Pensions Directive Review

As a precursor to the EU Commission review expected later this year, CEIOPS has published its own Initial review of key aspects of the implementation of the IORP directive. The main conclusions (from the press release) are:

there is considerable diversity in the way some key aspects of the IORP Directive have been interpreted and implemented;

there is little evidence of major issues arising from these differences;

given early days and limited experience of the Directive's implementation in some areas, it would be premature to recommend changes to the Directive.

More to follow ...

A directive formerly known as portability

The Commission has presented a revised proposal for what was known as the Portability Directive. The project for the portability of pension rights has met opposition from several quarters and therefore had to be tuned down considerably, especially removing portability and harmonisation.

Discriminatory dividend taxation

The EU Commission has sent letters of formal notice to Italy and Finland about their rules under which dividends paid to foreign pension funds may be taxed more heavily than dividends paid to domestic pension funds. Italy and Finland are asked to reply within two months. These letters constitute the first step of the infringement procedure of Article 226 of the EC Treaty. Similar letters have been sent to the Czech Republic, Denmark, Spain, Lithuania, the Netherlands, Poland, Portugal, Slovenia and Sweden on 7 May.

Pensions directive to be revised 2008

In its annual report, CEIOPS gives an overview (p. 47f) of its past & current activities. Its Occupational Pensions Committee (OPC) is working on putting together materials for the revision of the Pensions Directive that is scheduled by the Commission for next year. Areas of material legal uncertainty to be clarified are concepts such as fully funded, ring-fencing or the calculation of technical provisions.

Commission addresses differential taxation of investment income

Following complaints by the EFRP, the Commission has initiated Treaty infringement proceedings against a number of member states which do not grant the same preferential tax treatment of investment income (interest, dividends) to pension funds resident abroad as domestic funds receive. Even though there is no direct reference to the Pensions Directive in the text, the relevance of this step to an efficient investment regime of cross-border pension funds is obvious. (FT)

Infringement proceedings

The EU Commission swings into action with some treaty infringement related proceedings. It has decided to take Sweden to the ECJ about the country's practise not to grant tax deductibility for pensions contributions paid to insurers resident abroad (but within the EEA) in line with the EET principle. Strangely, there seems to be no reference to the Pensions Directive.

In other news, the Commission is satisfied with recent modifications of Spanish legislation which also did not allow for tax deductibility of cross-border pensions contributions. The infringement case against Spain is therefore closed - in this case with reference to the Pensions Directive btw. Notably, the new Spanish tax rules explicitly allow deductibility for IORPs resident in the EEA, and specifically Liechtenstein, which removes an important legal uncertainty with Liechtenstein IORPs, at least with regards to their relation to Spain.

A Commissioner's philippic

Here is the text of Commissioner McCreevy's speech at today's IPE Awards. He expresses his disappointment in some member states' defective implementation of the Pensions Directive, especially with regards to national investment limits. He describes the Directive as a "harmonising framework" "to allow the best pension fund managers to administer pension schemes across the single market and pension providers to compete fairly on a pan-European basis". He also announced that court cases have been initiated against three member states today - these are probably Slovenia, the UK and Italy. Interestingly, he singles out Liability Driven Investment as a market innovation to better manage risks. Clearly, deficient implementation will not be cut a lot of slack.

The core focus of the speech was dedicated to the third pillar and forthcoming changes in the regulatory environment as well as existing challenges in the marketplace, such as insufficient availability of annuity products. (More from IPE)