Monti seeks end to pension fund curbs

Date: 11/03/1999

By Renée Cordes

EU GOVERNMENTS' freedom to force pension funds to take on billions of euro of their debt would be severely curtailed under a European Commission plan to be unveiled later this month.

In a paper due to be approved by the full Commission on 24 March, Internal Market Commissioner Mario Monti calls on member states to abolish national rules forcing fund managers to invest a large chunk of their contributors' assets in government bonds.

If accepted by member states, the move would mean the end of schemes in Belgium, France, Spain and the Netherlands, where pension funds are required to invest a set amount of their portfolios in fixed-income securities denominated in domestic currency.

Belgium, for example, forces supplementary pensions provi-ders to invest 15% of their assets in its bonds. Critics argue this gives the government preferential access to private capital and ensures it pays bargain-rate interest to finance its huge €300-billion backlog of public debt.

"The absence of any quantitative restrictions will enable the fund manager genuinely to take advantage of the wider and more liquid capital market which is developing with the arrival of the euro," Monti said last autumn.

The Commissioner is nevertheless treading cautiously. His plans will be set out in a formal 'communication' and fund managers will have to wait several months for a draft directive. Monti has also made it clear that the Commission would consider requests from governments to maintain restrictions on fund investment, albeit for a limited period.

In addition, the paper will set out EU-wide principles on standards for fund managers' professional competence, as well as their obligation to share certain information with supervisory authorities and fund members.

But fund managers fear that a true single pensions market is still a long way off since the plan does not address the more urgent problem of how to tax pension contributions. "The key thing is taxes," said Robin Ellison of London law firm Eversheds. "You cannot construct the building without the foundation."

Many EU member states favour pensions and life assurance policies taken out with domestically-registered institutions. Tax breaks for nationals on their policy contributions or benefits are often not extended to those who move temporarily to another member state; a practice which acts as a deterrent to labour mobility.

At a meeting of top national tax officials this week, several member states called on Monti to propose legislation to eliminate tax barriers. This is now expected in the summer.

"From a single market per-spective there are serious but also very complicated problems in this area," the Commissioner told the meeting, adding: "Relatively quick progress on this priority issue seems to be in sight."