Sparks fly in pensions debate
Anyone predicting an easy passage for the European Commission’s draft directive on supplementary pensions would have been given a rude awakening by the conflicting views on show at the recent conference in Brussels ‘Towards an internal market for supplementary pensions’.
The conference – under the patronage of European Commissioners Frits Bolkestein (internal market, taxation and customs union) and Anna Diamantopolou (employment and social affairs) – and chaired by Wilfried Kuckelkorn, German member of the European Parliament and rapporteur for the European socialist party on the Commission’s communication, positively fizzed with contradictory viewpoints.
The left’s position was made no clearer than by Harald Ettl of Austria, who brought the debate squarely on to the issue of social protection: “If biometric risk is not included in the directive then we cannot have this.” In addition, Ettl laid down his view that the need for compatible pension systems and minimum standards should be the overriding preoccupation of any European initiative.
Part of this, he noted, was that a “distinction” had to be drawn between life insurance products and pension funds.
His position was backed by Henri Lourdelle, adviser to the European Trade Union Confederation (ETUC), who pointed to two elements he felt were missing from the proposals: “Where is the right to a guaranteed income, for example? The other shortfall is where are the beneficiaries in this. Is everything that is not prohibited authorised? We are talking about deferred wages here after all – so we must be careful.”
Lourdelle argued that European trade unions be made part of the management of such pension systems to ensure that workers such as those with atypical job contracts were not overlooked.
Defending the commission’s proposals, Martin Merlin, administrator at the DG internal market division, pointed out that biometric risk could continue to be imposed by countries at their will, noting: “The commission has no authority here to impose social and labour rules.”
Merlin also rebutted claims that the commission was seeking to weaken the first pillar and gearing its proposals towards Anglo-Saxon funded systems, commenting: “We are simply trying introduce value added to funding initiatives.”
The question of supervising cross-border pension plans recurred throughout the debate, with Merlin putting forward the commission’s view: “We need to work on this via a protocol and a committee to bring together the various authorities. But the challenge is no bigger really than that handled by the insurance sector.”
Anne Maher of the Irish Pensions Board, however, noted that reality is cloudier: “Some exchanges of information already exist with us and the Dutch, for example, but these are never easy to maintain. In the case of the UK and Ireland, we have been looking at information exchanging on a couple of dual schemes for the last two to three years and even by the end of this year it has been murder in trying to get any agreement between the two.”
Kuckelkorn weighed in with his own views on supervision: “There is a danger that authorities cannot find out if the rules are being met. This could introduce a strong element of competition distortion to the union.”
Karl-Burkhard Caspari, deputy director general of the German ministry of finance, also opined that prudential investment rules – if applied diversely or too quickly – could be detrimental to fair competition.
“What is the use of harmonisation if the prudent person principle is applied in different ways. We must look in greater depth at co-ordination, consumer protection, transition timing, supervision and taxation first.
“The different traditions and backgrounds of member states mean that if we revolutionise these things overnight this would introduce a competition imbalance.”
On tax, Tito Boeri, professor of economics at Bocconi University, Milan, noted one potential pitfall: “The key is to avoid double taxation across Europe and I think the consensus is that EET exempt, exempt,_taxed is preferable over TEE. Tax privileges, however, may be distorting but lifting these could also see flights of money across borders – therefore we need to have system of mutual recognition.”
Cutting across the discussion, however, John Mogg, director general of the commission’s internal market division, reminded delegates that a framework to ensure pension cost savings was vital: “Over 40 years a 2% increase in returns per annum cuts in half the final pension cost. We need rules to ensure security but also for performance. If we don’t then pensioners will get lower pay-outs.”
He added that these would likely involve mutual recognition of national prudential rules. “I don’t think the harmonisation of provisions is realistic. Cross-border membership is the ultimate aim, so we need rapid negotiation which takes into account the diversity of the systems in Europe. But we need a reasonable time frame.”
And he noted his optimism that Commissioner Bolkestein could put together a package on tax concerns ensuring that “no-one loses their rights but that tax on contributions for pensions is exempt.
“I see no reason why this shouldn’t become a reality, with the effectiveness and economies of scale to ensure that there is freedom of mobility.”