Bolkestein bids to relax pension fund rules

Date: 28/09/00

MANAGERS of pension funds run by employers will find it much easier to do business across the EU under long-awaited plans due to be unveiled by the European Commission next week.

The plan, drawn up by single market chief Frits Bolkestein, is set to be approved by the full Commission next Wednesday (4 October). It would lift a series of investment restrictions on private pensions run by companies, which manage about €2.3 trillion of funds and cover around a quarter of the Union's population.

Experts predict this could rise to €2.5 trillion in 2005 as member states encourage the development of occupational schemes to ease the burden on state coffers.

Until now, asset managers have had to put the bulk of their investments into government bonds in their home country. But under the Commission's plan, they would enjoy greater freedom to diversify into other securities and private equities.

Bolkestein will also propose that fund managers be given the right to manage schemes on a cross-border basis, potentially saving large multinationals millions of euro by allowing them to pool all their pension schemes in one large fund instead of setting up different funds in each country.

"A web of restrictions concerning the way in which pension funds manage their savings deny savers the benefits of an optimal risk-return profile and distort the flow of resources to borrowers," said the Commissioner recently. "These restrictions also have a negative impact on labour mobility in Europe."

The Commission will also propose a series of measures to protect the rights of citizens who sign up to such schemes.

The proposals are a key element of the EU's grand plan to create a single market in financial services by 2005, enabling investors and companies to take full advantage of the single currency. The Commission is delaying the more difficult part of the reform - giving companies and their employees the right to tax benefits on pensions contributions in another member state - until later this year.

The need for the reforms proposed by Bolkestein will be underlined in a second paper drawn up by Social Affairs Commissioner Anna Diamantopoulou which paints a bleak picture of the future of Europe's social protection mechanisms if no changes are made.

The report will warn that Europe's ageing population means the current pensions situation is unsustainable. In the first official Commission analysis of the future prospects for social protection, Diamantopoulou will say that as well as pension liberalisation, the EU must concentrate on getting more people to work to ensure the pensioner to wage-earner ratio remains viable.

She will argue that to do this, Europe's unemployment figures must be reduced and the average age at which people retire must be increased.

Managers of pension funds run by employers will find it much easier to do business across the EU under long-awaited plans due to be unveiled by the European Commission on 4.10.00.