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Thursday, 13th August 2020
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Agreement on pan-European pensions Back  
Political agreement has been reached on the proposal for a Directive on the provision of pan-European pensions, which marks an end to a long, complex and at times controversial discussion among member states. At a meeting of Ministers for Economics and Finance (ECOFIN) on June 4th in Luxembourg, the French dropped their opposition to the proposed Directive. Member states have clashed for more than a year over the level of freedom that should be given to fund managers when making investment decisions, with the UK, Ireland and Netherlands backing the original Commission proposals that would have allowed fund managers to invest according to the ‚€ėprudent person principles‚€ô and France wanting strict quantitative limits on funds‚€ô investments.
The idea behind the proposals from Single Market Commissioner Frits Bolkenstein is to cut red tape for firms wishing to have just one pension fund for all their employees, regardless of where they work in Europe. The Directive will allow fund managers to create and manage pooled pension schemes on a cross-border basis for multi-national companies with employees in several member states, benefiting from economies of scale. The proposed Directive will now go to the European Parliament for approval, with the expectation that a single market in cross-border pension schemes will be operational by the end of 2003.
Many in the industry have welcomed the move with John Feely, chairman of the Irish Association of Pension Funds commenting, ‚€ėI believe we are now, at long last, seeing the opening up of pension systems across Europe, providing multinationals with the opportunity to develop pan-European pension arrangements. While we are disappointed that restrictions may be retained in some circumstances, it is likely that these restrictions will also be removed over time.‚€ô
Brendan Logue, head of financial services division in the IDA also welcomed the development. Logue, who last July published a blueprint for Ireland to become a centre for corporate multi-national pensions, said that while the move was a positive development, the new proposals still do not overcome tax barriers.
FEFSI, the European funds industry association, has also welcomed the decision as, ‚€ėit represents an important step towards the integration of financial services and markets within the EU and the recognition of the importance of occupational retirement schemes in covering the retirement income needs of individuals.‚€ô
FEFSI welcomed the fact that the Agreement continues to follow the ‚€ėprudent-person principle‚€ô and to limit the possibility for member states to restrict investment into shares and corporate bonds and that it confirms the principle of mutual recognition of member states‚€ô supervisory regimes.
However, FEFSI have called for two further conditions to be satisfied in order for the full benefits of the Directive to be reaped. Firstly, FEFSI say the Directive for a level playing field between traditional pension funds, life-insurance companies and other institutions offering investment fund based occupational pension products, and secondly, the European Commission will need to effectively fight against discriminatory tax treatment of occupational pension schemes.
In a related move, the European Commission has launched a formal public consultation paper aimed at improving the portability of supplementary pension rights.The paper analyses threee regulatory aspects of schemes - the acquisition and preservation of pension rights, their transferability and the abilityof scheme members to remain in the same fund while moving to a job in another member state.
Referring to the political agreement on pan-European pensions funds, EU employment and social affairs commissioner Anna Diamantopoulou said, ‚€ėThe recent political consensus allowing EU-wide pension funds are important but they tend to mask the serious problems which individual workers will still face when they are forced to change from one company pension scheme to another, even within their own member state.‚€ô It is hoped that the consultation process will go some way towards addressing these problems.

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