CELEX: 51991PC0301
Language: en
Date: 1991-11-12
Title: Proposal for a COUNCIL DIRECTIVE relating to the freedom of management and investment of funds held by institutions for retirement provision

COMMISSION OF THE EUROPEAN COMMUNITIES
                                           C0MC91) 301 final - SYN 363
                                           Brussels, 12 November 1991
                          Proposal for a
                        COUNCIL DIRECTIVE
  relating to the freedom of management and investment of funds
          held by institutions for retirement provision
                  (presented by the Commission)
 ---pagebreak---                                          - 2 -
                               EXPLANATORY MEMORANDUM
l. INTRODUCTION - 6ENERAL CONSIDERATIONS
A number  of matters have combined           in recent    years to make     retirement
provision the subject of much interest and debate.
Perhaps the most    important of these matters is the effect of social and
demographic changes, common to almost all Member States of the Community,
which are   likely   to result     in a significant       increase   in the ratio of
retired people to working people over the next 20-30 years.               Whilst this
proposal for a directive does not directly          address these developments, it
is nevertheless against this background that it must be seen.
At the same time developments within the Community and progress towards the
Single Market, particularly the adoption of the Capital Movements Directive
(88/361/EEC)   and   the   2nd   Life   Assurance    Directive    (90/619/EEC),   have
highlighted   various    problems      that   exist    in   occupational    retirement
provision at a European level.
Institutions for retirement provision and their members do have various
rights which can be derived directly           from the treaty or from existing
legislation.   Although there is relatively little legislation at Community
level which refers specifically to such institutions, the treaty provisions
on freedom of services and free movement of capital, together with the
Capital Movements Directive are of course of direct relevance to them.
The various directives relative to other financial institutions are also of
indirect   relevance     in    that    these    institutions    offer    services   to
institutions   for    retirement     provision,    particularly     the  services   of
investment management and custody of assets.
Some comparison    with the provisions of these directives is also inevitable
in  that  the benefits provided        by   institutions    for retirement provision
 ---pagebreak---                                            - 3 -
can also often be provided by other financial                 institutions, particularly
life assurance companies.
The main provisions of this proposal for a directive are concerned with the
effective    application      of   the   rights   which      in  principle   are   already
guaranteed by the treaty and existing legislation.
In   addressing       the   problems    which    exist      at   Community    level,   the
Commission's services have identified three principal objectives which were
outlined- and developed         in a working paper         issued to Member     States  in
October   1990     and   discussed    subsequently      in a    series   of  consultation
meetings with Member States' experts.            These objectives aim to implement
effectively the Treaty given freedoms of services and capital movements for
institutions for retirement provision.           They have been discussed under the
headings of:
- freedom of cross-border investment management
- freedom of cross-border investment
- freedom of cross-border membership of such institutions.
These   objectives      themselves    are   simply     the   expression   of   the  treaty
principles of freedom of services and free movement of capital.                    However
discussion     of    them   has   highlighted    a    number    of  practical    problems,
particularly in the application of the third objective above which however
can in no way restrict the underlying Treaty given freedoms.
Systems of retirement provision have developed over many years and in very
different ways in the different Member States of the Community.
This is seen most clearly in the different proportions of retirement income
that  come    through state, occupational          or    individual   provision,   through
funded    or      pay-as-you-go      provision,       through    publicly   or   privately
 ---pagebreak---                                           - 4 -
administered    provision, and      through   compulsory      or   voluntary    provision.
Occupational    provision may be organised by          individual employers or on a
sectoral    basis.    A   similar    variety    exists     as    regards   the    ways    of
establishing     occupational    retirement     schemes.     They    may  be   set   up   by
collective agreements, by single employers, groups or others.
These   differences     are deeply    rooted    in national      cultures    and  economic
systems and no harmonisation at Community              level   is either necessary or
desirable.
 In particular    it is not necessary to harmonise the levels of benefit that
are provided either by individual components of retirement income or by the
system as a whole.       Community action must be carefully judged so as not to
upset or distort the equilibrium which has been established at national
 level.   Indeed    the    Commission    in    its    document      SEC(91)500     'Initial
Contributions by the Commission to the              Inter-Governmental     Conference on
Political Union' draws attention to the fact that there is no question of a
general harmonisation of the existing systems.              It may also be noted that
the    Inter-Governmental      Conference    is    considering      the   decision-making
process for Article 51 of the treaty.
There are however a number of cross-border aspects of retirement provision
which can significantly impede the realisation of the fundamental freedoms
of the Community treaties.
As   the   single   market    develops,    companies     increasingly     organise     their
business operations on a trans-national basis, employing staff resident in
more than one Member State, and this can only be expected to increase with
closer economic integration.        This inevitably focuses attention on the many
difficulties      in   organising     occupational      retirement      provision     on   a
consistent    basis both from the point of view of workers and companies,
 including many small companies, for instance operating in border areas.
These difficulties are most         immediately apparent        in the case of migrant
workers who have worked in more than one Member State and particularly if
they    have   done   so   whilst   remaining     with    the   same    employer, or more
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generally within the same group.           In such cases it is often impossible to
organise   their    retirement    provision      in a consistent        and    tax-efficient
manner, and this can constitute a significant barrier to the free movement
of workers. Such       problems    in the area of          institutions     for    retirement
provision have also been highlighted by progress towards the single market
in the area of life assurance and particularly by the adoption of the 2nd
Life Assurance Directive (90/619/EEC) which included group life assurance
contracts    within    its   scope.    Such    contracts      are   often    used    for   the
provision    of   pension    benefits    and    it will      thus   become     possible    for
occupational    pension benefits to be provided across national borders by
means of life assurance contracts.            The Commission has also taken action
under   article    169   of   the   treaty    to    remove    fiscal    barriers     to   such
provision.    The    alternative,    often     more    direct,     provision      through   an
 institution for retirement provision           however remains extremely difficult
and there should be equal opportunities for these alternative methods of
financing.    The diversity      of   national     systems     for   financing     retirement
provision poses many practical problems in this respect.
Despite these various problems, it should be emphasised that institutions
for retirement provision and their members are not without rights, which in
many   cases   can be derived       directly     from   the    treaty   or    from   existing
 legislation.    Measures to remove the remaining             barriers are not        included
within   this proposal      for a directive, but          the Commission        is currently
reviewing these problems with the            intention of bringing forward             further
proposals or taking further action in due course, in order to facilitate
the free movement of persons and services.              In this respect the Commission
has already adopted on the 17th July 1991 a Communication to the Council on
the   rôle of occupational        pension    schemes     in the social        protection of
workers and their implications for freedom of movement.                  This proposal is
consistent    with   that communication       and    any   further    proposals would of
course also be so.
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There is strong pressure from consumer organisations for further proposals
which would give greater freedom for consumers.           From their point of view
the current     proposal   may  be considered    unbalanced    in facilitating    the
exercise   of    certain   freedoms  for   institutions, without      providing   any
freedoms for consumers (in the sense of members or beneficiaries of these
institutions) to remain within        a single scheme while exercising          their
freedom to work       in different Member States. This needs to be balanced,
however, against the need to ensure that any future proposals do not call
 into question compulsory supplementary pension schemes operating on a pay-
as-you-go basis fulfilling a 'social solidarity' function.
At this stage the practical problems related to the objective of cross-
border membership require further study before any additional             legislation
could   be    proposed.    This  proposal    for   a   directive   therefore    deals
essentially with the aspect of        institutions for retirement provision        as
financial   institutions, in other words with the first two of the three
objectives outlined above, and not with the third objective.              Indeed such
 institutions represent some of the largest financial           institutions within
the   Community in terms of the size of assets under their control.
However   the   importance of such assets varies a great          deal   between the
Member   States, and between the different         systems of pension      provision.
Where pension liabilities are covered by book reserves in the balance sheet
of an employer, there is no financial         institution in the above sense, and
such systems do not therefore come within the scope of this proposal.
 Indeed the requirements of this proposal would have little meaning in such
a case.   Much the same is true of pay-as-you-go systems where pensions are
paid   directly     from  contribution    income.   However   to  the   extent   that
reserves are built up in such systems and are invested in financial assets,
they clearly can be considered         as financial     institutions for whom     the
requirements of this proposal would have a meaning and indeed they would
fall within the scope of this proposal for a directive.
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However the vast bulk of the assets covered by this proposal are held by
those   institutions    for   retirement    provision    established     under   funded
systems, where assets are accumulated to cover not only current                pensions
but also liabilities for future pension payments.           For such institutions it
is clear that the protection of the pension rights of members requires that
the assets should be invested prudently.
The provisions of the Capital Movements Directive (88/361/EEC) have a clear
impact on institutions for retirement provision but are without prejudice
to the right of Member States to take all requisite measures to prevent
infringements of their      laws and regulations, inter alia          in the field of
prudential supervision (Article 4 ) .
In order that institutions for retirement provision may benefit fully from
the free movement of services and capital, it is therefore necessary to
define carefully the      level and the type of prudential          investment rules,
which may not pursue any other purpose.          Such rules must be Justified by
the general good and thus enable the competent authorities of the Member
States to exercise a control on institutions for retirement provision which
is proportional to the prudential objectives they may legitimately pursue.
Consequently, on    the one hand     this proposal      for a directive      lays down
limits on the type of restrictions that may be imposed by Member States on
prudential  grounds, where      such  restrictions would       be   inconsistent   with
treaty principles.     On the other hand      it proposes a number of prudential
investment   principles which     should   be followed by all        institutions for
retirement provision.      Although this does not prevent Member States from
applying other, possibly more detailed,          investment    rules consistent with
these principles, it provides a standard against which any such rules may
be assessed.
In  determining    its   proposals   concerning     the   prudential    investment   of
assets, the Commission has taken account of the proposals already made for
insurance companies, particularly       in   the   area    of   life   assurance,   and
 ---pagebreak---                                          - 8 -
and in certain cases an identical text is proposed.                 This is particularly
the case for the limits on the type of restrictions that may be imposed,
such   as   those    concerning     localisation     or    investment        in   particular
categories of      asset. However     the proposal     also allows         for   differences
between institutions for retirement provision and insurance companies both
in the nature of their liabilities and in the extent of harmonisation that
I s required.     In particular, as the current proposal does not cover the
objective    of    cross-border    membership,      it    does     not     require    mutual
recognition of the supervisory systems in different Member States,                      it is
therefore    appropriate     that  the   harmonisation       proposed       for   prudential
investment rules is not as extensive as is the case in life assurance.
The proposal aims to facilitate the exercise of freedoms for institutions
for retirement provision in respect of the investment of their assets and
their choice of investment manager.         There will of course be no obligation
to   use  these    greater    freedoms.   The   proposal      in    no   way    changes   the
procedures for taking decisions on           investments or        investment     management
within institutions for retirement provision,            in particular it does not in
any   way   alter    the   extent    or  the    nature     of    any    arrangements      for
participation in decision-making by representatives of the members.
In summary, the essential value of the proposal              lies in providing greater
precision    as   to   the  application    of   fundamental       treaty     principles    to
institutions for retirement provision.           By providing a framework for the
application    of   prudential    investment    rules   the proposal          will  make   it
significantly easier to assess whether           individual rules in Member States
are consistent with the treaty freedoms.           Similarly for the application of
freedom of services provided to institutions for retirement provision, the
proposal   provides     greater   legal  precision     but    does     not    introduce   any
fundamentally new principles.
 ---pagebreak---                                         - 9-
II. COMMENTARY Q N THE ARTICLES
Article 1 - Définitions
This Article contains definitions of certain terms used In the proposal for
a directive, the aim being to clarify their meaning and hence contribute to
a better understanding of the Directive.
The definitions of 'Institution for retirement provision' and 'Retirement
Benefits' are drawn widely, the intention being to bring within the scope
of the directive a wide variety of different types of institution, which
however have in common that they hold assets for the purpose of providing
retirement or other social benefits In the context of an occupational or
employment  link.    Statutory social security funds as defined in regulation
1408/71 are specifically excluded from the scope.
Article Z - Scope
This article builds on the definitions in Article 1 to define the scope of
the  proposal    for    a   directive.   This   scope    is  wider  than   would  be
appropriate   for    a    directive   covering    the   objective  of   cross-border
membership   and     in    particular     includes    institutions   which   operate
essentially   on   a   pay-as-you-go     basis   with   compulsory   membership  and
limited reserves.     The proposal does not in any way call into question the
compulsory membership of these institutions, nor is there any Intention to
do so in any future proposals.
Paragraph 2 makes clear that the proposal             is not  intended to apply to
financial  institutions which are already covered by other directives in
related areas.    This is necessary in view of the close relationships and
the overlaps    In type of activity between different           types of   financial
institutions.
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Article 3 - Investment management and Custody services
The effective exercise of the right of free provision of services, in this
case  the service of       investment    management,      requires not only       that   the
providers of a service are free to offer their services throughout                       the
Community, but also that the demanders of a service are free to select a
provider who is not established in their own Member State.
Whilst other Community legislation, or proposed legislation, deals with the
authorisation    and   the    activity    of   the    providers     of   the   service    of
investment   management, paragraph        1 of    this article aims to ensure            the
freedom of    institutions     for   retirement     provision     as demanders     of   this
service  to choose     freely    from amongst      those authorised       to provide     it.
Paragraph 3 does the same for the service of acting as a custodian or
depositary for the assets of such institutions.               Whilst the provisions of
these paragraphs should help to clarify the position                  in these respects,
such freedoms are in principle already available by direct application of
the Treaty.
Paragraph 2 deals with the situation where an institution for retirement
provision   manages      its   own    investments,     or    those    of   an    associated
institution within a group of undertakings.
Although not all Member States allow this possibility, it is necessary that
where it is allowed, such freedom should not discriminate, particularly in
cases where    it has been       necessary    for   an undertaking,       or   a group of
undertakings    to   set   up   separate     institutions      to   cover    employees    in
different Member States.        It should be possible for such            institutions to
operate for the purposes of the choice of investment manager                   in the same
way  as   they   would    have   been   able    to,    if   there   had   beer, a     single
institution, and in particular to manage their own investments.
The use of one institution for retirement provision as investment manager
for a separate institution associated with the same group of undertakings
does not however imply any pooling of the assets of such institutions, nor
any difference In the treatment of such institutions for taxation purposes.
Separate   identification      of   the assets of each institution is in practice
 ---pagebreak---                                         - 11
likely to be necessary for several purposes, including for              instance the
need to respect the rights of members to participate in the management of
the institutions.
Article 4 - Investment of assets
This article lays down a number of principles for the prudent investment of
assets of    institutions for retirement provision.        It also restricts the
possibilities for Member       States to apply     rules which would      limit   this
freedom.   This applies in particular to minimum investment requirements in
certain   asset    categories,   to  rules on    localisation  of   assets    and   on
currency matching, which could otherwise have the effect of limiting the
possibilities for cross-border       investment.    In this respect the proposed
rules are consistent      with   those that   have been proposed      for   insurance
compan i es.
However this proposal draws a distinction between those institutions whose
liabilities are fixed      in monetary terms and those whose        liabilities are
instead determined by some other factor such as future salary levels.               In
the latter case the principles of currency matching do not apply in the
same way and currency diversification may be a more important element of
prudent   investment management.      It Is therefore appropriate for matching
requirements to be less restrictive.
Paragraph 5 of this article makes clear that Member States are free to lay
down more detailed rules for the investment of the assets of institutions
established within their territory.       These more detailed rules must however
not contravene the principles laid down in this article.
There is at this stage no need for more detailed rules to be harmonised at
Community    level   as,  in the absence of     any proposals     for   cross-border
 ---pagebreak---                                    - 12 -
membership,  this proposal   does not   require mutual recognition of the
supervisory systems in different Member States.
Articles 5-7 -   Implementation of the Directive
These articles contain the final provisions.
 ---pagebreak---  ---pagebreak---                                         - 13 -
                                   Proposal for a
                                 COUNCIL DIRECTIVE
        relating to the freedom of management and investment of funds
                 held by institutions for retirement provision
THE COUNCIL OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Economic Community,
and in particular Articles 57(2) and 66 thereof,
Having regard to the proposal from the Commission,
In cooperation with the European Parliament,
Having regard to the opinion of the Economic and Social Committee,
Whereas institutions for retirement provision are institutions sui generis
which are amongst     the   largest and most    important   financial   institutions
within the Community and often represent an alternative means of providing
the   same    benefits    as   are   provided   by    other   competing    financial
inst itut ions;
Whereas    the   provision    of   supplementary    retirement   benefits    through
institutions    for    retirement    provision   is   a  matter   of   considerable
importance for social policy within the Community and forms one part of the
overall   structure of retirement      provision, the components of which vary
considerably between Member States, particularly as regards the level and
the form of statutory social security retirement benefits;            whereas there
is  no    intention   to   alter at Community level the     balance which has been
 ---pagebreak---                                         - 14 -
arrived   at   in  individual    Member   States   in this    respect;   whereas  the
provision of supplementary retirement benefits can facilitate the effective
provision of a satisfactory level of overall retirement             income;   whereas
the protection of rights to retirement benefits is therefore a matter of
proper concern and great importance for the Member States;
Whereas the provisions of this Directive apply equally to many different
types of institution for retirement provision including institutions which
operate on a fully funded basis, but also some               institutions operating
essentially on a pay-as-you-go basis with compulsory membership and limited
reserves on the basis of generational transfers; whereas such institutions
are different in many other respects; whereas the characteristics which are
necessary for their stability must be taken into account;
Whereas    freedom   of   services   extends    to  the   provision   of   investment
management    services and custody services to institutions for retirement
provision; whereas a situation where such institutions are restricted to
the use of investment managers or custodians established             in a particular
Member State is incompatible with the principle of freedom of services;
whereas the requirements for authorisation and mutual recognition of the
providers of such services are set out under the legislation applicable to
these providers;
Whereas institutions for retirement provision represent major accumulations
of   capital   within    the   Community;   whereas   the   provisions    of  Council
                        1
Directive 88/361/EEC        (capital   movements) have a clear       impact  on such
 institutions but are without prejudice to the right of Member States to
take all requisite measures to prevent           infringements of their      laws and
regulations,     inter   alia,    in  the  field   of   prudential   supervision   of
financial institutions;       whereas   it   is  therefore   necessary to define in
1    OJ No L 178, 8.7.1988, p. 5.
 ---pagebreak---                                          - 15 -
more detail the prudential        investment rules which are consistent with the
free movement of capital and the freedom of services;            whereas the adoption
of common prudential investment principles will facilitate the exercise of
the freedom of establishment for institutions for retirement provision;
Whereas   the protection of members' rights requires             that   the assets of
institutions    for retirement      provision be    invested   in a prudent     manner;
whereas capital movements within the Community must not lead to a situation
where an increased level of risk could endanger those rights;              whereas the
assets of institutions for retirement provision must therefore be invested
with the care, skill, prudence and diligence, under the circumstances then
prevailing, that a prudent man acting in a like capacity and familiar with
such matters, would use in the conduct of an enterprise of a like character
and with like aims-,     whereas those responsible for the investment of the
assets of an institution for retirement provision,            such as the directors
or trustees of such an institution, and their delegates, such as external
or internal managers and advisers, must act together in the sole interest
of plan participants and beneficiaries; whereas no investment should be
made for the particular       interest of any such directors or trustees or of
their delegates, nor should any investment be made to pursue solely the
interests of the undertaking or undertakings which sponsor the institution;
whereas   the   investment   of   the assets of an       institution for     retirement
provision   should    follow    the   principles   of  sufficient     diversification,
quality,    liquidity    and     restraint    on   investment     in   the   sponsoring
undertaking or undertakings;        whereas the investment of such assets must be
considered and Judged within the context of the overall portfolio and the
performance objectives and risk tolerance of the institution and not within
the context of each investment taken in isolation;
Whereas   supplementary     retirement     provision    is  often    organised   on   an
occupational    basis   either    for   a particular    sector    or  associated    with
particular    undertakings;     whereas   as   a result    of  progress    towards   the
s ingle  market    such   undertakings     are   often   organised    on a basis which
 ---pagebreak---                                        - 16 -
crosses national borders and wish to organise retirement provision on a
consistent basis;     whereas direct and indirect barriers still exist to the
free provision of cross-border        services by    institutions for retirement
provision; whereas in this respect there are also requests from consumer
representatives    to   take   the Community    dimension   Into  account   in the
development of supplementary retirement benefits; whereas this dimension
could,   subject  to certain     conditions, contribute     to the   transnational
mobility of workers; whereas further work needs to be done on this subject,
taking into account the differences between the types of institution for
retirement   provision and not      calling   into question    the functioning of
institutions with compulsory membership,
HAS ADOPTED THIS DIRECTIVE:
                                     Article 1
1.  This Directive shall apply to institutions for retirement provision in
    order    to  ensure    certain   freedoms    concerning   the  management  and
     investment of their assets.
2.  This Directive shall not apply to financial            institutions which are
    covered by
    CounciI Direct ive        89/646/EEC1
    Directive                                  (3rd Life Assurance Directive)
    Direct ive                                 (3rd Non-Life Insurance Directive)
    Council Directive         85/611/EEC 2
    Directive                                  (Investment Services Directive)
1   OJ No L 386, 30.12.1989, p. 1.
2   OJ No L 375, 31.12.1985, p. 3.
 ---pagebreak---                                       - 17 -
                                    Article 2
For the purpose of this Directive
(a) "institution for retirement provision" means an institution which is
    established separately from any sponsoring undertaking for the purpose
    of financing retirement benefits to a group of persons defined by an
    occupational   or professional    or similar    relationship.   Institutions,
    other  than   competent    institutions   within   the  meaning   of   Council
                             1
    Regulation No 1408/71 , which provide retirement benefits prescribed
    by or provided    for   in social   security   legislation are regarded     as
    institutions for retirement provision within this definition.
(b) "retirement benefits" means benefits in the form of pensions, whether
    for life-time or a temporary period, or in the form of lump sums paid
    on  death,   disability,    cessation  of   employment  or  when   a   defined
    retirement age is reached, or support payments in case of sickness or
    indigence when they are supplementary to the abovementioned benefits.
    Benefits which replace social security benefits as defined above are
    regarded as retirement benefits within this definition.
(c) "sponsoring undertaking" means any undertaking or other body which pays
    contributions into an institution for retirement provision.
                                    Article 3
1.  Member States which permit the external management of the investments
    of certain forms of      institution for retirement provision, shall not
    restrict   the freedom of such      institutions to choose     an   investment
    manager, for parts or the whole of their assets, who is established in
    another Member State and duly authorised for this activity, according
    to Directive           (3rd Life Assurance Directive), Directive
    (Investments Services Directive) or Directive 89/646/EEC.
1   CJ No L 149, 5.7.1971, p. 2.
 ---pagebreak---                                      - 18
2. Member   States shall   allow  institutions for    retirement   provision of
   which the sponsoring undertakings belong to a group of undertakings to
   organise the management of their investments on a group basis, through
   one of these institutions.     This shall not affect the right of Member
   States to provide that institutions for retirement provision shall be
   managed by a separate legal entity.
3. Member States which permit or require that the assets of an institution
   for retirement provision are held by a custodian shall not restrict the
   freedom of such institutions to choose a custodian to hold parts or the
   whole of their assets, who is established in another Member State and
   duly   authorised    according   to   Directive   89/646/EEC   or   Directive
   (Investment Services Directive), or is accepted as a depositary for the
   purposes of Directive 85/611/EEC.
                                  Article 4
1. Member   States   shall  require   institutions  for   retirement   provision
   established within their territory to invest all assets held to cover
   expected   future retirement benefit     payments   in accordance with    the
   fol lowing pr inciples:
   (a) the assets shall be invested in a manner appropriate to the nature
        and the duration of the corresponding liabilities and the level of
        their  funding, taking account of      the requirements of security,
        quality, liquidity and profitability of the institution's portfolio
        as a whole;
   (b) the assets shall be sufficiently diversified in such a way as to
        avoid major accumulations of risk in the portfolio as a whole;
   (c) investment   in the sponsoring undertaking or undertakings shall be
        restricted to a prudent level.
    In the application of these principles, the extent of any insolvency
    insurance or State guarantees must be taken into account.
 ---pagebreak---                                         - 19 -
2. Member States shall not require institutions for retirement provision
   to   invest   in particular    categories of      assets or     to   localise   their
   assets in a particular Member State.
3. Member   States shall     In no case require        institutions for      retirement
   provision to hold more than 80% of their assets in matching currencies,
   after taking account of the effect of any currency hedging instruments
   held   by   the   institution.    In   the   case   of  those     institutions     for
   retirement    provision    whose    liabilities    are   not   fixed    in   monetary
   terms,   but   are  for   instance    linked   to   future   salary    levels, this
   percentage shall be reduced to 60%.
   Assets denominated in ECU shall be regarded as matching any particular
   currency in the Community.
4. Member    States   shall   not   subject    the    investment    decisions     of   an
   institution for retirement provision or its investment manager to any
   kind of prior approval or systematic notification requirements.
5. Member    States   may   lay   down   more    detailed    rules    consistent     with
   paragraphs 1 to 4.
                                     Article 5
1. Member    States   shall   bring    into   force    the    laws,   regulations     and
   administrative provisions necessary to comply with this Directive not
   later    than   31   December    1992.    They    shall    forthwith     inform    the
   Commission thereof.
   When   Member   States   adopt   these    provisions,     these   shall    contain   a
   reference to this Directive or shall be accompanied by such reference
   at  the time of      their official     publication.     The procedure      for such
   reference shall be adopted by Member States.
                                       - 21 -
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2.  Member States shall communicate to the Commission the texts of the main
    laws, regulations or administrative provisions which they adopt in the
    field covered by this Directive.
                                 Article 6
This Directive is addressed to the Member States.
Done at Brussels,                                     For the Council
                                                       The President
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                             IMPACT ASSESSMENT FORM
                   THE IMPACT OF THE PROPOSAL ON BUSINESS
    with special reference to small and medium-sized enterprises (SMEs)
Title of proposal:    Proposal for a Council Directive on the coordination
                      of   laws, regulations     and   administrative    provisions
                      relating to the freedom of management and investment
                      of    funds   held   by     institutions    for    retirement
                      provision.
Reference Number (Répertoire):     C0M(91)
The proposal
1. Taking account of the principle of subsidiarity, why               is Community
    legislation necessary In this area and what are its main aims?
    The main aims of the directive are as follows:
    1.  To define the level and the type of prudential           investment rules
        which are consistent with the freedom of services and the free
        movement  of   capital   as applied    to   institutions for     retirement
        provision.
    2.  To remove obstacles to the free provision of services by investment
        managers   and   asset    custodians    by    removing   restrictions    on
        institutions for retirement provision freely choosing from amongst
        the providers of such services.
    Since the main aims of the directive involve the removal of barriers to
    cross-border   provision     of   services    and    investment    of   assets,
    legislation is necessary at Community level.        It is recognised
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however   that  the   principle   of   subsidiarity   applied  to    the  area   of
retirement provision requires that Member States should retain a large
measure   of  freedom    in their  choice of     systems  for the    financing   of
retirement benefits and indeed the level of such benefits.        This freedom is
entirely respected in this proposal for a directive.
The Impact on business
2.   Who wiIl be affected by the proposal?
   - which sectors of business
     There will be an indirect effect on businesses in all sectors in as far
     as businesses contribute to institutions for retirement provision set
     up for the benefit of their employees.      The institutions themselves are
     not businesses, in the normal sense of the word, although they may in
     some aspects of their activity, act in a similar manner.
   - which sizes of business (what is the concentration of small and medium-
     sized firms)
     All sizes of businesses are potentially affected in the indirect manner
     described above.     However there is probably a proportionately greater
     number of large firms affected, as where businesses have a choice as to
     the  level of retirement benefits provided and the method of their
     financing,   larger   firms are more     likely  to choose    the option of
     establishing a an institution for retirement provision.        Smaller firms
     on the other hand are more likely to choose provision through             life
     assurance contracts.
   - are there particular geographical areas of the Community where these
     businesses are found
     InstiiUtions for retirement provision      as defined in the proposal for a
     directive are particularly concentrated in the United Kingdom
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and the Netherlands and to a lesser extent in Ireland, at least in as far
as the level of assets is concerned.       The level of assets covered in other
Member States is much lower, although the absolute amounts can still be
quite significant.
3. What will businesses have to do to comply with the proposal?
     Businesses will not need to take any direct action to comply with the
     proposal.   Action will be necessary only by national          legislators and
     supervisory    authorities.   However    this   will   increase    the  freedom
     available to institutions for retirement provision          and they may then
     wish to take advantage of this increased freedom.            In as far as the
     institutions themselves can be considered as businesses, or in as far
     as businesses are involved in the administration of such institutions,
     they may therefore be indirectly affected.
4.   What economic effects is the proposal likely to have?
  - on investment and the creation of new businesses
     By   removing    restrictions   on   the    investment   of    the   assets   of
     institutions for retirement provision, the proposal should improve the
     economic efficiency of investment and channel resources towards more
     productive    investment,   which   could    include   the   creation   of   new
     bus i nesses.
   - on the competitive position of businesses
      In  many   cases   retirement   plans    provide    defined   benefits,    with
     businesses accepting the commitment to finance the balance of the cost
     after allowing for fixed contributions by members.         Any improvement in
     the economic efficiency of the investment of the related assets could
     therefore directly reduce the cost to businesses of financing this
     commitment and thus improve their competitive position.
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5.  Does the proposal contain measures to take account of the specific
    situation  of  small  and  medium-sized  firms  (reduced  or  different
    requirements, etc.)?
    No such measures are considered necessary in view of the nature of the
    proposal, which is such as to reduce restrictions on institutions for
    retirement provision, and hence indirectly on businesses, of all sizes.
Consultation
6.  List the organizations which have been consulted about the proposal and
    outline their main views.
    European Federation for Retirement Provision (EFRP)
    The EFRP supports the proposal, particularly as concerns the proposals
    for freedom of cross-border investment.  They have also indicated their
    support for common prudential principles for the investment of assets.
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                                                              COM(91) 301 final
                                                     DOCUMENTS
EN                                                                              05
                                Catalogue number : CB-CO-91-491-EN-C
                                                             ISBN 92-77-77256-5
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