EUROPE – Othmar Karas, the European Parliament rapporteur on the supplementary pensions directive today (March 21) presents his findings to the parliament’s European Monetary and Economic Affairs Committee (EMAC).

And as expected the Austrian MEP has called for the introduction of the prudent person investment rule to govern the management of assets in European pension funds – overriding calls within the parliament for stricter quantitative limits on asset allocation.

In his referral to EMAC, Karas argues that institutions should be able to invest pension assets efficiently – striking a balance between investment risk and security on the basis of prudential rules: “ Ultimately, this is advantageous for recipients, since they can expect a higher yield and thus also a higher pension.”

In a side-swipe at critics of the prudential rule, Karas continues: “ A broadly held prejudice states that the prudent person rule amounts to an untrammelled liberalisation of investment policy; in fact the reverse is true. Pursuant to this rule, funds must be measured in a manner commensurate with the commitments entered into by an institution for supplementary retirement provision, i.e. in particular in a manner commensurate with the age structure of its members.”

However, Karas notes that the directive must take into account differing investment mentalities in individual member states, as well as the lack of experience of some national regulators on qualitative investment approaches.
To this end, Karas suggests a time-limit of ten years be given to member states wishing to retain quantitative rules, subject to certain restrictions.
Following this, Karas notes: “ A member state’s supervisory culture and methods can be brought into line with the qualitative approach.”

Karas says he hopes there will be a vote on the report by EMAC at the end of April in order to be able to go to plenary in June or July at the latest.



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