How pleased are you that the pan-European pensions directive has finally become a reality after so many years and how much of a milestone do you think its introduction really is?
You can imagine that I am very happy that the Council has been able to accept all the amendments tabled by the parliament in the second reading and finally adopted the directive on the activities and supervision of institutions for occupational retirement provision.
This directive has been one of the key elements of the Financial Service Actions which aim is the creation of a financial interior market by the year 2004. All directives which form part of this plan have to be adopted within the co-decision procedure, meaning that both, the Parliament and the Council have to give their agreement, before a directive can be adopted.
I was appointed as “rapporteur” for the first and second reading in the Parliament. During the difficult decision making process I had to take into consideration more than 300 amendments of other members of the parliament. But not only the members of the Parliament, also the member states had very different views on this issue.
I had a series of discussions with the different presidencies (Spain, Denmark and finally Greece) and with the Commission and it is a great success that an agreement could be achieved by - at the same time - avoiding a conciliation process.
It was already a little milestone that such an agreement could be achieved. The first attempt for a directive for cross border activities of pension funds failed in 1994. So, this directive can be seen as a very important step, but it is only the first step into the right direction.

What do you feel were the most significant stumbling blocks to agreement in the Parliament itself and between the Parliament and the Commission/ Council of Ministers and how were these eventually overcome?
On the one hand it was always clear that we are dealing with a financial services directive. That is why a lot of members of the Parliament showed strong engagement concerning the liberalisation of investment rules and the promotion of the ‘prudent person principle’ instead of quantitative rules.
On the other hand we are dealing with occupational retirement provision, which is the second pillar of our pension system. That is why many members wanted to ensure that future beneficiaries are properly informed and that they are – if they wish – covered by biometric risks.
It has always been my wish and I knew that it was possible to combine both approaches. And that is also what we finally achieved! We want a single financial market in Europe and we know that pension funds play an important role in the European financial markets and we also want to promote it. On the other hand every European citizen is interested in the financial security during the retirement.

Do you feel there are areas within the remit of the directive that still need to be worked on and improved? Are there also further areas such as portability of state pension rights and tax discrimination that need to be pursued more vigorously to enable the single European market?
It is true that this directive does not deal with the portability of pension rights. This still depends on national legislation. However, without aiming at it, the directive will bring about some simplification on this matter. I expect that big companies which have offices in several or all member states (such as Siemens) will take the advantage and will conclude a Europe – wide contract with only one pension fund. Members therefore will not have any problems regarding their pension rights when changing the working place between European countries while staying in the same company. This is already a great advantage although it is only a positive ‘side-effect’ of this directive.
I think that it would be a good idea to harmonise the portability of pension rights. We should definitely promote flexibility of movement of labour force within the EU and should therefore dismantle current obstacles.
Another matter where the EU definitely needs a reform – and you rightly mention this in the question – is the tax legislation. Firstly, I do not think that unanimity in the Council is still appropriate. It only blocks the EU from further action and reform. Secondly, I think that adequate tax harmonisation on matters which bring about distortion of competition is necessary.

Have you looked at what the impact of the directive will be on different member state retirement legislation etc? Do you have any concerns that any member states may have any problems in the implementation of the directive?
During the decision making process I was constantly in contact with representatives of the Council and I think that the directive in its current form should not pose any problems with regard to the implementation in the member states. Some countries will face stricter information requirements, others maybe regarding the registration of pension funds; others will have to cope with a different concept of investment rules. However, this directive should be manageable for all countries of the EU.
In any case I have to make clear: everybody speaks about harmonisation and when we come to the point, member states and companies often hesitate to accept necessary changes. If we really want harmonisation on a European level, then we also have to accept to change also part of our own practices.

How do you respond to critics who claim that the directive is ‘a compromise of a compromise’ and that much of what is in the legislation will have very little impact in creating true pan-European pensions?
I respond to them that the Parliament had seven major requests in the
second reading, out of which we achieved acceptance on six! These are:
o Obligatory information
o Option of biometric risks
o Definition of retirement benefits
o Promotion of co-operation between supervisory authorities
o Level playing field between institutions of occupational retirement provision and insurance companies
o Proper registration.
The only request, which we had to abandon was the request for a liberalisation of the investment rules. I think that these statistics demonstrate very clearly that the outcome of this directive was more than a simple ‘compromise of a compromise’.

Other critics have also challenged the notion that the directive only covers pension funds and life-insurance companies and no other occupational pension schemes providers – thus limiting the choice of occupational pension schemes and making the structure of the occupational pension market less competitive. What are your views on this?
As you might know, it was the Parliament which strongly promoted a level playing field among pension funds, insurance companies and all institutions which provide occupational retirement provision. One aim of this directive is also to promote the market of occupational retirement provision. That is why the Parliament promoted in the first reading the possibility for insurance companies to ring-fence their assets and liabilities. The proposal of the Commission had foreseen that insurance companies had to create their own legal personality if they wanted to fall under this directive.
The approach that all institutions which provide occupational retirement provision should fall under the directive has been seen as too radical for the Council. Nevertheless, the Council has accepted the Parliament’s idea and in recital 12 it reads as follows: “The Commission should also carefully monitor the situation in the occupational pensions market and assess the possibility of extending the optional application of this directive to other regulated financial institutions.”

How do you feel Europe-based corporations and European citizens will benefit from the directive and do you believe it has any contribution to make in tackling the so-called European ‘pension time bomb’?
Especially corporations with cross - border activities will largely benefit from this directive. Studies have shown that such companies will be able to save about E40m per year by avoiding the administration of different systems of occupational retirement provision in each member state. European citizens will certainly benefit from cross border competition of pension funds and will therefor find greater and better choice of product.
Many European citizens start to see the second pillar of the pension system as a necessary supplement to the state pension, sometimes even as a substitution. But there is no doubt: We also need the reform in the first pillar!

Topics