The long awaited 'Supplementary Pensions in the Single Market' green paper was issued by DG 15, the Directorate General for the Financial Services and the Internal Market, un-der Commissioner Mario Monti last month.

The paper makes itscase with much reference to demographics, flagging the fact that currently four working people support one pensioner while by the year 2040 the ratio will be four to two. It also states that the ratio of pension expenditure to GDP could reach 15 to 20% in Belgium, Finland, France, Germany, Italy, Luxembourg and the Netherlands by 2030.

It suggests that such pressures would be eased by a move to the fund-ed provisions adding that the development of funded schemes can facilitate the reform of pay-as-you-go schemes by offering benefits that compensate".

Giving implicit support to the Ang-lo-Dutch style of provision and to asset/liability management, the paper says: "Some of the rules currently imposed by member states as part of their prudential supervision of these funds seem to go beyond what is objectively necessary and prevent the free movement of capital in the Single Market."

The green paper while not concretely adopting a position gives extensive space to the idea of prudent man "which judges the financial viability of the pension fund or life insurance company by assessing the match between its financial assets and its liabilities over the life of the scheme".

It adds: "The role of supervisory authorities would need to be more dynamic if a qualitative approach to the investment of pension fund assets were to be pursued."

In a later passage, the paper adds more explicitly: "The Commission believes that in many cases they go beyond what is objectively necessary to maintain adequate prudential supervision."

It suggests several ways forward: simple reliance on the introduction of the euro, applying current treaty freedoms by developing European Court case law or adopting a directive al-though it admits that consensus will be difficult to achieve for the latter.

While pointedly not endorsing equity investment, it suggests that "it is possible that some EU pension funds could increase their current rate of return by diversifying and taking advantage of a Single Market".

In one area, which has already seen extensive lobbying, the Commission poses the question of whether pension funds "should be subject to the same rules as for life assurance on the liabilities side of the balance sheet - in particular is there a need to harmonise the technical provisions and the 4% solvency margin of our funds?"

It notes that capital markets will adapt to take up funds moving to eq-uity through privatisations, markets such as EASDAQ, and by firms possibly turning to share issues as a source of corporate finance.

"Competition between financial in-stitutions and between financial centres in the EU, together with the growth in financial assets available for investment will lead to improvements in the EU capital market by reducing costs and increasing liquidity," it adds.

The paper also stresses the need to confirm the rights of approved investment fund managers to offer services in other member states, and has the stat-ed aim of finding ways to give members of supplementary schemes moving between member states the same rights as those moving within a state.

It further suggests the set up of a Community Pensions Forum to try to resolve mobility difficulties. Among the solutions canvassed, dealing only with obstacles for compulsory schemes is included, although this, the paper admits, would be prejudicial to voluntary schemes and limiting the vesting period for supplementary schemes - acknowledged as a controversial measure. It also suggests that transferability should be applied to funded schem-es adding that "in other cases preservation would be the only option".

It adds: "Members should be en-couraged to include specific provisions on tax treatment to be given to contributions, transfer values and benefits in their bilateral double taxation treaties", acknowledging that Community level legislation would be better but difficult to impose.

In its final chapter the paper poses questions about privileged tax treatments on contributions, fund in-come, capital gains and benefit payments and asks for possible solutions.

Under the heading 'The case for a common approach' it highlights the confusion resulting from the 105 bilateral tax agreements that currently exist between Members and suggests better co-ordination with one option being the passage of EU law.

On tax avoidance, it sees merit in "exploring the concept of mutual recognition of tax-approved schemes in other Member states." John Lappin"

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