The association welcomes that the Commission is looking into the Net Stable Funding Ratio (NSFR) rules which are also part of the requirements that lead to the cash preferences of banks which are detrimental for pension funds and their service providers.
Certain elements of the CRDIV bank capital rules have strong opposing incentives for banks to only receive variation margin in cash to support non-cleared OTC derivatives positions. More precisely, the leverage ratio and net stable funding ratio (NSFR) rules could force pension funds to post Variation Margin in cash only, and not permit other assets for collateralizing non-cleared derivative trades. This directly contradicts the EMIR policymakers’ objective and would force pension schemes to have to post variation margin in cash for non-cleared trades as well. It would introduce disproportionate cost and risk to EU pensioners.
In addition the leverage ratio and NSFR rules only allow cash Variation Margin (VM) to offset any positive mark-to-market exposures borne by a bank on OTC derivatives positions. Non-cash VM, even high quality government bonds, are not permitted to offset the mark-to-market exposures. As a result, many banks are now restricting OTC derivatives trades to those that are collateralised with cash VM only, where previously banks would also accept high quality government bonds as VM.
The Capital requirements for banks, imposed by Basel III and CRDIV rules, have had also a negative impact on market liquidity, especially in the repo market. In fact, CRDIV and CRR restrict the liquidity on the repo market.
We suggest policymakers to consider allowing high-quality government bonds with appropriate haircuts to offset the mark-to-market exposures of OTC derivatives in leverage ratio and NSFR calculations and to exempt pension funds from posting collateral in non-cleared transactions until non-cash solutions for posting collateral are developed.
You can find the response here.
After the successful trilogue negotiations the Committee of Permanent Representatives approved the review of the IORP Directive 30 June. PensionsEurope welcomes the updated legislation on the activities and supervision of institutions for occupational retirement provision (IORPs). You can read PensionsEurope's press release here.
Janwillem Bouma, Chair of PensionsEurope said:
"PensionsEurope regrets the UK's decision to leave the European Union but we respect the outcome of the referendum.
Pension funds across Europe now need to have a clear view of what will happen over the next few years to provide much-needed certainty to pension funds and pension savers. The UK Government and EU institutions must work together to develop a clear plan and timetable of next steps.
Pension funds invest in markets across Europe, and it is important that this can continue to be the case. We need this to support pension funds and for the security of millions of pension fund members and pensioners across Europe.
The UK Pensions and Lifetime Savings Association remains an important and valued member of PensionsEurope."
Today, PensionsEurope published at its annual conference Making Pensions Work - More pension saving, better pension investing a paoer on PensionsEurope paper on Key Principles of Good Governance for Workplace Defined Contribution Pension Plans throughout Europe. Across Europe there is a growing trend towards the establishment of defined contribution (DC) pension plans for second pillar, workplace pension provision. For employers to continue to offer workplace DC pension plans they need to have confidence that these plans are robust, well run and offer value for money. Good governance is therefore essential if workplace DC pension plans are to retain the confidence of employees and employers. This paper sets out 14 key principles of good governance to which we believe all workplace DC pension plans throughout Europe should adhere (as a minimum) in order to ensure this.
In its paper, published on 19 April 2016, PensionsEurope provides several examples of the lack of reciprocal recognition of pension funds and the problems with the withholding tax (WHT) refund processes. PensionsEurope calls on policymakers to remove WHT barriers to cross-border investments in the EU.
Janwillem Bouma, Chair of PensionsEurope:
- "The obstacles with the WHT refund processes pose a major barrier to cross-border investments in the EU and to build the Capital Markets Union. In order to boost the economic growth in the EU, PensionsEurope calls on the EU Member States and the European Commission to remove all the WHT barriers to cross-border investments. This means that the EU Member States shall respect the case-law of the Court of Justice of the European Union, reciprocally and automatically recognize pension funds, and simplify their WHT processes."
A large number of practical problems with the WHT refund processes still exist in spite of the EFTA judgment “Fokus Bank” (2004) and the case law of the Court of Justice of the European Union i.e. “Denkavit” (2006), “Amurta” (2007), “Aberdeen” (2009), and “Santander” (2012). The above-mentioned cases have shown that the WHT practices in many EU Member States are discriminatory with respect to dividends earned by foreign funds, and therefore, contradicting the European law.
Matti Leppälä, Secretary General/CEO of PensionsEurope:
- "The WHT refund processes are complex, expensive, and long-lasting. Often they can last even 10 years and cost half of the expected refunds, as costly tax advice in foreign languages is needed. Since the legal outcomes are uncertain, given that the legal recourse involves several levels of jurisdiction, often pension funds do not assert their justified reclaims. Therefore, PensionsEurope calls on the EU Member States to ensure simple, transparent, and inexpensive WHT refund processes."
The European Insurance and Occupational Pensions Authority (EIOPA) published on 14 April 2016 the results of its Quantitative Assessment exercise covering six EU countries and its opinion to the European Commission, Council and Parliament on a Common Framework for Risk Assessment and Transparency for Institutions for Occupational Retirement Provision (IORPs). You can find PensionsEurope's press release here.
PensionsEurope replied to the European Commission consultation on long term and sustainable investments.
In its response to the consultation, PensionsEurope said that European pension funds recognise that with their long-term investment horizons, a key consideration must be to look both at the returns on their investments and any associated risks. The variety, in both type and scale, of pension funds does lead to a large diversity of responsible investment policies. Social returns are not a substitute for financial returns, but many funds express an ambition to generate social returns without compromising financial returns.
PensionsEurope noted that pension funds should retain their freedom of investment, as to adhere to their own investment beliefs and policies. Only then can they achieve their core objective: to provide adequate pensions at relatively low costs. European initiatives or regulation should take into account the characteristics of pension funds as institutional investors in order to stimulate investments and turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion.
In the paper, published on 29 February 2016, PensionsEurope show that the holistic balance sheet (HBS) methodology does not work. Therefore, EIOPA should not continue to work on the HBS model or any other similar ‘Common Methodology’ as a harmonised solvency framework. Rather, it should propose principles-based guidelines only, which can then be considered and adopted where appropriate by national competent authorities of the relevant countries.
You can also find our press release here.
PensionsEurope is looking for a new policy adviser. More information on the vacancy is available here.
In the paper on “The negative effects of a Financial Transaction Tax on pension provision”, published on 4 December 2015, PensionsEurope welcomes the EU institutions’ commitment to get Europe growing again, foster investments and create jobs. PensionsEurope supports the Capital Markets Union initiative as well as the Better Regulation agenda. PensionsEurope however feels that the Financial Transaction Tax (FTT) will be contra-productive in this respect.
The FTT is widely known as a tax on financial services. That is a misapprehension – it actually is a tax on savings and retirement incomes. The FTT will ultimately be paid by pension funds’ members and beneficiaries. The FTT would penalise the substantial transaction volumes of pension funds which are a result of the size of their assets under management, the need to match assets and liabilities and to mitigate risks, and not as a result of excessive search for return or risk-taking.
PensionsEurope call on the 11 Member States participating in the enhanced cooperation on the FTT to withdraw the initiative. Pension funds would at least need to be exempt in case that the withdrawal of the FTT proposal will prove to be unfeasible.