EU To Pursue Countries Over Occupational Pensions Directive

by Ulrika Lomas, Tax-News.com, Brussels

07 October 2005

With just four EU Member States having fully transposed the Pensions Directive into national law, internal markets commissioner Charlie McCreevy is considering taking action against several member states which haven't even begun the process.

The Directive on Institutions for Occupational Retirement Provision came into force across the European Union on September 23, and the only states to have fully completed transposition are Denmark, Germany, Estonia and Austria. The Commissioner says he expects 20 member states to be in compliance with the Directive by the end of the year.

The pension fund directive is aimed at enabling pension funds to operate across Europe by removing regulatory barriers. It allows the development of pan-European funds, operating on prudent investment principles, requiring long-term investment in the best interests of members.

Although the objective of the Directive is to put in place a framework that removes barriers to the advancement of occupational pension schemes it is not the purpose to force Member States to necessarily develop such schemes. While the provisions of the Directive need to be transposed into domestic law to cover cross-border activity, it will be a matter for individual pension schemes to decide on whether they wish to engage in cross-border business.

Pension schemes that do will be subject to a two-stage authorisation procedure and all also will need to be ‘fully funded at all times’. For defined benefit schemes, this will be a more stringent funding regime than a scheme-specific requirement, as it leaves no opportunity for a ‘recovery plan’.

The Directive establishes the principle that it is acceptable for pension schemes to operate across borders. At present occupational pension providers operate for the most part in the Member State in which they are established. A firm which has a presence in all 25 Member States must therefore call on the services of 25 different providers.

Substantial economies of scale may therefore be achieved if a single institution can manage all of the various schemes of a firm operating in several Member States, and under the Directive that institution does not have to be in the 'home' member state. Thus, a French employer could seek to locate its scheme in the UK and would be regulated by UK's The Pensions Regulator, although it would still have to comply with French pensions legislation. Similarly, a UK employer could locate its scheme in Poland, which would be regulated by the Polish regulator – but it would still have to comply with relevant UK pensions law.

In May the European Commission launched a Green Paper exploring ideas for the further integration of EU financial markets, including ways to break down barriers so that customers can shop around all over Europe for the best savings plans, mortgages, insurance and pensions, with clear information so that products can be compared.

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