Commission proposes Directive regulating occupational pension provision

In October 2000, the European Commission proposed a Directive which seeks to create a European framework for institutions offering occupational pension provision, in order to ensure a high level of such provision in the future.

On 11 October 2000 the European Commission issued a proposal for a Directive (COM(2000)507), aimed at creating a European framework within which institutions offering occupational pension provision can operate. The proposal forms part of the Commission's action plan to create a single market in financial services by 2005. It is intended to ensure a high level of occupational pension provision for the pensioners of the future and focuses on the operation of what it terms "institutions for occupational retirement provision". These institutions are mainly pension funds and superannuation schemes, which are estimated to cover around 25% of the EU workforce and to manage assets worth some EUR 2,300 billion.

This proposal follows on from the Commission's Communication on supplementary pensions (COM(99)134 final), issued on 11 May 1999. Although the Commission stresses that the organisation of social protection and pension schemes is the responsibility of individual Member States, it believes that this proposal will not interfere with this, as it aims rather to enable the single market to be exploited to the full by providing a coherent EU-wide framework which enhances the security and efficiency of these institutions.

The draft Directive has two main aims: to ensure adequate protection of retirement benefits; and to ensure that provision is affordable. In order to achieve this, it proposes that a number of regulations be introduced in three areas as follows:

• strict prudential rules to protect beneficiaries. Occupational pension provision institutions must be subject to detailed rules of operation. Members and beneficiaries must be properly informed of the scheme and be given information about the institution's financial situation and their rights, and supervisory authorities must be given power to monitor these institutions;

• investment rules. The European Commission believes that, as these institutions invest on a long-term basis, usually periods spanning several decades, and can therefore predict the level of benefits they will be paying out, they should be allowed a certain amount of freedom to determine their own investment policy. The proposal allows Member States to subject these institutions to more detailed investment rules, but they would have to allow the institutions to invest up to 70% of their technical provisions or portfolio in shares and corporate bonds and at least 30% in foreign currencies; and

• cross-border management. At present, occupational pension providers largely operate in the country in which they are established, obliging companies with an EU-wide presence to call on 15 different service providers. The Commission argues that substantial economies of scale could be achieved if one institution were to manage a firm's schemes. It therefore proposes mutual recognition of Member States' supervisory regimes. The Commission sees this proposal as the first stage in removing obstacles to such cross-border management and intends in 2001 to deal with the issue of the taxation of pension funds.

The proposal will now be transmitted to the Council of Ministers and the European Parliament for their opinions under the co-decision procedure.