Split over bid to limit power of pension managers

Date: 26/04/01

By Peter Chapman

MEPs are set to clash over an effort to limit the power of pension fund managers in new proposals designed to make it easier to transfer benefits across EU borders.

Under the European Commission's pensions blueprint, EU workers would be able to move anywhere in the Union and keep paying into their original company pension plan without any bureaucratic hurdles.

Fund managers would be free to invest up to 70% of their portfolio in shares and corporate bonds and at least 30% in currencies other than the one which the pension would be finally paid in.

The system is meant to help multinationals by letting them use one company to handle the pensions of its employees across the Union.

But as Parliament prepares to debate the issue, Socialist MEPs, led by Germany's Wilfried Kuckelkorn, are stirring up a row with Liberal rivals by arguing that member states should still be allowed to insist that fund managers meet tough national rules protecting pensioners.

The Socialists want governments to be able to require pension fund managers to offer additional services, including the right to receive benefits until death with payments going to a pension holders' family in such an event.

Liberal MEPs, who hold the balance of power in the Parliament, this week pledged to fight demands for such changes, claiming they would render the new directive useless - adding huge burdens to fund managers and leaving workers with a smaller pension pot when they retire.

British Liberal Chris Huhne said customers should also be allowed to choose whether to buy extra products such as life insurance without having them bundled into their pension. "If you wrap the two up you get a worse deal," said Huhne. "We should not mix apples and pears."

The Liberals expect Socialists to demand more quantitative restrictions on investments beyond the Commission's proposals - although aides to Kuckelkorn said there was unlikely to be a clash on this issue.

Huhne said fund managers should be allowed to invest where they see fit and should be forced only to follow the so-called 'prudent person approach' which is meant to ensure that they only make rational investments.

"In general [the call for quantitative restrictions] is misguided interventionism," he said. "None of the evidence shows that we have a better or safer pension as a result. If you have a lot of 50-year-old steel workers that are about to retire then it makes sense to have more government bonds. But if you are a pension fund for a dot com company where everyone is below the age of 12 then you want something closer to 100% equities."

In his report on the issue, Austrian MEP Othmar Karas pushed a compromise, with member states being given the right to impose quantitative restrictions for up to ten years.

The row over pensions follows single market Commissioner Frits Bolkestein's unveiling last week of a linked pension proposal designed to stop EU workers and pensioners from being unfairly treated or over-taxed by member states when they cross borders to work or draw their retirement funds.

In some member states, notably Germany, taxes are levied on contributions but the final fund is provided tax-free. Others only tax the final fund.

MEPs are set to clash over an effort to limit the power of pension fund managers in new proposals designed to make it easier to transfer benefits across EU borders.