Second round for directive
It’s seconds out - round two, for the European pensions directive as it goes back to the European Parliament for a second reading following adoption by the European Council of Finance Ministers (Ecofin).
And signs are that it is already shaping up to be a bruising encounter.
The new form of the directive, which was amended and then adopted at the first reading by Ecofin recently, is not to everybody’s taste – directive issues rarely are! But some parliamentarians appear to be particularly incensed that their inclusion of social provision in the directive – particularly relating to biometric risk cover, has been sidelined.
The so-called ‘common position’ of Ecofin was transmitted to the Parliament in late November, since which time the Parliament mechanisms have swung into operation.
It is expected that there will be a meeting of the European Parliament Committee on Economic and Monetary Affairs (EMAC) at the start of December, which will begin the work of assessing the Parliament’s position on the Council proposals.
Ursula Schallabock, assistant to Austrian MEP Othmar Karas, who was the Rapporteur for the directive at the first Parliament plenary, explains the position as it stands: “For a second reading in the Parliament we need at least 314 votes. This means that we need the votes from the socialist group. What we have to check now is whether the common position includes the amendments that the Parliament made in the first reading.”
It is common knowledge amongst those close to the directive, however, that Ecofin has all but shelved any social clauses, arguing that the remit of the directive comes under the auspices of ‘financial services’ not social protection.
It is a situation the Parliament is well aware of, as Schallabock concedes: “I think that some of the original Parliament amendments are not included in the common position of the Council and I think that we will need some of these points to be able to adopt the final text.
“This is what we are going to discuss in December in the committee (EMAC) and I think we will have a vote in the committee either by the end of December or in early January and then it will go to the plenary.”
Schallabock says the main points not included in the Ecofin version of the directive include the options for biometric risk, issues of transparency for members on administrative costs, and the so-called ‘pension forum’ which the Parliament had called for to promote fuller co-operation and understanding between national legislators/regulators.
Again, it is universally expected that Karas will be named as Rapporteur for the second Parliament hearing on the directive.
“This can change, but we are pretty sure that it will remain as Mr Karas and I think that his wish is to make this process as quick as possible in the Parliament because we think there is a strong need for a common direction,” says Schallabock.
Significantly though, Chris Verhaegen, permanent representative of the European Federation for Retirement Provision (EFRP) in Brussels, believes that the reappointment of Karas as Rapporteur for the directive could be more of a hindrance than a help to its prospects.
“Unfortunately for ourselves and for the European Commission and the Council, Mr Karas does not show much intention of recommending the adoption of the directive as it stands in the second reading in the Parliament. He says he cannot change his mind from the first to the second reading.”
And Verhaegen reiterates the EFRP position that there is no legal basis for such explicit social provision in the directive. “This is a financial measure and it should be considered like that. Those people that want these social amendments know very well that it is not possible. It is one of the weapons that can be used to make this directive collapse. If you try to create something else then you have a problem.”
She also believes that the argument that Karas needs the support of the socialists on the directive is a red herring.
“If you want simple adoption then normally you just need half plus one of the votes of those present at the plenary to do it. But, if you want to make amendments to a directive then you need 314 votes, which is half of the European Parliament. Not all the MEPs are there for these votes, so it’s a large majority to get in real terms.
“This is why Karas needs the Socialists and he can only please them with these social amendments.”
While the EFRP itself was not entirely happy with the Ecofin version of the directive, Verhaegen says the lobby group has taken the balanced decision to work with rather than against it: “Tell me someone who is entirely happy with it. We have taken a reasoned position about what is in rather than out. The prudent man principle is there, the mini European passport is there in a fashion, which is at least the start of the mechanism for mutual recognition and co-operation between supervisory authorities.
“Both of these, we believe, are good for pan-European pension provision and for the softening of investment rules in the sense that they are not quantitative. On balance we can accept it.”
Verhaegen says that this is also largely the European Commission’s position on the directive, although she believes that the Commission is not so happy with some of the ‘ring-fencing’ proposals for assets and liabilities that were introduced by Ecofin at the last minute. She adds that they are also unhappy with the quantitative restrictions that can still be imposed on cross-border pension providers if the same rules apply for domestic providers. “I also believe that the UK government, for example, is not happy with the rules on full funding of pension funds at all times, because what is happening in the current market situation is really showing how difficult this is.”
As to what will happen in the Parliament, Verhaegen says she is unsure: “MEPs want to show that they are co-legislators and if they feel that the Council has not taken their views into account they feel frustrated.”
Nevertheless, she argues that there are four major points where the Council has met the Parliament position.
The first, she says, is that the prudent man principle has been improved with the Council version: “The Parliament showed this was an important issue and the Council has moved it on.”
Secondly, Verhaegen points out that Ecofin has reinforced amendments made by the Parliament on the principle of home country control: “This is the basic principle for a single European licence and goes together with mutual recognition and single supervision by the home country supervisor.”
The third issue, she says, is that the Council has taken all the Parliament concerns in its socially inspired amendments and dealt with them by saying that the law applicable to pension schemes is the social law applicable in member states between an employee and their employer.
“For those in cross border pensions situations, we believe this is the farthest the Council could go to take into account concerns about applicable labour and social law.”
Lastly, Verhaegen believes that the question of enhanced co-operation and exchange of information and experience between national supervisors has been made more explicit by the Council.
“What could be done under the legal basis that has been chosen for this directive has been done. Otherwise it would be necessary to go for another measure.”
So as we approach round two of the European pensions directive encounter in Parliament, once again it is the old foes of social and financial provision that look set to slug it out. A knock-out from either side looks unlikely.
And with the directive requiring the bilateral support of the Parliament and the Ecofin council before it can become law, it is certain there will be more rematches to come.