Monti pledges action on pension reforms

Date: 28/11/1996

By Chris Johnstone

INTERNAL Market Commissioner Mario Monti has promised to revive the politically-explosive issue of pensions reform by attacking national barriers which restrict how and where citizens can invest their cash.

Monti pledged this week that his Green Paper on pensions reform, which will not now be published until the beginning of 1997 at the earliest, will not lose sight of Maastricht Treaty rules enshrining citizens' right to make their own investment choices.

He fired the first salvo at Belgium and Finland this summer warning them they had overstepped the mark by forcing pension funds to invest domestically. Officials have confirmed that the forthcoming Green Paper will be a follow-up to this action. It will not, however, make detailed recommendations for reforming governments' tax treatment of pension funds.

Some countries have rules which almost appear to make private funds unattractive deliberately by taxing contributions before they can be invested.

“We are expecting clear and specific proposals from the Commission to encourage investment freedom,” said Alan Broxson, chairman of the European Federation for Retirement Provision.

The Green Paper was originally scheduled to be unveiled this autumn. The latest delays stem in part from difficulties in dovetailing a joint approach with Commissioner Pádraig Flynn's Directorate-General for social affairs (DGV) now that the issues of worker mobility and reform of Europe's welfare systems have been added to that of freeing up pension funds.

But some industry experts believe the real reason for the delay could be a key pensions case coming before the European Court of Justice in the new year, and the need to prepare Germany and France - past opponents of pensions reform - for an ambitious paper.

An initial opinion delivered by an ECJ advocate-general on 16 January will go to the heart of the matter, in response to a French challenge to the Commission's power to attack government restrictions on pensions investment. France launched the case in 1995, after it and seven other countries had so savaged a proposed directive on the table that the Commission withdrew it in disgust.

The key issue then was the insistence of France and other countries on high levels of currency matching (the principle that fund investments be denominated in the same currency as the eventual payouts).

France and its allies demanded an 80&percent; minimum for investments in the matching currency, while the Commission, with the support of the UK, Ireland and the Netherlands, held out for 60&percent;. An 80&percent; level of currency matching would have been a backward step, enshrining in EU law one of the main obstacles to investment freedom which the Commission was attempting to demolish.

Critics of the Paris-led stand said it was trying to preserve a captive market for French government bonds and ensure that pension funds continued to be treated similarly to insurance companies, which are subject to currency-matching requirements.

Germany's stance on pensions reform will be a key factor in determining the fate of Monti's proposals. Bonn is opposed to any changes that could weaken its regime, which offers generous payouts to workers in return for non-transferable company policies tying them to one workplace.

The question will be whether German opposition draws any distinction between Monti's moves to free up pensions investment and Flynn's campaign to boost pension mobility.