1. Regional Report European Union Level Mr. Alan PICKERING Rio de Janeiro, 26 April 2002 III International Pension Conference

2. History of Proposal for a Directive  study pension funds and capital markets - 1968  Leon BRITTAN initiative - 1989 - freedom for cross border affiliation - freedom for cross border pension fund management - freedom for cross border asset allocation  proposal for a Directive 1991  modified 1993 - withdrawn in 1994  Communication end 1994  ECJ decision in 1995 to withdraw Communication IORP Directive – State of Play

3. Green Paper on Supplementary Pensions - 1997 Broadened approach:  analysis of social, economic and financial context  investment restrictions impair performance ageing society  prudent man favoured  EU prudential framework  labour mobility  taxation obstacles  numerous responses IORP Directive – State of Play

4.  consensus  3 pillars under subsidiarity principle  main lines of action * Prudential rules for pension funds * Remove obstacles labour mobility * Coordinate taxation  EP and ESC supportive yet strict supervision Communication - Single Market of Supplementary Pensions - 1999 IORP Directive – State of Play

5. Proposal Directive on Institutions for Occupational Retirement Provision (IORP) - 2000  Key elements : * liberalization of investment practice * prudential standard * cross border membership IORP Directive – State of Play

6. Proposal Directive on IORP  means to achieve these objectives: * minimum conditions for the operation * prudent principles * powers to supervisors * cross border procedures IORP Directive – State of Play

7. Minimum conditions for the operation (1)  be registered - home State competent authority is informed of IORP's basic details  no other activities than retirement benefit related operations  be staffed by appropriate personnel (good repute, professionally qualified) IORP Directive – State of Play

8. Minimum conditions for the operation (2)  have properly constituted pension scheme rules which are implemented  if sponsor guarantees payment of pension, must have a commitment by sponsor to fund regularly  comply with extra conditions to protect members and beneficiaries IORP Directive – State of Play

9. Cross-border activities – European Passport  prior authorization in home state  notification procedure in home and host state  comply with host state social and labour law  fully funded technical provisions at all times IORP Directive – State of Play

10. Prudent Principles  all IORPs must "invest in a prudent manner“  shall take into account nature and duration of the future pensions  ensure security, quality, liquidity and profitability of portfolio  assets are to be properly diversified  invest no more than 5% of technical provisions in sponsors Only 3 last rules apply where scheme members bear the investment risk IORP Directive – State of Play

11. Powers of Supervisors  MS may give its competent authority “appropriate and necessary powers” to prevent or remedy irregularities as regards an institution’s: * informational procedures * operational procedures * social and labour law compliance IORP Directive – State of Play

12. Cross border procedures  MSs shall allow undertakings and individuals located in its territory to sponsors institutions located in other MSs  MSs shall allow institutions to accept sponsors located in other MSs  Authorization procedure  Notification procedure apply before being able to manage a scheme for sponsors located in a MS outside the institution’s home state IORP Directive – State of Play

13. Assessment  PRO: - institutional approach - IORP covers heterogeinity - cross border membership - qualitative supervision favoured - coordinary approach is appropriate IORP Directive – State of Play

14.  DOUBTS: - no 100% single license - (too?) strong consumer protection instead of B2B - increased stringency as MS option - direct link to life-insurance - restriction on activities - concept of outsourcing unclear IORP Directive – State of Play Assessment

15. EP – KARAS report IORP Directive – State of Play  anchoring home state supervision  obligation to offer biometric risk option  phasing out quantitative rules  a priori authorization  supervisors’ committee  granted extension to life-insurers

16.  PRO: - prudent person made explicit & phase out quantitative restrictions - anchors principle of ‘home state’ - inclusion of self-employed - flexibility on funding requirements & solvency margin IORP Directive – State of Play EP – KARAS report Opinion EFRP

17.  DOUBTS: deviates from Financial Services approach - biometric risk option - guaranteed redemption of contributions - governance requirements indirect amendment of Life Directive a priori authorization IORP Directive – State of Play EP – KARAS report Opinion EFRP

18.  (2001/1) good start but: no preliminary political agreement on - scope - basic rules on technical provisions - investment principles ECOFIN May 2001 - sustainability - high degree of social protection - contribute to economic reforms but also - European passport for pension funds IORP Directive – State of Play Council Activities: Swedish Presidency

19.  (2001/2) – research: Experts (UK & Spain) Survey - systems of prudential supervision - investment rules - technical provisions IORP Directive – State of Play Council Activities: Belgian Presidency

20.  (2002/1) – more dynamic: Prudential supervision (art. 12,13 and 14) + technical provisions (art. 15,16 and 17) Investment Rules (art. 18) cross-border services and membership Preliminary political agreement: May 2002? IORP Directive – State of Play Council Activities: Spanish Presidency

21.  10 MS quantitative investment rules; 5 MS none  no political consensus on purpose Directive: Regulation on Financial Institutions? Social policy measure to alleviate pressure on 1 st pillar? Also EP divided  Prudential Supervision Persuasive monitoring process versus Detailed regulatory framework  Mutual distrust IORP Directive – State of Play Council Activities: Stumbling Blocks

22. Proposal Directive on IORP next steps  co-decision EP-Council with qualified majority voting X Council negotiations - difficult X 2 nd reading by EP  adoption 2002?  implementation 01/01/2004 IORP Directive – State of Play

23. Country developments - 2001  legislative changes  total 2 nd pillar coverage  growth of 2 nd pillar pension funds  major shifts and developments  shifts in asset allocation Regional report – European Union Level

24. Regional Report European Union Level Mr. Alan PICKERING Rio de Janeiro, 26 April 2002 III International Pension Conference