Regional Report European Union Level Mr. Alan PICKERING Rio de Janeiro, 26 April 2002 III International Pension Conference.

Regional ReportRegional ReportEuropean Union LevelEuropean Union Level

Mr. Alan PICKERING

Rio de Janeiro, 26 April 2002

III International Pension Conference

History of Proposal History of Proposal for a Directive for a Directive

study pension funds and capital markets - 1968

Leon BRITTAN initiative - 1989 - freedom for cross border affiliation- freedom for cross border pension fund management- freedom for cross border asset allocation

proposal for a Directive 1991

modified 1993 - withdrawn in 1994

Communication end 1994

ECJ decision in 1995 to withdraw Communication

IORP Directive – State of Play

Green Paper on Supplementary Green Paper on Supplementary Pensions - 1997Pensions - 1997

Broadened approach:

analysis of social, economic and financial context

investment restrictions impair performance ageing society

prudent man favoured

EU prudential framework

labour mobility

taxation obstacles

numerous responses

IORP Directive – State of Play

consensus

3 pillars under subsidiarity principle

main lines of action* Prudential rules for pension funds

* Remove obstacles labour mobility* Coordinate taxation

EP and ESC supportive yet strict supervision

Communication -Communication -Single Market of Supplementary Single Market of Supplementary

Pensions - 1999Pensions - 1999

IORP Directive – State of Play

Proposal DirectiveProposal Directive onon

Institutions for Occupational Institutions for Occupational Retirement Provision Retirement Provision (IORP) - 2000(IORP) - 2000

Key elements :

* liberalization of investment practice

* prudential standard

* cross border membership

IORP Directive – State of Play

Proposal DirectiveProposal Directive onon IORPIORP

means to achieve these objectives:

* minimum conditions for the operation

* prudent principles

* powers to supervisors

* cross border procedures

IORP Directive – State of Play

Minimum conditions for the Minimum conditions for the operation (1)operation (1)

be registered - home State competent authority is informed of IORP's basic details

no other activities than retirement benefit related operations

be staffed by appropriate personnel (good repute, professionally qualified)

IORP Directive – State of Play

Minimum conditions for the Minimum conditions for the operation (2)operation (2)

have properly constituted pension scheme rules which are implemented

if sponsor guarantees payment of pension, must have a commitment by sponsor to fund regularly

comply with extra conditions to protect members and beneficiaries

IORP Directive – State of Play

Cross-border activities – Cross-border activities – European PassportEuropean Passport

prior authorization in home state

notification procedure in home and host state

comply with host state social and labour law

fully funded technical provisions at all times

IORP Directive – State of Play

Prudent PrinciplesPrudent Principles

all IORPs must "invest in a prudent manner“ shall take into account nature and duration of the future pensions ensure security, quality, liquidity and profitability of portfolio assets are to be properly diversified invest no more than 5% of technical provisions in sponsors

Only 3 last rules apply where scheme members bear the investment risk

IORP Directive – State of Play

Powers of SupervisorsPowers of Supervisors

MS may give its competent authority “appropriate and necessary powers” to prevent or remedy irregularities as regards an institution’s:

* informational procedures

* operational procedures

* social and labour law compliance

IORP Directive – State of Play

Cross border proceduresCross border procedures

MSs shall allow undertakings and individuals located in its territory to sponsors institutions located in other MSs MSs shall allow institutions to accept sponsors located in other MSs Authorization procedure Notification procedure

apply before being able to manage a scheme for sponsors located in a MS outside the institution’s home state

IORP Directive – State of Play

AssessmentAssessment

PRO:- institutional approach

- IORP covers heterogeinity

- cross border membership

- qualitative supervision favoured

- coordinary approach is appropriate

IORP Directive – State of Play

DOUBTS:- no 100% single license

- (too?) strong consumer protection instead of B2B

- increased stringency as MS option

- direct link to life-insurance

- restriction on activities

- concept of outsourcing unclear

IORP Directive – State of Play

AssessmentAssessment

EP – KARAS reportEP – KARAS report

IORP Directive – State of Play

anchoring home state supervision

obligation to offer biometric risk option

phasing out quantitative rules

a priori authorization

supervisors’ committee

granted extension to life-insurers

PRO:- prudent person made explicit & phase out quantitative restrictions

- anchors principle of ‘home state’

- inclusion of self-employed

- flexibility on funding requirements &

solvency margin

IORP Directive – State of Play

EP – KARAS reportEP – KARAS reportOpinion EFRPOpinion EFRP

DOUBTS:deviates from Financial Services approach

- biometric risk option- guaranteed redemption of contributions- governance requirements

indirect amendment of Life Directive

a priori authorization

IORP Directive – State of Play

EP – KARAS reportEP – KARAS reportOpinion EFRPOpinion EFRP

(2001/1) good start but: no preliminary political agreement on

- scope- basic rules on technical provisions- investment principles

ECOFIN May 2001- sustainability- high degree of social protection- contribute to economic reforms

but also - European passport for pension funds

IORP Directive – State of Play

Council Activities:Council Activities:Swedish PresidencySwedish Presidency

(2001/2) – research:

Experts (UK & Spain)

Survey- systems of prudential supervision- investment rules- technical provisions

IORP Directive – State of Play

Council Activities:Council Activities:Belgian PresidencyBelgian Presidency

(2002/1) – more dynamic:

Prudential supervision (art. 12,13 and 14) + technical provisions (art. 15,16 and 17)

Investment Rules (art. 18)

cross-border services and membership

Preliminary political agreement: May 2002?

IORP Directive – State of Play

Council Activities:Council Activities:Spanish PresidencySpanish Presidency

10 MS quantitative investment rules; 5 MS none

no political consensus on purpose Directive: Regulation on Financial Institutions?

Social policy measure to alleviate pressure on 1st pillar? Also EP divided

Prudential Supervision Persuasive monitoring process versus

Detailed regulatory framework

Mutual distrust

IORP Directive – State of Play

Council Activities:Council Activities:Stumbling BlocksStumbling Blocks

Proposal DirectiveProposal Directive onon IORPIORP

next stepsnext steps

co-decision EP-Council with

qualified majority voting

Council negotiations - difficult 2nd reading by EP

adoption 2002? implementation 01/01/2004

IORP Directive – State of Play

Country developments - 2001Country developments - 2001

legislative changes total 2nd pillar coverage growth of 2nd pillar pension funds major shifts and developments shifts in asset allocation

Regional report – European Union Level

Regional ReportRegional ReportEuropean Union LevelEuropean Union Level

Mr. Alan PICKERING

Rio de Janeiro, 26 April 2002

III International Pension Conference