European Parliament Approves Amended Pensions Directive

by Ulrika Lomas, Tax-News.com, Brussels

14 March 2003

The European Commission welcomed the European Parliament's approval at second reading on 12th March of the proposed Directive on the activities and supervision of institutions for occupational retirement provision (IORPs). These institutions include pension funds, superannuation schemes and "pensions-kassen" - a German arrangement with specific corporate tax efficiencies.

In its statement the EU stated, "Approval of the Directive is a major step towards the creation of an Internal Market for occupational pensions, under a prudential framework strong enough to protect the rights of future pensioners. The Directive will ensure that occupational pensions transactions attain a high level of security and efficiency".

In approving the proposed Directive on the activities and supervision of institutions for occupational retirement provision (IORPs), the Parliament was finalising a proposal that dates back twelve years. The legislation does not affect existing national pension systems.

Internal Market Commissioner Frits Bolkestein said, " Pension funds and comparable institutions can play a useful role in helping to tackle the pension time bomb. This Directive will enable them for the first time to take full advantage of the Internal Market and the euro, to the benefit, above all, of future pensioners. I am therefore delighted that the European Parliament has agreed on the Commission's proposal for a framework allowing pension institutions to operate efficiently while ensuring strong protection for pensioners. I now call on the Council to move quickly to final adoption."

"This is a great breakthrough for a single market in financial services," Chris Huhne, a British member of the EU assembly, said. "It puts in place a key building block of integrated European markets, will help pensioners to a better retirement and will cut companies' administration costs."

The Lisbon European Council in March 2000 issued a reminder of the need to complete the Internal Market and make it fully operational. In particular, the emergence of stable, efficient and integrated financial markets must be speeded up by protecting savers as fully as possible and promoting better capital allocation; these markets help boost growth and employment. This proposed Directive is a key element of the Commission's Financial Services Action Plan that is to be implemented by 2005. The institutions involved (such as pension funds and superannuation schemes) cover about 25% of the Union's labour force and manage assets worth €2,500 billion/US$2750bn (29% of EU GDP).

The Commission is optimistic that the EU's Council of Ministers will be able to accept the Parliament's amendments and move to final adoption of the Directive within three months under the "co-decision" procedure.

In a discordant industry response the Fédération Européenne des Fonds et Sociétés d'Investissement said that the political agreement that was reached ignored amendments adopted by the Parliament's Economic and Monetary Affairs Committee covering nationally and supervised institutions that offer funded occupational schemes.

"Consequently the directive will only cover pension funds and life-insurance companies and no other occupational pension schemes providers," it said in a statement. "The consequence of this restriction will be to limit the choice of occupational pension schemes and make the structure of the occupational pension market less competitive."

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