Together with Centre for European Policy Studies PensionsEurope organises an event on ”Asset Allocation in a Low Interest Rate Environment: Where do we stand?“ in Brussels on 1 December 2016 at 13:00-14:30. The event is part of the Invest Week and you can find the agenda of the event here.
PensionsEurope’s representative in the event is Amundi’s Head of Global Research, Strategy and Analysis Mr Philippe Ithurbide. You can register to the event here.
Group of Nine published today a joint statement and broadly welcomed new rules for EU pension funds. Employer, worker and industry representatives from nine European umbrella organisations state that the IORP II Directive should help to reach the overall goal of the European Commission of facilitating the development of occupational retirement savings, promoting the integration within the Internal Market of the IORPs’ activities e.g. by clarifying the current rules, and providing the conditions for provision of sustainable and adequate occupational pensions to European workers.
The final plenary vote of the EP on the IORP II Directive has been scheduled for Thursday 24 November. Afterwards the Council of the EU still has to approve the new legislation before it is finally approved and published in the Official Journal of the European Union (probably at the beginning of 2017). The IORP II Directive shall enter into force on the twentieth day following that of its publication in the Official Journal. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the IORP II Directive by 24 months after the entry into force of the Directive.
PensionsEurope welcomes the European Commission’s works on an EU initiative in the field of personal pensions as a way to increase the overall pension savings and also as one of the building blocks of the Capital Market Union.
PensionsEurope promotes good pensions for the people in Europe in different shapes and forms. Most of the retirement income is and will continue to be provided by social security pensions and workplace pensions but voluntary personal pensions are particularly needed and useful for those who don’t have access to workplace pensions or where personal pensions offered are not reliable or attractive.
PensionsEurope believes that a standardised pan-European personal pension product regulated by a second regime - with a defined set of flexible elements - could contribute to the policy objectives of ensuring of high minimum standard of consumer protection. It appears as a much more feasible way and would promise superior outcomes than harmonizing regimes.
The impact of any EU initiative on personal pensions is likely to depend on the maturity of the markets: It would be particularly useful serving as a model for EU countries currently building up their complementary pension savings system and could also help enhancing the quality of products in more developed markets.
PensionsEurope believes that a supportive tax treatment is essential for the attractiveness of personal pension products compared to other saving products available at national level and that a Personal Pension initiative must respect the exclusive competence of the Member States in the field of taxation and of statutory public pensions. You can find our answer to the consultation here.
The ESRB should not impose a bank-bias approach to other financial sectors, PensionsEurope e.g. stresses in its answer to the EC consultation on the EU macro-prudential framework. The current structure and organisation of the ESRB does not ensure that the ESRB is an independent body.
Policy coordination of the ECB and the ESRB with the EC, the EP, and Council should be improved to ensure financial stability. However, PensionsEurope urges to refrain from using tools or implementing measures beyond banking without evidence of systemic risk.
Due to their long-term investment perspective, pension funds pose low risk to global financial stability. Pension funds’ main investment choices are not significantly affected by temporary fluctuations of the markets. In addition to this, the regulatory framework requires that pension funds are transparent, low leveraged and diversified with prudence.
Secondly, pension funds have limited short-term liquidity needs, which make them more inclined to buy and hold assets across the entire economic cycle. They also have an ability to behave counter-cyclical. As pension funds pose no systemic risk, there is no need to include pension funds in the ESRB work.
Furthermore, PensionsEurope stresses that the impact of QE on pension funds needs further investigation and statistical reporting requirements should be coordinated. PensionsEurope does not see the merits of the envisaged ECB Regulation on statistical reporting requirements for pension funds.
7 October 2016 - The Norwegian government plans to introduce a simplified Solvency II requirement for pension funds in January 2018. PensionsEurope warns that Solvency capital requirements at national or at EU level would have significant negative impacts on pension funds, sponsors, and members. They significantly increase pension funds’ costs and decrease their possibilities to invest long term in real economy and to contribute to jobs and growth in Europe. Furthermore, they decrease the willingness of employers to provide occupational pension schemes, and therefore, also the future coverage of occupational pension schemes. You can read the press release here
PensionsEurope has submitted its response to the Financial Stability Board’s (FSB) consultation paper on proposed policy recommendations to address structural vulnerabilities for asset management activities.
PensionsEurope welcomed the FSB’s statement that pension funds contribute to the stability of the financial system thanks to their long term horizon and due to the fact that their investment choices are not significantly affected by temporary fluctuations of the markets.
Some asset managers seems to generalize or overestimate the risk that pension funds could pose to the financial system and request the FSB and IOSCO to also include pension funds in the NBNI-work. We note that pension funds are - as opposed to asset managers - subject to extensive regulatory (prudential) oversight, based on the European IORP Directive and on national regulations. Controlling the assets does not mean that pension funds reallocate assets in a non-prudent manner or are a source of systemic risk.
In Europe, in its first European IORP Stress Test Report conducted in 2015 with the objective among others aims of asssessing the potential for systemic risk that may be posed by financial institutions to increase in situations of stress, the European Insurance and Occupational Pensions Authority (EIOPA) recognised that IORPs do not pose systemic risk, but vice versa, they are able to mitigate financial shocks and work as stabilising factor for the financial sector.
You can read the document here.
The plenary vote in the European Parliament on the IORP II Directive has been scheduled for October 2016. In its brochure published on 26 September 2016, PensionsEurope recommends the MEPs to vote in favour of the modernised rules for pension funds. PensionsEurope shares the goal of the rules to facilitate the development of occupational retirement savings and to provide sustainable and adequate occupational pensions to the European citizens. PensionsEurope looks forward to sharing the best practices on the implementation of the IORP II Directive. You can find the brochure here.
15 September 2016 - In its position paper on the IORP Quantitative Assessment and EIOPA's opinion that was published today, PensionsEurope rejects EIOPA’s proposal for the mandatory use of the ‘common framework balance sheet’ as a risk management and transparency tool and the call for regulatory responses by the national competent authorities based on it. PensionsEurope stresses that risk management is essential for IORPs 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. Furthermore, the IORP II Directive contains a thorough framework for pension funds’ future risk management and assessment. Now it is time for a period of legislative calm in order that pension funds can concentrate on delivering adequate, safe and affordable pensions and retirement provisions for their members and beneficiaries. You can find the press release here.
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.