CZECH REPUBLIC - The European Court of Justice (ECJ) has ruled the Czech Republic has acted in breach of European law by failing to implement the Institution for Occupational Retirement Provision (IORP) Directive, even though the country does not actually have any IORPs.

The judgment issued yesterday on case C-343/08 stated the Czech Republic had failed to fulfil obligations regarding the directive, and had partially failed to transpose the required legislation within the prescribed timeframe.

The only penalty being imposed on the Czech government is legal costs but the ECJ made its judgment as it felt it was necessary to establish the base rules on complying with the directive.

More specifically, the ECJ said it recognised the Czech Republic believes it would be "obliged to change the fundamental principles of its national social security system" if it were to allow the use of IORPS". However, the Directive does not actually order countries to introduce any such changes or allow IORPs to establish themselves in a territory, said the ECJ, merely to make sure the EC Directive has been enacted as required under Article 22(1).

This article provides that: "Member states shall bring into force the laws, regulations, and administrative provisions necessary to comply with this Directive before 23 December 2005."

But the Czech Republic did not do so, and proceedings against the member state began in 2006. The Czech government responded at the time by arguing there was no reason for it to implement the IORP Directive as there were no IORPs and "neither the political will nor sufficient economic potential to introduce an occupational retirement scheme".

It also argued that Article 9 of the Directive would require it to create a national register of institutions or authorize them, yet the government could not do so as acting on this would "require the adoption of corresponding legislation".

The ECJ answered this retort by noting that the Czech Republic is not unable to amend or introduce legislation but is simply unwilling to do so at this time, even though officials had agreed they would introduce a second pillar into the national retirement pension system back in 1993, prior to the adoption of the IORP Directive.

On this issue, the Czech Republic conceded in an ECJ hearing "a second pillar could be introduced in the future if the political will to do so were to emerge".

The Czech Republic national pension system is currently made up of the first pillar state provision and third pillar voluntary plans, which do not have any link to employer-based pension provision.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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