Draft Directive on the activities of institutions for occupational retirement provisions.
||Articles 47(2), 55 and 95(1) EC; co-decision, qualified majority voting
||11 October 2000|
|Forwarded to the Council:
||13 November 2000|
|Deposited in Parliament:
||16 November 2000|
|Basis of consideration:
||EM of 11 December 2000
|Previous Committee Report:
||None; but see (18307) 9787/97: HC 155-iv (1997-98), paragraph 27 (29 October 1997); (20174) 8450/99: HC 34-xxiii (1998-99), paragraph 12 (23 June 1999); (20175) 8329/99: HC 34-xxiii (1998-99), paragraph 1 (23 June 1999)
|To be discussed in Council:
||No date known|
||Not cleared; further information requested
5.1 In 1997, the Commission published a
Green Paper on ways of improving the functioning of occupational
pensions in the single market. We reported on that document on
29 October 1997.
On 23 June 1999, we reported on a Commission Communication setting
out its conclusions from the Green Paper consultations and making
recommendations for further action.
The Action Plan for implementing the framework for financial markets,
on which we also reported on 23 June 1999, included a proposal
concerning occupational pension schemes.
5.2 The Commission has now published a proposal
for a Directive which would put in place for the first time at
Community level a framework for the prudential regulation of institutions
for occupational retirement provision (IORP) broadly,
occupational pension schemes operating on a funded basis, which
are outside the scope of social security systems. In her Explanatory
Memorandum of 11 December 2000, the Economic Secretary to the
Treasury (Miss Melanie Johnson) says that:
"The Directive is intended to improve the operation
of the single market for supplementary pensions and protect the
interests of scheme members and beneficiaries by:
" putting in place a framework of
prudential rules covering, for example, a requirement for IORPs
to be run by persons of good repute and disclose information to
scheme members and beneficiaries;
" introducing qualitative rules on
the investment of pension scheme assets to deliver secure and
efficient investment (although Member States may continue to apply
certain quantitative investment rules to IORPs established in
" removing barriers to IORPs using
the services of any duly authorised asset manager or custodian
within the EU;
" giving Member States the option
to apply certain prudential provisions of the proposed Directive
to the occupational pension business of life assurance companies
to ensure a level playing field between providers of similar products;
" allowing for the mutual recognition
of prudential regimes to facilitate the cross-border membership
of pension schemes".
5.3 The Minister also says that:
"The Directive would also require IORPs to have
sufficient and appropriate financial assets to cover liabilities
(referred to as technical provisions in the proposal) calculated
using recognised actuarial methods. In the event of cross-border
activity, the technical provisions must be fully funded
at all times.
"Member States may choose not to apply the Directive
to pension schemes to which fewer than 100 persons are members
"Member States may also not apply certain provisions
to IORPs where occupational retirement provision is made under
statute and which is guaranteed by a public authority".
The Government's view
5.4 The Minister says that:
"The Lisbon European Council highlighted the
need to eliminate barriers to pension scheme investment and introduce
a regulatory climate conducive to investment. The emphasis in
the proposal on a framework of qualitative prudential rules is
"The Government is disappointed that Member
States may continue to apply quantitative investment rules (other
than a 5 per cent limit on self investment in the sponsoring company)
to IORPs established in their territory. This may result in sub-optimal
investment returns (without any increase in security for members
and beneficiaries) and potentially limit the capacity to finance
the private sector. But occupational pension schemes in the UK
will be free to continue to pursue a prudent investment strategy
which best meets the needs of scheme members and beneficiaries.
"The investment policy of some funded public
sector pension schemes in the UK is governed by statute. In some
cases, application of investment rules in the proposed directive
would require a rebalancing of existing portfolios.
"The Government welcomes the emphasis on the
disclosure of information to scheme members and beneficiaries,
but the detail of the requirements will require careful consideration.
The Government will also wish to consider whether the requirement
to provide certain information to the competent authority is proportionate.
"The Government is currently consulting on the
Minimum Funding Requirement applied to most defined benefit occupational
pension schemes in the UK. The Government will wish to reflect
on the provisions on funding in the directive in the light of
responses to the consultation.
"The Government supports in principle the mutual
recognition of prudential regimes as an important step towards
cross border membership of pension schemes, reducing costs for
business and facilitating labour mobility. The Government will,
however, wish to consider carefully the practical operation of
the relevant provision and the interaction with the social and
labour law requirements of the Member State where the sponsoring
company is established.
"The Government will wish to consider the scope
of the proposal to ensure that it does not unnecessarily distort
competition between essentially similar products".
5.5 As we noted in our report on this
subject on 23 June 1999, completing the internal market in respect
of occupational pension schemes is an issue of substantial economic
and social importance for the Community, from which the UK industry
in particular may stand to gain. We note that the Minister has
reservations about some aspects of the detail of the proposal,
but these do not seem to be of a fundamental kind.
5.6 We note from the Commission's document
that the co-ordination of prudential supervision is one of the
necessary conditions for allowing an institution for occupational
retirement provision to manage schemes on a cross-border basis.
It says that "a greater degree of tax co-ordination is also
essential", though adding that this matter is not dealt with
in this proposal. We ask the Minister to tell us whether the Government
considers that effective completion of the single market for occupational
pensions will also require action to increase tax co-ordination,
and, if so, whether that affects the approach the Government is
taking to this proposal.
5.7 In the area of public sector pensions,
the Government has questioned the competence of the Community
to legislate for third-country nationals. We ask the Minister
to confirm that this proposal raises no question of that kind.
5.8 Pending the Minister's reply to our
questions we do not clear this document.
17 (18307) 9787/97; see headnote to this paragraph. Back
8450/99; see headnote to this paragraph. Back
8329/99; see headnote to this paragraph. Back