Pension fund managers that handle company retirement programs face tougher scrutiny of their pay as the European Union seeks to widen its clampdown on excessive compensation in the financial industry.
Funds would be forced to reveal to regulators how many employees make more than 1 million euros ($1.38 million) in a bid to shed light on pay practices, according to draft EU proposals obtained by Bloomberg News. They should also avoid bonus awards that “encourage risk taking that exceeds the risk tolerance limits of the institution.”
Michel Barnier, the EU’s financial services chief, and lawmakers in the European Parliament have sought toughen pay rules for financial institutions ranging from banks to retail investment funds, in a bid to counter large awards for short-term performance blamed for fueling the 2008 financial crisis. The EU last year approved a ban on banker bonuses of more than twice fixed pay.
The measures are part of a draft law on so-called occupational pension funds to be presented by Barnier on March 27. The plans also include tougher rules on internal audits, risk-governance and on safe-keeping of assets, as well as a bid to remove barriers to funds operating across borders, according to the draft.
“The recent financial and economic crises have revealed vulnerabilities in the level of member protection, which have led to irreversible financial losses for millions of scheme members and beneficiaries,” according to the EU document. “Regulation needs to adapt.”
Occupational pension funds are those which include a contribution from the person’s employer. They are separate from state-funded social security programs and from non-compulsory private pensions set up by individuals.
The proposals would require approval from national governments and the European Parliament to take effect.
The European Commission’s goal is “that pension scheme members are properly protected against risks,” Chantal Hughes, a spokeswoman for Barnier, said in an e-mail.
The draft law also seeks to “reinforce the capacity of occupational pension funds to invest in financial assets with a long-term economic profile,” she said, while declining to comment on the detail of the pay rules.
Barnier last year scrapped a plan to include capital rules on pension funds following warnings from the industry that it could imperil its business model.
Instead, regulators are reviewing possible approaches, as a preparatory step to a possible commission proposal.
“More complete data on solvency aspects are necessary before a decision can be taken on those aspects,” according to the document.
Barnier is set to present the draft law on pension funds on March 27 alongside other measures to boost long term investment, according to the EU’s website.
The plans include boosting the market for high quality securitized debt, better governance of crowd funding, and reviewing regulation of covered bonds.