EUROPE - European ministers have given the go-ahead to new rules which pave the way for crossborder occupational pension schemes.
The move signals an important step in the creation of a single European financial market by 2005.
Internal Market Commissioner Frits Bolkestein described the decision as a major achievement which concluded more than 10 years of sometimes difficult negotiations.
“The [Pensions] Directive will provide pension funds with a coherent framework to operate within the Internal Market,” he said.
The original proposal was put forward by the European Commission in October 2000, although the first attempt to create a prudential framework for pension funds in Europe dates back to the early 1990s.
Currently, occupational pension providers tend to operate only in the country in which they are established. A firm which has a presence in all 15 member states must therefore call on the services of 15 different providers. For a multinational, this could cost about e40m a year.
“Substantial economies of scale will be achieved if a single institution can manage all the various schemes of a firm operating in several Member States,” said the European Commission. Funded occupational pension schemes exist in most member states, but currently play the biggest role in overall pension provision are Ireland, the Netherlands and the UK.
Bolkestein added that the Directive will now provide all pension funds with a coherent framework to operate within the single market.
“They will now be able to build on that platform to offer safer and affordable pensions. The Directive will also give European companies and citizens the opportunity to benefit from more efficient pan-European pension funds, and so make an important contribution to tackling the ‘pension time bomb’.
The Directive allows for mutual recognition of member states' supervisory regimes. This means that a company will be able to manage the schemes of firms located in other member states while applying the prudential rules of its home country.
Under the new rules, schemes will also have the freedom to set their own investment strategies in line with the ‘prudent person principle’.
Although EU states could insist on more detailed investment rules for schemes set up within their jurisdiction, they would not be able to prevent them from investing up to 70% of their portfolio in shares and corporate bonds and up to 30% in currencies other than the currency of their future pension liabilities.
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