Today on 11 February 2019, PensionsEurope published its annual statistics and Report on Pension Funds Statistics and Trends 2018, and you can find them here.
The tightening monetary policy attracts more investments in bonds, and this applies for pension funds as well. However, many pension funds have indicated that they do not expect significant changes to their investments in sovereign bonds, and in some countries these investments are even expected to continue to decline in spite of the increasing interest rates.
Pension funds have increasingly moved their assets to equities or (from equities) to alternatives or they have invested more in both equities and alternatives. In some other countries, there has been an increasing interest in illiquid assets (such as private debt, private equity, and real estate). Pension funds do not aim to make significant changes to the share of their investments in public equities in the upcoming years.
Pension funds’ stabilizing and countercyclical investment behavior is expected to continue. The main risks to this behavior are the growing popularity of low-cost passive investments (although the rebalancing/countercyclical behaviour could very well be continued) and the gradual shift towards DC/hybrid schemes instead of DB schemes (although many DC schemes pursue a lifecycle approach implying a countercyclical rebalancing strategy). Furthermore, legislative capital requirements or accounting rules may drive pension funds away from equities (including long-term sustainable investments) in favour of other investments (including sovereign bonds).
PensionsEurope and its Romanian Member Association (APAPR) are very much concerned about the reform of the Romanian mandatory second pillar pension system introduced by the government at the end of December 2018. That pension reform e.g. envisages new disproportionate capital requirements for pension funds which PensionsEurope finds highly political.
In the press release published on 30 January 2019, PensionsEurope calls on Romania to withdraw its plan to introduce new 10% capital requirements for the Romanian DC plans, as they would devastate their current stability and good results and together with other reform proposals, destroy Romanian second pillar DC pension plans. That would be contrary to the European policy recommendations which highlight the importance of strengthening supplementary pensions in order that all Europeans would have an adequate standard of living in retirement.
PensionsEurope welcomes the European Commission (EC) fitness check on supervisory reporting requirements, and we find it important that the EC continues regularly conducting them.
Pension funds’ first reporting of quarterly data on assets (for the third quarter of 2019) under the new ECB and EIOPA reporting requirements will take place in mid-December 2019. These new requirements will remarkably increase the burden and costs to pension funds, and it is important that the requirements will be fitness checked in the upcoming years. On the other hand, we find it important that the reporting templates and their taxonomy are stable, and they should not be subject to frequent change.
You can read PensionsEurope comments to the EC on the fitness check on supervisory reporting requirements for pension funds here.
On 23 October 2018, the Spanish government published a first draft of the law to implement the Spanish Financial Transactions Tax (FTT). On 15 November 2018, PensionsEurope answered to its consultation and e.g. warned that the FTT would be detrimental to pension savings. You can read PensionsEurope answer here.
Besides the plans of the Spanish government to introduce a national FTT, the Austrian Presidency has put forward proposals to simplify and restrict the scope of the FTT being discussed by the remaining ten Member States considering the introduction of an EU wide FTT under the enhanced cooperation procedure. On 27 November 2018, PensionsEurope published a press release and e.g. stressed that PensionsEurope is against the establishment of taxes on financial transactions, since such taxes, in their various typologies, end up becoming taxes on savings or pensions, in addition to affecting the efficiency of markets and producing a relocation in the financing flows of the real economy, towards companies established in non-taxed jurisdictions. You can find PensionsEurope press release here.
AEIP and Pensions Europe have published a joint position paper calling for political action to relieve pension fund participants from unnecessary VAT burden for contracted management services. The current interpretation of the VAT Directive leads to different treatment of pension plans for VAT purposes based on the form and the place of residence of the plan. In addition, the current regime provides insufficient guidance for hybrid pension plans (e.g. DB pension funds, where all or part of the risk is shifted from the employer to the fund itself or the employee) which are becoming more commonplace. This means that similar pension schemes in different countries face different tax treatments concerning the management services they procure. PensionsEurope and AEIP therefore call for a review of the VAT Directive that exempts all pension funds from paying VAT on management services. The press release is available here.
On 9 October 2018, PensionsEurope answered to EIOPA consultation on the taxonomy of new pension data reporting requirements. In our answer, we thanked the ECB and EIOPA for a constructive dialogue during the last years on preparing their new pension data reporting requirements. At the ECB workshop on 10 October 2018 we continued that open dialogue with the ECB, EIOPA, NCBs/NCAs, Eurostat and OECD, and we provided further comments and clarifications to them.
PensionsEurope shares the aim of EIOPA and the ECB to have better, comparable and relevant information on occupational pensions in Europe, and we welcome that the ECB, EIOPA, Eurostat, and OECD are aligning their reporting standards for pension funds.
We support a principle to leave flexibility to the NCAs in collecting data and providing it to the ECB and EIOPA. A starting point should remain the so-called ‘one-stop-shop’-concept, and considering the amount of information already available, the NCAs should play a central role therein.
In our answer, we suggested several amendments to better accommodate the needs of pensions funds. They particularly refer to the time frame, the binding nature of the XBRL format and the costs related to its introduction including licence and implementation costs.
PensionsEurope published a report on drivers of equity investments by pension funds on 25 September 2018. It is based on a survey which PensionsEurope conducted amongst our Members in the summer 2018.
The survey report supplements our comments to the CMU Sub Expert Group on pension funds on the main drivers in cross-border investment by pension funds and our Pension Fund Statistics. We hope and believe our comments are relevant to the upcoming “study on the drivers of investments in equity by insurers and pension funds” which DG FISMA has commissioned to Deloitte and CEPS to carry out by the end of 2018.
PensionsEurope welcomes the European Commission public consultation on fitness check on supervisory reporting. We find it important that the Commission regularly conducts fitness checks on supervisory reporting to ensure that the ESAs work effectively, and supervisory activities remain proportionate in their scope.
In general, pension funds are embedded in national social and labour law and supervisory reporting should take into account specificities of pension funds, National Supervisory Authorities are responsible for supervising pension funds, supervisors should consider very carefully which information is really relevant and needed (as reporting and collecting information always result in cost), and supervisors and policymakers should not have a bank bias towards pension funds.
Please find PensionsEurope answer to the EC consultation here.