Economics and Finance

Pension funds play an important role in the long-term financing of the EU’s real economy and contributing to jobs and growth in Europe. The amount of pension funds’ assets invested in the European Economic Area (EEA) differs between Member States and ranges from 45% to over 75%.

Pension funds increase the amount of market-based financing available to the economy and improve the efficiency of financial intermediation. Countries with a substantial funded pension funds sector tend to have better developed capital markets. Many non-euro area investments can also have a positive impact on Europe indirectly, as many companies or part of their European business is financed via capital markets around the world.

Growing, developing, and stable economy attracts investments. If investment opportunities in Europe will improve, the stake of the European investments by pension funds will increase accordingly. Implementing the European Commission’s CMU action plan would be very helpful in this respect.

Monetary policy

PensionsEurope welcomes the ECB review of its monetary policy strategy which has undergone a process of gradual transformation since it was adopted in 1998. Today the euro area is facing various new economic challenges, such as the COVID-19 crisis, and there will be many new challenges to overcome in the upcoming years which need to be jointly tackled by monetary, economic, and fiscal policies.

As despite negative interest rates and QE programmes the ECB has not achieved its inflation target over the last years, possibly the ECB could be more flexibility around its inflation target and consider targeting price growth in a band, in full respect of the ECB’s price stability mandate as enshrined in the Treaty.

In general, we believe that unconventional monetary policies have had effect in many areas, including various positive and negative side effects. This applies for the economy at large, as well as for pension funds more specifically in the form of preventing a (severe) recession, realising relatively good returns but also substantially more expensive liabilities.

Risk management is essential for pension funds and they regularly carry out their own stress tests and scenario analyses (e.g. Asset and Liability Management studies) as part of their own risk management processes.

The specifications and methodologies of national stress tests differ significantly from the ‘Common Balance Sheet (CBS)’ (Holistic Balance Sheet (HBS)) used in EIOPA’s stress test. The EIOPA stress test is more about testing the resilience of the sector (per country), rather than individual funds, and stability of the financial system as a whole. These outcomes can lead to different and contradictory steering signals for pension funds and for their stakeholders. As a consequence, they can also cause misunderstanding amongst the stakeholders and general public. Many of the practical and methodological problems related to EIOPA Common Balance Sheet (CBS) could be avoided by developing a cash flow analysis further and by replacing the CBS by it.

The IORP II Directive stresses that the further development at the EU level of solvency models, such as the HBS, is not realistic in practical terms and not effective in terms of costs and benefits, particularly given the diversity of IORPs within and across Member States. No quantitative capital requirements - such as Solvency II or HBS models derived therefrom - should therefore be developed at the EU level with regard to IORPs, as they could potentially decrease the willingness of employers to provide occupational pension schemes. PensionsEurope calls for policymakers and EIOPA to respect this.


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