Activities and Supervision of Institutions for Occupational Retirement Provision

Speech by Chris Huhne MEP delivered to the European Parliament on Tue 11th Mar 2003

Mr President, I too should like to thank the rapporteur, Mr Karas, and the Commissioner and his staff for what I believe is a very good compromise reached between the European Parliament, the Council of Ministers and the Commission, which will allow millions of Europeans to accumulate better pension rights wherever they work in the Union.

This is an essential plank of the Financial Services Action Plan. It will cut the administrative costs of many multinational companies' pension funds, allowing people to have better pensions when they retire. It will help millions of European old people to retire in the sun.

At present, European citizens are effectively being denied their right to free movement during their working lives and during retirement because of the patchwork of national pension systems. These impose unacceptable barriers when people seek to change jobs or residence. This is a big step forward in dealing with them. We look forward to more progress, particularly on some of the tax issues.

Companies also suffer from a less mobile workforce and the additional bureaucracy, administration and costs involved in managing multiple pensions systems. Firms with a presence in all fifteen Member States face an estimated EUR 40 million a year extra costs through having to deal with fifteen different pension providers and legal arrangements.

This agreement also provides more choice of pension funds because it opens up the European market in investment management and pension administration. In future, we can have a genuine pension savings market of 377 million people, expanding after enlargement to 450 million people. This is a vast potential market.

Funded occupational retirement schemes in the EU cover 25% of the EU workforce and are currently valued at more than EUR 2 500 billion. They are expected to grow to more than EUR 7 000 billion by 2010. This is a key plank in the opening up of the financial services market.

It is also a market-opening measure without using sledgehammers to crack nuts. It gives a passport to pension funds to operate throughout the EU without trying to harmonise everything. Member States are responsible for determining the social requirements (such as death in service benefits) for their own pension funds and the tax reliefs that they give, consistent with subsidiarity. For example, I am pleased that lump sums are specifically allowed.

In addition, the directive means that pension funds can now invest, taking into account their own beneficiaries' requirements rather than arbitrary rules set down by governments for the purchase of their own bonds and so forth. This insistence on the so-called 'prudent person rule' - the rule that investments are decided prudently - will open up the fund management market.

Overall this is an excellent measure. I commend it to the House