EU Backs Rules to Free Up Cross-Border Pensions
Jeremy Smith and Lisa Jucca
March 12, 2003
The European Parliament on
Wednesday backed plans to allow the multi-trillion euro pension fund
industry to operate across borders, a move aimed at boosting stock market
capitalisation in the 15-nation EU.
The law, part of the European
Union's plan to build a single financial services market by 2005, should
make it easier for fund managers to sell their products abroad and help
large firms cut costs by offering employees a single pan-EU pension
The rules, put forward by the
European Commission in 2000, come as governments face increasing pressure
to defuse a pension time bomb caused by an ageing population.
"This is a great
breakthrough for a single market in financial services," Chris Huhne,
a British member of the EU assembly, said in a statement.
"It puts in place a key
building block of integrated european markets, will help pensioners to a
better retirement and will cut companies' administration costs."
The Parliament's vote paves the
way for formal adoption by European Union member states, expected within
Huhne said the value of
occupational retirement schemes in the EU was expected to rise to above
7,000 billion euros in 2010 from 2,000 billion euros currently.
NEED FOR CHANGE
Analysts expect the EU rules to
pressure certain EU states, Italy for example, to reform their pension
"This vote opened the way
for an era of true reforms rather than simple rhetoric. If endorsed by the
Council (of EU member states) it would open the way to a much deeper and
integrated financial market in Europe," said Leonardo Sforza, head of
research and EU affairs at HR outsourcing and consulting firm Hewitt.
"It will also be an
opportunity for countries reticent to develop complementary pension funds
to do so. They will be put unter greater pressure from the other member
pension schemes are becoming more important as rising life expectancy is
seen forcing EU states to abandon traditional pay-as-you-go schemes.
Under pay-as-you-go systems,
workers pay for those in retirement, while private pension schemes rely on
the capital a worker accumulates throughout the worker's active life.
The European Financial Services
Round Table (EFR) estimates EU citizens would need to save around 450
billion euros a year to keep their current level of retirement benefits.
Although welcoming the EU plan,
some experts warned that national governments would still have much scope
to impose additional requirements on pension products in their domestic
legislation, risking fragmentation.
"In principle this is a
step in the right direction. But it is a very small step in solving the
pension crisis," EFR chairman Pehr Gyllenhammar told Reuters.
Sforza said for the new rules to
work it was also essential that the Commission pushed member states to
remove existing tax barriers to making pensions portable in the bloc.
The British pension funds
industry, the EU's largest and most developed, had pushed for rapid
adoption of the law.
The planned law had originally
sparked concern in Britain as it threatened tax-free lump sums that
British workers receive from pension funds when they retire. Last-minute
amendments removed the concern, said Christine Farnish, chief executive of
the National Association of Pension Funds (NAFP).
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