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.
PensionsEurope launched on 4 November 2015 a Paper on the Pension Design Principles applied to modern Defined Contribution solutions.
The paper pinpoints three elements that are essential for the design of modern DC schemes, which consist in taking into account the employer’s and employee’s perspective on retirement benefits, following the pension design principles and applying these principles in a straw man model.
1. The employer’s and employee’s perspective on retirement benefits
The paper looks into the developments that have had an impact on occupational retirement provision in the recent years, including those related to the objectives of employers and employees.
2. The Pension Design Principles which are based on:
Employees need to have enough freedom to choose tailored pension solutions. The behavioural principles help achieve the balance between offering choice and ensuring that employees are protected against undesirable outcomes.
While absolute certainty is unobtainable in any form of retirement provision, a relatively stable level of retirement income is achievable with the right tools.
A DC scheme can offer risk sharing between members based on the risk-reducing benefits of diversification, economic efficiency and fairness.
3. A straw man model
The paper presents a model for the application of the pension design principles. This is achieved by first identifying the design criteria and subsequently following 6 steps, which consist in:
1: Understanding the needs of the members
2: Identifying the basic risks that the member is exposed to
3: Designing a default
4: Designing a choice architecture around the default
5: Monitoring outcomes
6: Implementing the model
Please find a press release here.
In July 2015 EIOPA published the Consultation Paper on the creation of a standardised Pan-European Personal Pension products, which relates back to the Call for Advice (CfA) DG FISMA sent to EIOPA on technical advice on an EU internal market for personal pension schemes or products (PPPs). PensionsEurope provided input to EIOPA, which can be found here.
A statement on PensionsEurope's response to the consultation can be found here.
PensionsEurope has responded to a European Commission’s consultation on the review of the European Market Infrastructure Regulation (EMIR). Here you can read our paper which explains that pension funds need a stable financial system. PensionsEurope sees the benefits of EMIR, however it is crucial that pension funds get an appropriate treatment. A robust solution needs to be found for the cash variation margin (VM) issue. Otherwise, applying EMIR towards pension funds will not increase the stability of the financial system, but will affect long term investments by PSAs and hence will increase the costs of pensions.
PensionsEurope calls on the Commission to maintain the exemption for pension funds from the central clearing obligation in place until a suitable clearing solution has been found. The market has not yet developed a practicable and efficient process for central clearing of pension scheme’s OTC derivative transactions. In addition to this, the existing exemption has not delivered a relief from mandatory clearing for three to six years as originally envisaged, as the clearing obligation is still not effective.