Watson issues warning on pensions compromise

Date: 04/04/02

A LEADING MEP says the European Parliament is likely to oppose Madrid's effort to break a two year log-jam on a controversial draft law by increasing restrictions on company pension fund investments.

The warning from Graham Watson, chairman of the assembly's Liberal group, comes as the Spanish EU presidency touts the extra restrictions as a way to win support from wavering member states.

Countries such as France, Italy and Portugal fear the so-called 'prudent person' approach advocated by the Commission would give too much scope for fund managers to gamble-away pensioners' cash on risky investments - even though they would be legally bound to behave 'prudently'.

EU insiders say Madrid is considering tabling a package of restrictions known as 'prudent person plus' - including specific limits on investments in areas such as private equity, hedge funds, real estate and derivatives. But Watson said the Commission's original proposals - coupled with amendments tabled by MEPs at first reading - already offered pensioners enough protection without threatening the growth of their nest-eggs.

For example, the Commission insists on a 70 limit on equity investments and fund managers must not plunge more than 5 of their portfolios into shares in the workers' own firms.

Any more rules, he warned, would reduce the returns to pensioners. The prudent person rule, Watson argued, would allow pension fund companies to 'diversify between different companies, currencies, between different investment vehicles and generally to spread risk'.

Graham Watson, chairman of the European Liberal group, suggested in April 2002 that the European Parliament will oppose Spanish efforts to restart break the deadlock on a draft law on pensions by suggesting increased restrictions on company pension fund investments.