[12789]
October 26, 2000
TO: INTERNATIONAL COMMITTEE No. 38-00
RE: EUROPEAN COMMISSION PROPOSES DIRECTIVE ON OCCUPATIONAL
PENSIONS
On October 11, 2000, the European Commission issued a proposal for a directive on
occupational pensions that, among other things, would establish European-wide standards for
the management of pension assets. The proposal would establish prudential standards for
pension funds while permitting funds sufficient flexibility to determine their own investment
policies. The proposal also takes the first step in allowing pension schemes to be managed on a
cross-border basis. The Commission also intends to propose appropriate tax initiatives for
pension contributions in the coming year to facilitate further cross-border management of
pension schemes. The Commission’s proposal incorporates several of the recommendations
made by the Institute in our comments on trade negotiations and to the Committee of Wise Men
on the Regulation of European Securities Markets.1 A copy of the proposal is attached.
The proposed pension directive would cover institutions that operate on a funded basis
for the sole purpose of providing retirement benefits (IORPs). The directive would impose
certain conditions for operations of IORPs, rules for investment of IORPs, and rules permitting
the cross-border management of occupational pension schemes. The directive would exclude
expressly from its coverage UCITS funds as well as other institutions that already have a
framework for cross-border provision of services.
With respect to investment rules, the directive would impose a prudent person standard
on IORPs along the lines the Institute has advocated. The directive would prohibit member
states from requiring IORPs to invest in certain categories of assets and from requiring IORPs or
their investment managers to obtain prior approval or provide prior notification of investment
decisions. Although the directive would allow member states to impose certain quantitative
investment limits on pension funds, the proposal would limit the restrictions that member
states may maintain. Specifically, under the directive, IORPs must be permitted to invest 70%
of the assets in shares and corporate bonds and 30% in assets denominated in non-matching
currencies (i.e., foreign securities not denominated in Euro). Moreover, under the directive,
1 See Memorandum to International Committee No. 20-96 (July 3, 1996); Memorandum to International
Committee No. 26-00 (August 16, 2000); Memorandum to International Committee No. 33-00 (September 29,
2000).
2member states must allow IORPs to appoint investment managers established in other member
states to manage portfolios.
Finally, the directive provides a framework for the cross-border management of IORPs.
The pension directive would permit an IORP to manage pension schemes for companies located
in host member states by complying with the investment and prudential rules of the IORP’s
home member state. The host member state regulations regarding social security and labor,
such as the types of benefits to be provided, however, would apply rather than the regulations
of the IORP’s home member state.
The proposal will be considered by the European Parliament and the Council of
Ministers.
The Institute is considering whether to provide comments on the proposal either
informally or formally. Please provide me with your views on any comments the Institute
should make. If you have any questions, please contact me at (202) 326-5810 or jchoi@ici.org.
Jennifer S. Choi
Assistant Counsel
Attachment
Attachment (in .pdf format)