Francis Lohéac of the CEA outlines European insurers’ approach to the EU debate
It has become commonplace to say that state pension schemes based on a policy of redistributing income and on pay-as-you-go financing are fragile: all states, not only the 15 European Union members, are facing this situation and have an urgent need to undertake the necessary reforms. The majority of them envisage involving private insurance to a greater degree on a funding basis or have already done so; reforming the basic systems financed by pay-as-you-go is effectively deemed insufficient alone to guarantee continuity of social protection.
Insurers as specialists in guarantees linked to the duration of human life, and therefore pensions, have an important role to play in this reorganisation. They intervene at second pillar pension level, ie schemes which are supplementary to social security organised in an occupational framework or linked to employment; the preponderant role of insurers in third pillar operations is not examined here because it depends exclusively on an individual initiative being taken by the insured.
It is up to insurers to provide their organisational expertise on risk-pooling matters and, generally speaking, as an addition to – and not a replacement for – state pension benefits.
One of CEA’s main priorities, and this has been the case since the 1990s, has therefore been to aim for the adoption of a flexible European legal system guaranteeing compliance with national arrangements for the three pillars (subsidiarity) enabling: a balance to be achieved between security and return, between prudence and freedom, for payment of an adequate replacement income to members; eventually, the possibility of cross-frontier membership of pension funds to be achieved.
The latter, which will put the final touches to ‘Pension Europe’, is fully justified by the aim of greater worker mobility, essential if European integration is to be pursued. It also meets a growing demand by employers who operate throughout the territory of the EU via establishments in several member states and who are consequently anxious to set up one single pension scheme for all their workers wherever they work.
What are the prerequisites for a safe and effective single pension market?
European insurers are largely in favour of initiatives the aim of which is effectively to accomplish freedom of financial management and free movement of capital in the field of private pensions.
They support measures to lift restrictions on free choice of investments which still face investors in certain member states; this liberalisation, which should contribute to the expansion of European capital markets and reinforce jobs and growth, should however take into account the social role of pension funds whose primary aim must be to service beneficiaries and not capital markets.
The community framework, by establishing appropriate prudential surveillance of the assets and liabilities of pension institutions, will make it possible to reconcile the principle of freedom of investment and management and its essential corollary the protection and safeguard of the rights and interests of workers.
The fact that supplementary pension benefits were recognised as “deferred wages” by the Court of Justice requires formal guarantees that benefits will ultimately be paid whichever institution is responsible for their payment or regardless of the time at which they are due to the beneficiary. Similar requirements throughout the EU as to the continuity of commitments will make it possible to safeguard and strengthen the rights of members and will open the way for the creation of European pension funds.
Furthermore, insurers have argued for the establishment of equivalent conditions of exercise and competition for all second pillar operators. The requirements relating to pension fund commitments should be identical vis-à-vis the support undertaking with regard to management on the one hand and vis-à-vis members of staff with regard to benefits on the other whatever technique the employer decides to use.
When he envisages establishing an occupational pension scheme, an employer in point of fact decides on the financial structure and the operation of the system by weighing up the costs and advantages of each of the options available. The nature of the pension institution is consequently from this point of view of little importance because, when they offer similar products, operators – whether “closed” or “open” pension funds or insurers – are in direct competition: it is important therefore for the different formulae to be placed on an equal footing and, where benefits are identical, that they are subject to the same constraints.
Insurers are pleased to see these principles accepted by the European Commission in its communication “Towards a single market for supplementary pensions” which, long announced then ‘blocked’ because of the perturbed institutional context, was finally adopted on 11 May. The communication underlines the next stages of two proposals for a directive and it will be up to the new college to ensure that they make progress in the community bodies: a proposal for a directive on the co-ordination of tax provisions applicable to supplementary pensions which should be ready in October 1999; a proposal for a directive on prudential supervision of pension institutions, ready in principle in mid-2000.
CEA, and all operators concerned, is of course keeping a watching brief on matters to ensure that the essential “acquis” is translated in these projects, the completion of which is a deciding factor for the financing and indeed for the future of supplementary pensions in member states.
Francis Lohéac is secretary general of the Comité Européen des Assurances in Paris