Strasbourg, 06/07/2001 (Agence Europe) - The European Parliament adopted with a very large majority (458 votes for, 111 against and 11 abstentions) the report by Othmar Karas (EPP, Austria) on the draft Directive on the activities of the professional pension institutions, in other words: the pension and complementary pension funds. During this first reading, the Parliament adopted around one hundred amendments that direct the draft Directive towards a more liberal meaning, by favouring the capitalisation pension systems, and more "socialist", by creating the possibility of covering risks "for life".
In October 2000, the European Commission had presented this draft Directive whose main objective is to allow European companies to create transnational pension funds and to rival with the American pension funds. According to the Commissioner for the Internal Market, Frits Bolkestein the Directive should ensure both the security of pensions and the return on funds, by notably allowing them to invest up to 70% of their share portfolio. In practice, this concerns: 1) harmonising the prudential standards applicable to these funds; 2) liberalising their management and investment rules; 3) establishing cooperation between the national supervising bodies. The "Pension Funds" Directive is one of the main priorities of the Commission Action Plan for financial services (see EUROPE of 11 October and 12 October 2000, for details).
The Parliament amends essentially cover two points, on which MEPs are expected to be in conflict with the Commission and the Council:
Coverage of "biometric risks", that is, the possibility of receiving a pension for however long one lives or for whatever handicap and transferring this pension to the surviving partner: the Socialist group would have liked pension funds to have to cover these biometric risks, but the Liberals and some Conservatives were fiercely opposed to it. The amendment of this compromise by Mr Karas adopted by the plenary session, provides that Funds should give employees the choice between a payment all at one go of their investment or the possibility of receiving a pension for life, an invalidity pension and a pension to the surviving partner if the fund company does not already provide for such payments. The Fund should specify the cost linked to these payments and this solution should be chosen "collectively" by all the subscribers to the pension institution. The Council has not yet discussed this issue and Mr Bolkestein announced in plenary that the Commission could not accept this amendment. In, his view, the coverage of biometric risks, mainly those linked to longevity, is a major aspect in the fight against poverty and for the security of older persons, but the Directive should not cover the "products" offered by retirement institutions.
Investment policy of Funds and prudential rules. The Commission proposed that the Funds should meet qualitative criteria following a "good parent" type of management of the investment entrusted to them. While leaving it up to Member States to interpret this rule, it would suggest breaking down the risk between investment in shares (70%) and in currency (30%). In addition, the States will no longer be able to make it compulsory for funds to invest in certain categories of stock, such as State borrowing. The EP sees further along the liberal road, giving Member States five years in which to apply the "prudential" rule for management as a "good parent", and calling on the Commission to propose reducing this transitional period if its considers that, after three year, the "necessary progress" has been made. The Parliament clearly chose the road of retirement schemes through capitalisation, states one observer. In all likelihood, France, Germany and the southern countries should oppose this rule during the Council debates, says one Parliament observer. The United Kingdom, Ireland, the Netherlands and the Scandinavian countries which already apply this qualitative approach to investment, should on the other hand be in favour. In Strasbourg, Mr Bolkestein pointed out that he could not accept this amendment.
The Parliament also adopted amendments that would strengthen worker representation in the management of pension funds and the possibility of transferring pensions from one country to another, that the Commission also refuses.