan-European pensions has been seen as tax discrimination and, notwithstanding the EU Tax Communication, 18 members were identified in a recent report as still having tax infringements in their pension tax treatment. These mainly related to dividend and/or interest taxation and the EU Commission is pursuing these through pressure and legal action.

Implementation of the directive by member states has also been very slow. The deadline for this was September 2005 but towards the end of 2006 five member states had still not notified full implementation. Again, the EU Commission has initiated legal proceedings against a number of states for failure to meet the implementation deadline but EU legal processes are lengthy. In the meantime, there is general recognition that the uneven implementation of the directive throughout the EU is delaying progress on cross-border pensions.

The Committee of European Insurance and Pension Supervisors
(CEIOPS) is now supervising implementation of the legislation and has established a working party for this purpose. The main output of this working party so far has been the drafting and agreement of a protocol between EU pension supervisors. Known as the Budapest Protocol, it sets out the principles and modus operandi for supervisory co-operation under the pensions directive.


Cross-border pensions progress

Cross-border investment pooling was already possible before the pensions directive and was happening. However, it would appear to have been given encouragement by the directive and is now taking place on a much wider scale. Cross-border asset pooling has been facilitated by the introduction of investment pooling vehicles by a number of member states. The first of these were a UK pooling vehicle, the Luxembourg Fonds Commun de Placement and the Irish Common Contractual Fund but other member states such as the Netherlands and Belgium are now becoming active in this market.

Pooling of liabilities and pooling of administration are the next options but while some work and research is happening in these areas there has been little action so far.


Is EU regulation delivering?

The EU Commission seems to be waiting to see how things develop under its regulatory initiatives. It has given some clarifications where these were requested but otherwise seems to be taking a ‘wait and see' approach, even though development of cross-border activity seems much slower than most of those involved expected, and hoped, to see.

Some obstacles to progress have been identified or suggested. In particular, the requirement for each member state to set out the social and labour law affecting pensions in that state has given rise to some member states appearing to use this as a way of inhibiting cross-border movement out of their jurisdictions. Continuing tax discrimination has also been a way for member states to discourage cross-border activity.

There are, of course, a number of member states with very positive approaches to cross-border activity and clear acceptance that this is an opportunity rather than a threat. The negative attitudes of some others are perhaps best explained by the recognition that Europe is a continent and not a country.

The solvency measurement of defined benefit pension schemes has also been an issue in relation to cross-border movement of these schemes. The pensions directive required ‘full funding' for cross-border activity and there has been a lot of confusion about the interpretation of this. It now appears that recovery plans are permissible for cross-border defined benefit schemes in the event of the scheme becoming underfunded at some point after it has started operating cross-border. However, there are still uncertainties arising from the different solvency requirements applying in the member states and the different approaches to recovery plans.

The fact that many member states are currently involved in reviewing and changing their national pension systems has also prevented focus on the potential for cross-border activity. Also, all parties involved lack experience in this new area so any development means that resources have to be put into planning and research before moving forward. Potential cross-border gainers, such as multinational employers and pension providers, may also wish to avoid ‘first mover disadvantage' where the first mover ends up bearing a lot of the cost of ironing out problems for subsequent movers.


What else might be done

It will be very disappointing if the EU Commission does not use its powers of persuasion or move its legal processes forward as speedily as possible to bring about full implementation of the pensions directive in all member states without further delay. It must surely be disappointing that we are now 16 months from the implementation deadline with a still incomplete picture. The same onus must be on the Commission to eliminate the tax infringements which are still an obstacle to development of the single market for pensions.

It would also be helpful if the areas of the directive where time is still being spent on interpretation could be clarified at Commission level as far as this is possible.

Co-operation and communication between pension supervisors will also need to be developed and encouraged in order to make the Budapest Protocol work in practice. Smooth cross-border supervision is essential to support the activity and this is an area where the EU Commission and CEIOPS could look at how best to move speedily towards the well developed cross-border supervision which exists in other financial areas.

A review of the pensions directive by the EU Commission has been mentioned for 2007/2008. This could be a useful opportunity to address the obstacles to cross-border progress and it is important that this review does not become the lengthy exercise which was the case for all of the previous pension initiatives. Rumours of a second pensions directive have recently been denied and this is probably for the best!

Overall, the EU Commission could encourage member states in a very pro-active way to take a positive approach to the single market for pensions. The growing recognition of the importance of pension provision in the individual member states should create a receptive climate for this and should help to avoid the dominance of national pension interests which was a major obstacle to developments in this area during the last decade.



The tax communication and the pensions directive were reasonable first steps in EU pension regulation. They also avoided interference in national pension planning and supervision which was and should be left to the member states.

However, I believe that at this stage more needs to be done directly and indirectly to implement the first steps. With another EU push the single market for pensions can be achieved and full pan-European pensions funds can happen in the best interests of employees, employers and member states.

Anne Maher is the former chief executive of the Pensions Board Ireland