Preparing for a new term
The June European election campaign was again accompanied by a widespread debate on just how united the people of a disparate group of countries could be in reality. And as the votes were counted, the question was answered. One of the common defining features of the European electorate - in new members and old - is apathy.
And, further, this appeared to be based on a common European bewilderment - seen from Kerry to Karelia, from the Scandinavia Arctic to the Algarve - about just what the European Parliament is for.
But for those MEPs with an interest in the pensions arena what it’s for is very clear. The last European parliament saw the passage of the directive on institutions for occupation retirement provision (IORP), the European occupational pensions directive, which is in the process of being incorporated into the law of each member state, and which will have an impact on working people across the continent. The directive was agreed under the process of co-decision: the draft being proposed by the commission, agreed by the council by a qualified majority of 71% of the votes and then agreed by the European Parliament.
“We managed to make substantial amendments to the directive,” says UK MEP Chris Huhne, who sits with the Liberal group and has been a member of the economic and monetary affairs committee since his election to the European Parliament in 1999. “For example, we removed the quantitative quotas that a number of member states had for particular types of assets held by pension funds, including requirements to hold a certain percentage of a fund in a home government’s bonds.
“And we were the champions of the prudent person principle as it is applied in the UK, which says that there should be no quantitative limits on particular types of assets but that the fund should be run prudently in line with likely liabilities. So, if you have a pension fund being run for a bunch of 20-something-year-olds who are working for a high-tech IT company and who are not going to retire for many decades it might in theory be sensible to have 90% or even 100% invested in equities, but if you are running a pension fund for a bunch of 50-something soon-to-be-retired people who are all in a mature pension fund from a declining industry like steel, then it would make sense to be exactly the reverse and have 90% of the fund invested in bonds.”
The pensions directive was just one of 42 legislative and non-legislative measures forming the financial services action plan, of which 39 have been completed. “They include international accounting standards so that in theory all listed companies in Europe will be producing their figures on the same basis from January 2005. That will ease comparability for asset and fund managers. Another is the prospectus directive that will enable bond issuers to come to market with regulatory approval in just one member state. And they include basic rules on market abuse that will assure pension fund managers investing in any member state that they have the same minimum standards of probity and oversight. So overall this framework of legislation is a massive programme.
So the new economic and monetary affairs committee, constituted when the newly elected MEPs met in Strasbourg in July, already has a full agenda.
“The economic and monetary affairs committee still has crucial areas to discuss,” says Finland’s Piia-Noora Kauppi whose centre-right National Coalition (KOK) is part of the conservative European People's Party. “I expect that asset management, for example, will be on the agenda in the near future, and while capital adequacy rules are more of concern to insurance companies, they are also of interest to large financial conglomerates that are active in the pension funds arena. Then there are all the developments of relevance to the derivatives market – we will soon be dealing with the hedge fund directive. And banking, insurance and other sectors are being billed at the committee level, so the committee faces an important five years.”
Kauppi is also a member of the European Parliament’s legal affairs committee. “It will be looking at corporate governance and corporate social responsibility, which are increasingly related to the length of the average working career, the raising of the retirement age and the structure of the labour market in the EU,” she says.
For Kauppi it makes sense to handle such issues at a European level. “Every member state has similar problems in this area,” she says. “Pension reform is a necessity for all of them. And it’s a very complex and broad area, being a legal reform that is also related to the labour market and to national economics and macroeconomics. And while the main responsibilities lie within the member states, I think that the EU can play a supportive role when it speaks about common problems and common challenges so it is logical to discuss the challenges together at a European level. And not all member states have made pension reforms that are beneficial for the future, so a project like the Gothenburg process, which was initiated by the Swedish presidency and which requires that every year pension developments are examined at the European level, serves the purpose of making member states aware of what they have to do and applies pressure to those member states that have to do more.”
“Most member states still have a very small private pension provision sector,” says Huhne. “But they should be looking to build it up because of concerns about potential liabilities in the public sector and because, as we know from the UK, it is very tempting for governments to walk away from their apparent obligations to pensioners. And the establishment of a single market for pension funds’ fund management would allow economies of scale and that would be good for the funds, for pensions, and for pensioners because they would get higher rates of return than they would with the sort of quantitative limits that were previously applied by some member states. It will also hopefully be good for the financial services industry because it will be able to operate on a pan-European basis.”
“It’s clear that the streamlining of the pensions and financial services areas would lead to enormous savings by certain providers,” says Joseph Muscat, a MEP from Malta, a new member state, and new member of the economic and monetary affairs committee. “But we must make sure that these are not only to the benefit of the conglomerates but that also the pensioners get some of the value of the efficiencies, because at the end of the day what is the use of having a good internal market unless the end consumer gets a better deal. It should not just be an exercise in cost cutting.”
An economist with a banking background and a member of the Malta Labour Party, which is affiliated to the European socialists, Muscat brings a different point of view to the committee. “My starting point is that the state always has an obligation to provide a national pensions system,” he says. “Whatever we legislate in the European Parliament does not alter the concept that the state cannot shed its role as the provider of a national pensions system. I am trying to bring the perspective of the man in the street and people in small communities to the committee, to act as a reminder that we are not there just to legislate on the bigger picture but to bring an awareness that while looking at the big picture we cannot ignore the way in which ordinary people could be affected in both a positive and negative manner by decisions that we take. I want to remind my colleagues about our constituents back home.”
And Muscat also sounds a cautionary note about implementation. “I think that the whole institution should take a step back and assess whether its decisions are being implemented and their effect, rather than try to rush through an endless stream of initiatives that in practice do not materialise.”