The European Parliament has approved a compromise version of the Pension Funds Directive on occupational pension funds – and the challenge now is how European Union member states will implement it.
The positive vote means that the directive is likely to be approved by the European Council and could become law within the next three months.
European internal markets commissioner Frits Bolkestein called on the council “to move quickly to final adoption” and said the directive would enable pension funds for the first time “to take full advantage of the Internal Market and the euro, to the benefit, above all, of future pensioners”.
Meeting in Strasbourg, MEPs approved the European Council’s compromise version of the directive, the so-called “common position”.
“In approving Council’s common position together with a number of last minute compromise amendments acceptable to Council and the Commission, Parliament today paved the way for the introduction of supplementary cross-border pension schemes across the EU,” said the Parliament’s rapporteur for the directive, Austrian MEP Othmar Karas.
He added that a move to reject the common position by the (socialists) GUE/NGL group was lost, with 156 voting in favour, 383 against and seven abstentions.
Karas said: “The compromise amendments seek to strike a balance between different practices across the EU whereby in continental countries social benefits covering disability or provision for survivors (biometric risks) are offered whereas in countries such as the UK the benefit is seen as a social product.” He added that one amendment permits member states to allow a fund the right to offer provisions for survivors and disability cover.
Another amendment preserves the right to receive a payment in the form of a “lump sum” without any restrictions. Another establishes the right to receive information relating to the transfer of pension rights to another fund when changing jobs.
MEPs want information to be provided to each individual every year about the state of their pension fund and current entitlements.
The legislation is based on home country supervision of pension schemes, respect for national, social and labour legislation, and the “prudent person” principle, Karas said. “Indeed, the directive provides for the home state to lay down specific investment rules ensuring that the assets of the fund are invested in the best interests of the members, that the institution is registered and that it draws up an annual report and accounts,” Karas said, adding that a limit of 70% of assets being invested in shares, negotiable securities treated as shares and corporate bonds is laid down, with the provision for a lower limit for pensions guaranteeing a long-term interest rate benefits.
The parliamentary vote was welcomed by observers. Alan Pickering, the chairman of the European Federation for Retirement provision said: “At long last we are in sight of providing Europe’s citizens with the opportunity to use pan-European pension funds to save for their retirement. The vote today shows how, given goodwill on all sides, it is possible to reflect the diversity of Europe within a single prudential framework.
“Hopefully, member states will see this framework as a platform upon which they can all build rather than a straitjacket within which we must all operate. Perhaps, in an ideal world, we would have liked a slightly different directive. But, as everyone else has been willing to compromise the desirable with the deliverable, the EFRP is happy to be part of that compromise.”
The European insurance body the Comité Européen des Assurances also backed the move. “The CEA supports the compromise which has been reached and can be supported by all EU institutions,” it said in a statement. “The adoption of the directive will also represent a milestone in the full integration of the single market for financial services as set out by the Financial Services Action Plan.”
“Now the position that CEA has advocated throughout the procedure has very largely been taken into account - this is a great success for the European insurance industry.”
The EFRP said that each member state must deal with those key aspects of pension fund operation that not only fall outside the scope of the directive but also, effectively, outside the powers of the EU.
States needed to continue as partners, the EFRP said. “Only then will cross-border delivery of occupational pensions become a reality. This means addressing issues in the sensitive areas of taxation and social policy.”