08 April 2002

FT: A Pensions Passport faces Local Customs Test

“A vigorous push by Spain, during its six-month presidency of the European Union, to secure Europe-wide rules for pensions has raised hopes of an end to the deadlock among the 15 member states” FT writes. “Spain has made the issue a priority of its presidency. The Spanish delegation to the EU is pushing for a compromise over proposals first made by the European Commission in October 2000 to base pension fund regulation on the 'prudent person' principle.”

The UK, Ireland, Sweden and the Netherlands backed the EC 'prudent principle' proposals. But most of the remaining member states, led by France and Germany, have expressed doubts.”

The Spanish delegation has proposed what is being labelled 'prudent person plus' - the basic principle fortified with some quantitative restrictions. The delegation's proposal has been left at a preliminary stage of development so as to give governments room to shift from their entrenched positions.

Some key areas of contention are limits on pension fund exposure to high-risk investments such as private equity, hedge funds and derivatives. The level of investment in real estate is another area of dispute. Such restrictions are common in several member countries, but their potential introduction has raised alarm in the UK and the Netherlands.

Spain, however, is pushing member states to resolve disputes over such issues before its presidency ends in June. Denmark, which will take over the rotating presidency, is understood to be willing to support the Commission directive, providing it gains some political support. But the presidency then passes to Greece and Italy, two countries where the commitment to pension reform is uncertain.

See full FT article
See also related FT article Compromise will curtail investment: A proposal to the EU to limit high-risk holdings will deal a massive blow to the private equity industry.

© Financial Times