Opinion of the Economic and Social Committee on the "Proposal for a Directive of the European Parliament and of the Council on the activities of institutions for occupational retirement provision"
Date: 2001-03-28
Institutions: European Economic and Social Committee
Subjects: approximation of laws, financial institution, pension scheme, supplementary pension

C 155/26

EN

Official Journal of the European Communities

29.5.2001

Opinion of the Economic and Social Committee on the ‘Proposal for a Directive of the European
Parliament and of the Council on the activities of institutions for occupational retirement
provision’

(2001/C 155/07)

On 27 November 2000 the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 14 March 2001. The rapporteur was Mr Van
Dijk.

At its 380th plenary session of 28 and 29 March 2001 (meeting of 28 March), the Economic and Social
Committee adopted the following opinion by 79 votes to 27 with 10 abstentions.

1.

Background

1.1.
There are large disparities in the EU with regard to
retirement provision for workers. The system can in general
be said to have three pillars. The first of these is the state-
financed pension. The second is the supplementary pensions
to which many workers subscribe through their employment.
The third pillar enables citizens to build up their pension
entitlements further on an individual basis (1).

1.2.
The relationship between the various pillars varies
from one Member State to another. This directive applies
exclusively to institutions providing supplementary pensions,
i.e. the ‘second pillar’. It does not apply to:

a)

b)

institutions managing social security schemes that are
covered by Council Regulation (EEC) No. 1408/71 (2), or
are listed in Annex II thereto, and Council Regulation
(EEC) No. 574/72 (3);

institutions
that are covered by Council Directive
79/267/EEC (4),
85/611/EEC (5),
Directive
and
Council
2000/12/EC of the European Parliament and of the
Council (7);

Council Directive
93/22/EEC (6)

Directive

c)

institutions that operate on a pay-as-you-go basis;

(1) See Opinion CES 950/99 on the Communication from the
Commission — Towards a Single Market for Supplementary
Pensions — Results of the consultations on the Green Paper on
Supplementary Pensions in the Single Market (COM(1999) 134
final), OJ C 368, 20.12.1999, p. 57. The ILO distinguishes
between four pillars, but in the EU a division into three pillars has
been generally accepted.
(2) OJ L 149, 5.7.1971, p. 2.
(3) OJ L 74, 27.3.1972, p. 1.
(4) OJ L 63, 13.3.1979, p. 1.
(5) OJ L 375, 31.12.1985, p. 3.
(6) OJ L 141, 11.6.1993, p. 27.
(7) OJ L 126, 26.5.2000, p. 1.

d) German ‘Unterstützungskassen’ and other institutions

operating in a similar way;

e)

companies using book-reserve schemes with a view to
paying-out pension benefits to their employees.

1.3.
In the early 1990s the European Commission tried to
establish an internal market for supplementary pensions. In
1990 it published a working document on completion of
the internal market in private retirement provision. In this
document the Commission announced measures aimed at
enlarging the freedom of cross-border investment management
and activity and cross-border access to institutions for retire-
ment provision. In attempting to turn these intended measures
into a specific directive, however, the Commission encountered
a great deal of opposition from the Member States. The
directive published in 1991 (8) was withdrawn in 1994. The
greatest stumbling block was the provision that pension
institutions were only required to invest a certain percentage
of their funds in assets denominated in their home currency.
This watering down of the legal requirement was unacceptable
to many Member States.

1.4.
In 1997 the Green Paper on Supplementary pensions
in the single market was published (9). This was followed in
1999 by a Communication entitled ‘Towards a Single Market
for Supplementary Pensions’ (10). This announced legislation
for the coming years. The first of the new legislative proposals
was to be a directive on institutions for retirement provision,
which aimed to improve the protection of members of pension
funds. A proposal for a directive was published on 11 October
2000.

(8) Proposal

for a Council Directive relating to the freedom of
management and investment of funds held by institutions for
retirement provision, COM(91) 301 final, OJ C 312, 3.12.1991,
p. 3; ESC Opinion, OJ C 169, 6.7.1992, p. 2.

(9) COM(1997) 283 final of 10 June 1997; ESC Opinion 1403/1997,

OJ C 73, 9.3.1998, p. 114.

(10) COM(1999) 134 final of 11 May 1999; Opinion CES 950/99,

OJ C 368, 20.12.1999, p. 57.

29.5.2001

EN

Official Journal of the European Communities

C 155/27

2. Content of the directive

The aims of the directive under consideration are as

2.1.
follows:

— ensuring a high level of protection for members,

— free choice of portfolio managers,

— level playing field for institutions offering supplementary

retirement provision,

— elimination of obstacles to cross-border operations,

— secure and efficient investment,

— establishment of a single market for financial services and

supplementary pensions.

The directive defines institutions for occupational

2.2.
retirement provision. They must:

— be related to occupational activity;

— operate on a funded basis for the sole purpose of

providing retirement benefits to members;

— be established separately from the sponsoring under-

taking.

2.3.
Article 2 lists institutions to which the directive does
not apply. In principle these are pension institutions which
serve the first and third pillars of the pensions market. Other
directives and regulations apply to these institutions.

2.4.
Article 8 stipulates a legal separation between the
sponsoring undertaking, i.e. the company which pays contri-
butions to the institution for retirement provision on behalf of
its employees, on the one hand, and the institution on the
other. This provision is important as a way of safeguarding the
rights of members,
their pension
entitlements are not affected in the event of the bankruptcy of
the company which employs them.

and ensuring that

2.6.
Articles 10 and 11 lay down a number of requirements
regarding information for members. Thus, members and
beneficiaries may request the annual accounts and the annual
report. They are also to receive, within a reasonable time, any
relevant information regarding changes to the pension scheme
rules.

2.6.1. Members are also to receive, on request, information
regarding the amount of pension benefits they should receive,
their accumulated rights in the event of early withdrawal from
the scheme, the way in which the accumulated rights are
financed and, where the member bears the investment risk,
full information on investments.

2.6.2.
Beneficiaries are also to be provided with full infor-
mation on the retirement benefits due and the corresponding
payment options.

Information must also be provided to the competent
2.7.
supervisory authority on the investment principles and risk
management methods applied by the institution (Article 12).

2.8.
Articles 13 and 14 contain provisions relating to
the competent supervisory authority, thus fleshing out the
supervisory requirements.

2.9.
In order to protect members’ rights, Articles 15 and 17
stipulate that the institution must always have sufficient assets
to cover its liabilities. Deviations from this principle are
permitted only for a limited period, on condition that a plan is
drawn up to make good the temporary shortfall.

2.10.
Article 18 contains provisions relating to invest-
ments. The general rule is that Member States may not require
institutions for retirement provision to invest in particular
categories of asset. In principle complete investment freedom
is allowed. There are, however, certain exceptions to this
general rule:

— No more than 5 % of funds may be invested in the

sponsoring undertaking.

2.5.
Article 9 lays down a number of quality requirements
for the institution for retirement provision, such as qualified
managers, rules regarding the functioning of the pension
scheme and realistic evaluation of liabilities by an actuary.

— Member States may draw up more detailed rules. The
Member States are not, however, allowed to require the
institutions for retirement provision to invest more than
70 % of funds in matching currencies, or more than 30 %
of funds in securities other than shares.

C 155/28

EN

Official Journal of the European Communities

29.5.2001

2.11.
Article 20 provides for cross-border membership of
institutions for retirement provision. Rules are also laid down
regarding the competent supervisory body.

3. General comments

3.1.
The Economic and Social Committee welcomes this
initial directive and endorses its aims. The Committee believes
that protection of members is a matter of high priority and
that this directive is a step in that direction.

3.2.
The Committee also endorses the objective of estab-
lishing an internal market in retirement provision. In this way
institutions for retirement provision will be able to make use
of the broader opportunities offered by the internal market; at
the same time sufficient safeguards are laid down for the
protection of members (1).

The Committee believes that the approach chosen
3.3.
by the Commission,
in leaving out of the proposal any
consideration of the taxation of institutions for retirement
provision, is sensible. This means that the proposal can be
adopted by qualified majority, whilst the tax issues would have
to be decided unanimously.

3.3.1.
The Committee hopes, however, that the directive
on the tax treatment of pensions will be submitted by 1 July
2001. The Committee regrets, therefore, that the Commission
at present intends to publish only a communication on the
subject in April 2001, rather than draft legislation, such as a
directive. In drawing up the communication account must be
taken of the social security systems of the Member States and
their different financing methods. A communication of this
kind must not be guided purely by the requirements of the
single market.

The Committee would also draw attention to the
3.3.2.
Pensions Forum in which, inter alia, ways of achieving cross-
border transferability of pension rights are currently being
discussed.

The Committee feels, however,

3.4.
that a number of
comments are called for on the scope of the directive. The
directive applies exclusively to institutions for retirement
provision which:

— are separate from the sponsoring undertaking;

— are not responsible for statutory social security schemes;

(1) Moreover, the Report from the Lamfalussy Committee of Wise
Men on the Regulation of European Securities Markets has stressed
the priority of reforming ‘out-dated investment rules for pension
funds’
is to be
established.

if an integrated European financial market

— operate on a funded basis.

Other institutions for retirement provision do not
3.4.1.
have to comply with the provisions of the directive. In practice,
therefore, this directive will have an impact wherever funded
pension schemes exist alongside the pay-as-you-go and balance
sheet pension provision systems. Funded schemes play a
particularly prominent part in the Dutch, British and Irish
systems.

4.

Specific comments

The Committee has a number of questions concerning
4.1.
the exceptions to the investment rules applicable to institutions
for retirement provision. The Committee wonders whether it
is still necessary for Member States to have the option of
requiring pension funds to invest at least 70 % of assets in
instruments denominated in their home currency. In view of
the introduction of the euro this does not seem to make sense.
This could place the Member States not participating in the
euro at an advantage vis-à-vis the participating States, as the
euro is equated with the national currencies.

4.2.
The same applies to investment in securities other than
shares. Sufficient guarantees are already laid down elsewhere
in the directive.

The Committee does, however, support the require-
4.3.
ment that pension funds invest no more than 5 % in the
sponsoring undertaking.

4.4.
The Committee feels that Article 20(1) should read in
such a way that it does not conflict with requirements to
belong to institutions for retirement provision of the kind that
exist in a number of Member States. The Albany Judgment (2)
clarified the situation with regard to the legality of require-
ments to participate in company (or sectoral) pension funds.

4.4.1.
that Article 20(1) be amended to read as follows:

In the interests of clarity, the Committee proposes

‘Member States shall allow the undertakings and individ-
uals located within their territories to sponsor institutions
for occupational retirement provision authorised in other
Member States, unless a collective agreement between
workers and employers exists — which may possibly have
been declared generally binding — which requires the
workers and undertakings covered by the agreement to
participate in a company pension fund.’

(2) Judgment of the Court of 21 September 1999: Albany Inter-
national BV v Stichting Bedrijfspensioenfonds Textielindustrie.
Case C-67/96. European Court Reports 1999 page I-5751.

29.5.2001

EN

Official Journal of the European Communities

C 155/29

4.5.
Arrangements for contributions to second-pillar retire-
ment provisions should preferably be laid down in collective
agreements. These agreements should also make it clear that
all employees of a firm covered by the collective agreement
are required to participate in the pension scheme. It will thus
be clear who is to finance the scheme. Logically, the board of
management of the pension scheme should be made up of
representatives of these groups, i.e. workers and employers.

4.6.
The Committee supports the provision of article 16,
which requires that the institution must always have sufficient
assets to cover its liabilities but permits deviations from the
principle for practical reasons for a limited period on condition
that a plan is drawn up to make good the temporary shortfall.
The Committee believes that in the context of the single
market similar provisions should apply to institutions which
engage in cross-border activity and that Article 16.3 should
therefore be deleted.

4.7.1.
by wording it as follows:

Article 13(c)(iii) could be mitigated to some extent

‘(iii) asset-liability studies used in developing investment
principles;’.

Hardly any EU Member State already applies these
4.7.2.
provisions. For this reason the Committee feels that there
should be a transitional period for the Member States where
this provision does not already apply.

4.7.3.
Article 18(7) should spell out the circumstances
under which the supervisory bodies are to be allowed to
conduct individual prudential supervision. The rules need to
be fleshed out at national level.

A number of technical comments on the articles

4.7.
concerning supervision:

4.7.4.
The Committee notes that specific European rules
will be necessary to require the exchange of appropriate
information between national supervisory bodies.

Brussels, 28 March 2001.

The President

of the Economic and Social Committee

Göke FRERICHS

C 155/30

EN

Official Journal of the European Communities

29.5.2001

APPENDIX

to the Opinion of the Economic and Social Committee

The following amendments were defeated, but received at least one quarter of the votes cast:

Point 3.1

Amend as follows:

‘… endorses its aims, particularly protection of members, which it regards as a priority. It is not yet clear, however,
whether the proposal for a directive meets this requirement.’

Reasons

Such liberal investment rules are extremely risk-laden, as current developments on the stock markets make clear. It
must be possible with an instrument for collective retirement provision to have a rough idea of what future payments
will be. This is not the case if most of a pension fund’s assets consist of highly-volatile securities.

Result of the vote

For: 44, against: 49, abstentions: 8.

Point 4.2

Replace with the following:

‘The Committee expresses reservations, however, about the very liberal investment rules. In view of stock market
volatility and the long periods over which these funds are usually invested, these rules carry an unacceptably high
risk for future pensioners.’

Reasons

Such liberal investment rules are extremely risk-laden, as current developments on the stock markets make clear. It
must be possible with an instrument for collective retirement provision to have a rough idea of what future payments
will be. This is not the case if most of a pension fund’s assets consist of highly-volatile securities.

Result of the vote

For: 44, against: 52, abstentions: 7.

Point 4.4.1, second paragraph

Amplify as follows:

‘Member States shall allow the undertakings and individuals located within their territories to sponsor institutions
for occupational retirement provision authorised in other Member States,. unlessIf a collective agreement between
workers and employers exists — which may possibly have been declared generally binding — which requires
thethose workers and undertakings covered by the agreement to participate in a specified company pension fund,
the Member States should guarantee that the employees and employers concerned are excluded from it if they
become members of an at least equivalent old age pension scheme with an institution in another Member State that
is authorised to provide occupational retirement provision.’

29.5.2001

EN

Official Journal of the European Communities

C 155/31

Reasons

Delete the term ‘individuals’, since it is the standing jurisprudence of the ECJ that the term ‘undertaking’ covers all
types of businesses, from a PLC to a one-man business.

The aim of the directive, alongside the equal treatment of all service providers, is to create an internal market for
financial services as well as an internal market for supplementary old age pensions. But this goal would be frustrated
if, through the conclusion of collective agreements, foreign providers of certain lines of business in a Member State
could be excluded, in extreme cases, from the whole of a Member State in the event of the national social partners
agreeing on a monopoly for a given national pension fund. For this reason at least, an opt-out possibility should be
provided for in the rapporteur’s proposal where there is an equivalence of systems.

Result of the vote

For: 36, against: 71, abstentions: 6.

Point 4.6

Reword as follows:

‘The Committee believes that institutions for retirement provision must always have sufficient assets to cover their
liabilities In the event of a temporary shortfall a plan must be drawn up to make it good.’

Reasons

Shortfalls should not be licensed.

Result of the vote

For: 45, against: 59, abstentions: 5.