Goodbye Belgium, hello Spain then.
After much expectation that the pan-European pensions directive would get a sympathetic hearing during the Belgian presidency – Belgium itself in the midst of introducing occupational pensions law not a million miles from the EC Directive, the disappointment has been that this has not translated into the required pressure to find a solution in the European Council of Ministers.
When the meeting of the Council of Economics and Finance Ministers (ECOFIN) in Luxembourg in October – presided over by Didier Reynders, the Belgian finance minister, gave little more than five minutes to the question of the European pensions directive, the frustration felt by many in the pensions arena was palpable.
Koen de Ryck of Pragma Consulting in Brussels, believes it is regrettable that the directive has made little progress under the Belgian presidency.
“ It is very strange. In Belgium we are coming up with the new second pillar and this law is perfect for the directive. I don’t really understand why the Belgians would not be for the directive.”

So what hope Spain? De Ryck believes the indications are that it could well take place under the Spanish, sensing that the general economic environment will force their arm a little.
“I think that considering the bad returns in the market and question marks for next year and the evolution of the 401k market in the US, which is in bad shape at the moment, then the directive is more than a reasonable proposal at the moment.”
However, he points out that the “European jargon” of “mutual recognition” of widely diverging systems has to be made clear. “This directive is not interfering with national competencies in this matter, but it gives an orientation that it should be funding with investment based on prudent principles.
“It creates an environment of transparency and does not impose restrictions. The good thing is that the European Parliament has approved this and approved temporary exceptions to the prudent person rule.
“If this first step of mutual recognition is not clear then it could be impossible to make any further progress.”
He also points to the Directive as a vital support for EU expansion in eastern Europe: “If we don’t want have a framework for pensions then we will not be able to impose any sort of discipline and we will have to pay for an ageing population. “If we get this, then in eastern Europe they would be able from day one to invest on a global basis and we could link subsidies to this progress.”
With regards to where the directive is now, de Ryck is optimistic on progress under the Spanish presidency.
“I think there are some advantages in Spain’s favour, it’s a Mediterranean country and is not a small country so it has a substantial number of votes. I also think they could bring along the Italians and the French to some degree and I think the French are not as strongly opposed to the directive as in the past. The most we can say I think is that they might come up with some sort of deal.”
However, he warns against too much compromise: “If they come up with more restrictions then I think Bolkestein will not accept this.”
De Ryck says he has heard that the Spanish are talking to the Dutch, British and the Irish about their pension models in the knowledge that they have to do something in this area.
“This could be a breath of fresh air because I think the Spanish are less suspicious of the directive. If they don’t do something then it goes to Denmark and it could again be scaled down.”
De Ryck’s optimism is not shared by former EFRP chairman, Kees van Rees. “We’ve now gone through the French not doing anything, the Swedes who were purely technical chairs of the meetings and didn’t make much progress and we’ve seen the Belgians wanting to put social policy on the agenda, which has taken them nowhere.
“It was only late in the presidency that they started looking at specific articles and as far as I know they haven’t even gone through the whole proposal yet – particularly Article 20 about the cross-border part of the directive, which in my view is the most important part,” says van Rees.
He is also pessimistic on whether Spain will move the issue forward.
“I don’t think Spain is that keen on this, especially when it comes to cross-border elements. This is of major benefit to multinationals and Spain doesn’t have many multinationals and they are afraid that they will lose out in that the multinationals that have their bases in Spain will simply be absorbed in the plans of the home countries.”
One of the key stumbling blocks to the directive, he believes, are the ‘men in grey suits’ pulling the strings.
“Politicians may change, but civil servants remain the same.
“On pensions the emphasis is on the civil servants conducting the negotiations and I’m not at all convinced that many of them are ready to embrace the sort of changes that their political masters would want them to embrace.”
He gives an example: “Proceedings in the technical working group of the Council are heavily dominated by regulators, indeed the chair of the Belgian presidency was taken by the regulator.
“They are simply not interested in making any changes because they find prudent person a very difficult subject to handle and I fear the same with Spain.
It’s not making any progress and the proof is that we have now had more than a year of discussion in the Council working group and there has been no progress.”
Going forward, he believes that if Article 20 regarding cross-border supervision is not addressed, then all else may fail.
“The elements of social policy and biometric risk have been voiced here, which I don’t understand if the second pillar is only five per cent of your country’s total pensions coverage.
“And, basically, a number of countries don’t like the prudent person rule and they would want to add all sorts of quantitative elements to this.”
However, he is quick to point to the regulators’ defence: “In the country that is the biggest advocate of prudent person – the UK - some very notable accidents have occurred. This doesn’t strengthen the case for prudent person. “The regulators do not have a case I think, but they do have some arguments about the dangers of the various elements.”
He adds that the problem of suspicion over supervision of pension funds by different countries within the EU also needs to be addressed.

He also senses a future battle between the Parliament and Commission: “There have been a lot of words added to the directive, which do not necessarily make it more focused. Clearly a number of elements have been added which are not favourable to the Commission or the European Council so that will add to the confusion and delay things.”
“I’m rather pessimistic about the whole thing. You have to see this against the background of the ageing problem. People keep talking but they don’t act and I find it rather disappointing. I’m afraid I’m not on the side of the optimists.”
Nonetheless, Angel Martinez, head of Inverco, the Spanish pension and investment funds association, believes Spain may have the key to compromise.
“Maybe the Spanish approach could be a good one. We have no investment restrictions, but we have some diversification rules in that we can’t invest more than 5% in one company. It is a prudent person rule with diversification and it could be a middle way between those Anglo - Saxon countries and the others.”
Martinez is also hopeful that a solution to cross-border supervision can be found “We have agreement on this for banking etc, where you have a European passport with home supervision, so I don’t see why not.
“This directive is one of the major parts of the Financial Services Action Plan and one of the main priorities of Mr Bolkestein, so the approach and compromise should come either in the first or second semester of 2002.”
While he believes could show the “third way” between the Anglo Saxon model and that of the rest of Europe, he also suggests that maybe a two tier Directive could be the solution.
“There is also the possibility of having two different activities between those countries still working on domestic legislation and those pension funds that could have activities on a European basis and could have a more liberal approach.”