06 March 2003

Final agreement on Pension Funds Directive likely

The introduction of supplementary cross-border pension schemes across the EU will come closer when Parliament debates the amended Council Common Position of the Pension Funds Directive during next weeks plenary session. It seems likely that a third reading of the proposed Directive can be avoided.

Several amendments being proposed by the EP Economic and Monetary Affairs Committee take up issues where practices are different in the Member States over social benefits such as disability or provision for survivors and limits placed on a pension paid out as a lump sum. One amendment seeks to ensure that the option of ¡±biometric risks¡± is offered if requested by the social partners. This is not currently the case in the UK and fears have been expressed by the industry that this could put up costs significantly.

Furthermore, while no stipulations are placed in the common position on the use of a pension paid out as a lump sum, which once again is the current situation in the UK, the committee is introducing a provision that this should be used, ¡±with the aim of ensuring financial security in retirement¡±.

Further amendments seek to clarify the text, strengthen supervision of the pension funds through the establishment of national registers and improve information provisions by obliging the fund to provide members annually with details on the value of the fund and the current level of individual entitlements.

The legislation will enable workers switching countries to take their pension with them and will be particularly helpful to multinationals operating across the EU. The Commission estimates that a large multinational could save up to ¢í million if it could pool its various schemes into one fund.

The legislation is based on home country supervision of pension schemes and the ¡±prudent person¡± principle, i.e. an obligation on the pension fund to balance investments between capital growth and income according to the age structure of members of the pension fund, thus guaranteeing sufficient funds for those retiring.

The directive provides for the Home Country to lay down specific investment rules ensuring that the assets of the fund are invested in the best interests of the members, that the institution is registered and that it draws up an annual report and accounts. A limit of 70% of assets being invested in shares, negotiable securities treated as shares and corporate bonds is laid down, with the provision for a lower limit for pensions, guaranteeing a long-term interest rate.

The debate in Parliament will take place on 11 March.

Recommendation for second reading

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