-The Council has reached a Political Agreement on the few outstanding reservations concerning a Directive on Pension Funds.
Building on the progress made during previous Presidencies, the current Presidency has drawn up a consolidated version of the draft Directive, taking into account the opinions of Member States as well as the amendments tabled by the European Parliament.
The proposal is based on the prudent man principle with Member States having the right to impose more restrictive elements on cross-border pension funds. Domestic pension funds will be obliged to stick to local legislation while European funds will be subject to a number of relatively lax investment restrictions. Member States therefore have the right to ask a “foreign” pension fund investing in the member country to apply to the same rules as national funds do (Article 18 (7) …”they shall only be applied if the same or stricter rules also apply to institutions located in the host Member State”).
The proposal establishes a mechanism for co-operation and notification between supervisory authorities of the home Member State (where the pension fund is located) and the host Member State (where the enterprise and the members are located). A large multinational could save up to € 4 million if it could pool all its pension schemes in one fund instead of running different funds in each Member State.
A qualitative approach to investment rules is proposed. Allocation of assets must be prudent and decided in the light of the liabilities entered into by each fund and not in the light of a single set of quantitative rules ('prudent person rule'.) The Council text confirms the prudent person rules as the main principle and introduces some general qualitative principles that explain what is meant by prudence in asset allocation. It confirms the possibility for Member States to have at national level more detailed requirements, within certain limits. It would also allow host Member States (where the sponsoring company and the members are located) to ask home Member States (where the pension fund is located) to apply certain quantitative rules to the assets corresponding to the pension scheme run on a cross-border basis, provided the host Member State applies the same (or stricter) rules to its own domestic funds.
Other main components, based on the attached working documents, of the Presidency compromise proposal are:
Affiliation of self-employed persons (Article 6(a))
The question of whether or not to include self-employed persons in the scope of the Directive has been the subject of long discussions. The Compromise includes them in the scope of the Directive insofar as national legislation provides for it. Book reserves schemes where benefits are paid by the employer directly to the employee from company funds continue to be excluded. Nor does the text cover Pay-As-You-Go schemes.
Depositaries (Article 19)
Whether or not to impose a requirement on IORPs to deposit their assets with depositaries (e.g. banks), at least if they engage in cross-border activities, has been another controversial issue. The Political Agreement allows home Member States to make the appointment of a depositary compulsory (Article 19, final sentence) and for the Commission to report on the use of depositaries within five years after the implementation of the Directive (Article 21(2)).
Quantitative investment rules in the case of cross-border activities (Article 18(7))
Article 18(7) gives host Member States an option to impose certain quantitative investment rules in the case of cross-border activities. In the event of cross-border activity the host Member State may require that the following rules apply to the institution for the part of the assets which correspond to the relevant scheme run on cross-border basis, provided such rules also apply to the institution located in the host Member State:
- The institution will not invest more than 30% of these assets in shares, other securities treated as shares and debt securities which are not dealt with on a regulated market or the institution shall invest at least 70% of the portfolio as a whole in financial regulated markets.
- The institution will invest no more than 5% of these assets in shares and other negotiable securities treated as shares, bonds, debt securities and other money and capital-market instruments from the same undertaking or 10% in a group.
Interest rates and technical provisions (Article 15)
The Political Agreement stipulates that the rates of interest used shall be chosen prudently and determined in accordance with any relevant rules of the home Member State, taking into account the yields on the corresponding assets held by the institution and furthermore taking into account the future investment returns and/or market yields of high quality or government bonds.
The Political Agreement requires a regular review of the application of the rules regarding the calculation of technical provisions, in particular interest rates and other assumptions influencing their levels. The text also requires the Commission to present at least every two years a report to the Insurance and Pension Committee on the development of the situation.
Political Agreement on the activities of institutions for occupational retirement provision
Commission press release
Results on ECOFIN meeting
previous Presidency Working Documents
Working Dokument Part I
Working Document Part II
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