Disputes between Brussels and national governments are likely to emerge when the European Commission unveils in June its position on the rules concerning national social and labour law (SLL).
Behind the up-and-coming clash is that, while occupational pensions are regulated under prudential rules, social and labour law also plays a role. Brussels holds sway – in theory, at least – over the area of prudential rules, covering supervisory procedures and funding.
Social and labour law rules apply in the ‘host’ jurisdiction. They are jealously guarded as the domain of the EU member state governments and vary considerably. The problems lie in confusion resulting from the lack of clear definitions of prudential and social and labour law.
These concerns date back to 2007, when the results of a study commissioned by the European Association of Paritarian Institutions (AEIP) noted difficulties in implementing the IORP Directive “owing to the lack of clear definitions [of] national social and labour law at European level”.
In December 2012, more detail emerged in a consultation paper from the European Insurance and Occupational Pensions Authority (EIOPA). The paper outlines obstacles to cross-border activity for occupational pensions.
It reveals that stakeholders believe that the social and labour law is the largest obstacle. Next in line are taxation, lack of demand, and funding requirements.
EIOPA notes that achieving a common standard is complex given the diversity in interpretation of what constitutes social and labour law. Furthermore, the current IOPRP Directive, contains no definition of prudential law. Elsewhere, EIOPA mentions that member states “do not even make a distinction between prudential regulation and SLL in their legislation”.
The deadline for responding to the EIOPA consultation is 10 March 2013. It will report by 30 June, and expects to forward its draft Implementing Technical Standard (ITS), to the Commission by 1 January 2014.
Referring to the review of the IORP Directive, Chris Verhaegen, chair of the EIOPA pension stakeholder group, says that the “objective… [should be] to ensure a higher level of harmonisation in the prudential area in order to prevent a ‘race to the bottom’.”
PensionsEurope (formerly the EFRP) warns “against the creation of an unregulated area of rules, which fall neither within the sphere of prudential regulation nor of social and labour law. Both sets of rules should mutually exclude each other”.
It would like to see “a broad, inexhaustive definition of prudential regulation, which would include the sets of rules that regulate the production and delivery of pension benefits”.
On the Belgian 3.25% minimum return for pension funds, the chairman of the Belgian Association of Pension Institutions, Philip Neyt, comments: “For me, it is very clear – the pension promise belongs to ‘social and labour law’.”
Reformist moves by Brussels affecting SLL would apply equally to occupational pensions and life insurance and assurance schemes. Thus, output from Brussels could impact on perhaps €10trn of EU investment capital. Insurance Europe declined to comment.
A not-unimportant side issue concerns the tethering by member states of fund management. One benefit to the home country, is the retention of employment of professional teams that manage investments.
The recent letter by the French Autorité des Assurances et des Mutuelles (ACAM) to the French UMR French pension fund advising it against moving to Belgium highlights the wish by nationally-based authorities to retain fund management at home.
Deborah Cooper, partner at Mercer, notes that hardly any funds have moved. “Obstacles to moving are greater than the European Commission understands,” she comments. “The problem lies mainly with taxation”.
Francesco Briganti, director of the AEIP, agrees that the fact that only 80-90 funds had made cross-border arrangements is due, primarily, to the divergent nature of national taxation systems.