Taking its place in the queue
According to the European Union’s encyclopaedic website, there is just one EU directive whose “deadline for implementation” falls in September 2005. To be specific, it's Internal Market Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003.
It covers “the activities and supervision of institutions for occupational retirement provision”. Better known as the Pensions Directive, it was first published in the Official Journal on September 23 2003. Member states had two years from that date to implement the directive.
That was eight months ago, so it’s a fair question to ask how the implementation, also known as ‘transposition’, is going at the member state level. “Very, very slowly,” in the view of Leonardo Sforza, head of research and EU affairs at consulting firm Hewitt in Brussels.
By implementation, the EU is specific in its meaning: “Member States shall adopt the laws, regulations and administrative provisions necessary to comply with these Directives by the date indicated.” But member states do not have a good record in implementing directives – and some are worse than others. More on that later.
The pensions directive is one of 14 measures that support the EU Financial Services Action Plan’s objective to create a single wholesale market. Other directives cover securities prospectuses, market abuse, accounting standards and investment services and so on. But the European Parliamentary Financial Services Forum, a group of MEPs and financial services executives, say it may be “premature” to say the measures have been successful.
“The numerous measures that the European Parliament has contributed to adopt during the last five years provide today the financial market players with more legal instruments,” the European Parliamentary Financial Services Forum says in a review of the FSAP.
“However, as most of the FSAP’s measures still need to be implemented by member states, it is as yet premature to assess how successful it will be in meeting its desired aim of creating a single market in financial services.”
The implementation, or otherwise, of the pension directive is taking place amid broader pension reform as well as social and economic change. And the elephant in the room is this month’s eastwards enlargement of the EU.
As the Commission says of enlargement: “It is clear that the scale of some of the challenges is much greater as the unemployment rate and the budget deficit are, on average, both around double that of the EU-15.” It talks of finding an “appropriate balance” between different policy requirements.
According to the Commission, so-called ‘Broad Economic Policy Guidelines’ published last month, the EU is seeking to promote “growth and stability-oriented macroeconomic polices” as well as “economic reforms to raise Europe’s growth potential”. Also on the list: “strengthening sustainability”.
Against this backdrop, it is perhaps understandable that the transposition of the directive that was so eagerly awaited within the pensions industry – and which took so long to hammer out – is not exactly at the top of the agenda.
Hewitt’s Sforza notes that the only country that has shown any progress on the implementation of the directive so far is Spain. Interestingly, Spain tops the list of countries in the EU-15 for implementing directives. Spain has notified the Secretariat General of the European Commission of its measures to implement directives in more than 99% of cases.
Sforza adds that because member states are already in the throes of struggling with the reform of their own pension systems, that the implementation of the directive will most likely be handled as part of the wider reform agenda.
He is unsurprised by the apparent lack of urgency to put the directive into national legislation. “I was not expecting that countries would have rushed,” he says. “Countries will look to see how they can accommodate the new law. It is not an exception to common practice.”
One must bear in mind that there are thousands of directives outstanding, and the pension directive will naturally fit into that pattern. Sforza is expecting progress in 2005. “I’m not surprised by the fact that counties are not pushing for early implementation,” he adds. If countries do not begin until next year, they will obviously be leaving themselves just months, not years, in which to put the directive into force.
Sforza says that the “general economic and socio-political environment” in Europe at the moment is not conducive to implementing reform.
As the Commission states in the economic guidelines: “An ageing population will imply similar challenges for economic sustainability in the new member states as in the EU-15. While their starting positions are better in general (with lower debt levels in most cases), the demographic outlook is likely to have greater economic (and social) implications.”
Commission president Romano Prodi says the policy package “strengthens economic integration in the new Europe of 25 member states. It constitutes a comprehensive strategy to tackle the urgent need for Europe to generate more growth and employment and look to the future with ambition.”
The increasing need for a Europe-wide pensions strategy has been highlighted by research from the Commission itself. The Commission says private consumption in the EU is being hit by fears about population ageing and the slow progress of structural reforms. There is, it says, “increasing awareness of the challenges posed by population ageing and, more generally, to the uncertainty generated by the very slow progress with structural reforms”.
It adds that the increasing awareness of future spending pressures may mean people have raised “precautionary savings” – though population ageing has very gradual impact on spending patterns.
At around the start of the year, the Commission complained that 131, or 8.5%, of internal market directives had missed their deadline at member states. “Member states are still failing to implement many EU Internal Market laws correctly and on time,” it said.
France, Germany, Luxembourg, Greece and Italy were the worst offenders, with an “implementation deficit” of double the target rate. Internal Market Commissioner Frits Bolkestein says: “It is disappointing that some member states appear to consider that it is acceptable to regularly implement directives late and to incorrectly apply commonly agreed rules.
“It gives rise to a real opportunity cost and so harms the competitiveness of the EU economy. With enlargement imminent, it is important that member states, both current and new, respect their obligations to implement and apply commonly agreed rules, as the costs of fragmentation will increase significantly in an enlarged EU.”
In other words, member states have a poor track record for transposing directives. And while it is obviously far to early to be talking about a delay in implementing the pensions directive, it has to be admitted that the precedents are not too bright. A case in point is the foot-dragging by some member states over the harmonisation of the tax treatment of contributions to occupational pension schemes.
That this issue eventually had to go to the European Court of Justice demonstrates the extent of the resistance. When the directive was signed off last year many may have thought that the battle was over. It may just be beginning.