Legislation to give workers occupational pension rights when they move to new jobs across EU borders is being cleared through the Brussels rule-making machinery, but the final outcome is unlikely to enter into force until at least 2018.The development comes with agreement by member states and the Parliament’s Employment Committee.The accord is expected to be confirmed by the European Parliament in plenary session, at a meeting planned formerly for February 2014.However, this has since been put forward to April, that is, shortly before the elections, due in May. History of the move goes back at least to 2005, when a text was presented by the European Commission. That version was revised in 2007.But legislation was then blocked by member states, meeting in the Council, for almost seven years, according to a statement by the Parliament.Now, following endorsement by the Parliament, governments will have to meet a four-year deadline for transposing the Directive into national law, the statement continues.It adds: “This agreement follows many years of difficult negotiations. Under the compromise agreement, the Directive would only apply to workers who move between member states; however, [they] may extend these standards also to workers who change jobs within a single country.“Currently, occupational pension scheme rules in some countries mean people who change jobs after less than five or even 10 years will not earn any occupational pension rights.”The delay problem is described in a Parliament press release as “due to differences among member states’ pension schemes and the unanimous vote requirement [then]”. Under the new rules, the ‘vesting period’ of a pension scheme must not exceed three years, according to the release.The period refers to active membership of a scheme needed for a person to retain entitlement to a supplementary, or occupational, pension.Ria Oomen Ruijten, the Dutch centre-right MEP, said the legislation would “help to eliminate barriers to the free movement of workers”.She is prime mover of the legislation and a substitute member of the Parliament’s Committee on Employment and Social Affairs.Her office has confirmed with IPE the generally accepted fact the delays were due to a lack of political will from Germany.Meanwhile, Paul Bonser, partner and UK retirement practice leader at Aon Hewitt, said: “Anything that improves the portability of pensions in the EEC is a good thing.”Significantly, he notes that, already, an increasing numbers of large international employers are setting up cross-border pension funds for their European workforces.PensionsEurope pointed out that opinions differed among its members, as some were more affected by the legislation than others.The federation’s policy officer, Corianne van de Ligt, said: “In general, we can say the agreement is all right by us.”However, she added that a certain article – Article 5 (3), which covers compensation to a worker with a capital sum in compensation in certain conditions –might create extra costs.As for any benefit to the EU economy, Brussels think tank specialist Mikkel Barslund, at the Centre for European Policy Studies, said the Directive could be an issue for large companies.“I don’t think it would affect the EU economy much,” he said.
The sentiment was shared by two of Shier’s fellow stakeholder group members, who spoke to IPE anonymously.“You won’t have the depth and the breadth you currently have with two stakeholder groups to really touch upon relevant insurance or pension issues,” said one.The second member said the potential merger was a “highly political” matter. “From a political point of view, pensions – and certainly occupational pensions – need to be a policy area of its own,” the member said.James Walsh, EU policy lead at the UK’s National Association of Pension Funds, echoed their views and said his association’s goal was to ensure occupational pensions matters were “fully reflected” in EIOPA’s work.“Having two groups, one of which is dedicated to the workplace pensions side of things, obviously helps us to do that,” he added.He said the merger of the two groups could lead to a “lesser voice” for workplace pensions.“Particularly, there’d be a concern that, because EIOPA sometimes seems to start with the insurance perspective and then see if it can be applied to workplace pensions, that problem would be exacerbated if it was one group,” he said.Jerry Moriarty, chief executive of the Irish Association of Pension Funds, was similarly adamant that the two stakeholder groups should remain intact.“I would be concerned that pensions would become an afterthought,” he said, stressing the “clear and good reasons” for the initial establishment of the OPSG.The Dutch Pensions Federation backed its UK and Irish counterparts’ stances, with a spokesman telling IPE there were “specificities of pensions” that needed to be evaluated separately from matters concerning large insurers.The abolition of the two stakeholder groups would be in line with the Commission’s initial proposals for EIOPA (later amended by the European Parliament) and the single stakeholder group in place at its predecessor, the Committee of European Insurance and Occupational Pensions Supervisors.InsuranceEurope, the Brussels-based industry association, declined to comment when asked its view about a merged stakeholder group.In its consultation response on the review of the ESAs, published last year, it did not call for a merger of both groups, saying the industry was “not sufficiently represented” on the OPSG.It instead called for an “adequate” insurance presence.The association’s director general, Michaela Koller, is currently the sector’s only representative on the OPSG. Experts have warned that any potential merger of the European Insurance and Occupational Pensions Authority’s (EIOPA) stakeholder groups could see pensions “dominated” by issues affecting the insurance industry. The European Commission recently alluded to the possible abolition of the occupational pensions stakeholder group (OPSG), while also recommending that the bodies be funded by a direct industry levy.In a report, endorsed by the European executive and soon to be discussed by the European Union’s heads of state, it said “[c]onsideration should be given to limiting stakeholder groups to one per ESA [European Supervisory Authority]” – a proposal that would only affect EIOPA, being the only supervisor with two groups.Philip Shier, senior consultant at Aon Hewitt in Dublin and an OPSG member, said he would be concerned that a joint pensions and insurance stakeholder group would be “dominated by insurance issues”, resulting in “very restricted” debate on pensions matters.
The National Association of Pension Funds has named eight companies that have failed to take seriously shareholder concerns on pay.While acknowledging that the “flash points” belied a downward trend in resistance to remuneration policies, the organsation’s corporate governance policy lead, Will Pomroy, said the “significant shareholder dissent” did not reflect well.Compared with 28 FTSE 350 companies that last year saw “significant concerns” expressed about pay, by mid-August, eight companies – including budget airline easyJet, First Group and Lonmin – had investors once again complaining.The NAPF said companies with successive years of dissent were those that in 2013 saw pay votes rejected by at least 15% of shareholders and a further 20% this year. Other named companies included Ocado Group, Ophir Energy, SVG Capital, Mitie Group and Capital & Counties Properties.First, which has several contracts to maintain public transport in UK cities, was criticised for the high level of executive pay when compared against peers in the sector, as well as “inappropriate and un-stretching metrics”.Pomroy added: “We urge all those firms whose shareholders have so clearly signalled their dissatisfaction this year to begin in earnest a conversation to resolve the concerns well ahead of next year’s AGM season.”Under new UK regulation, remuneration votes are split in two – with a policy report drawn up by the company and put to a vote every three years, while pay is put to binding votes and each AGM.“We are glad to see greater transparency and hope more companies next year use their reporting to communicate better with their investors, as opposed to simply complying with the regulations,” Pomroy said.New requirements for auditors to discuss in greater detail the process for companies were also welcomed, with Pomroy saying they had achieved “the almost impossible task of keeping both investors and companies happy”.
In a statement, the scheme said: “We welcome the clarity the judgement provides and have proceeded to date on the basis that the levy would remain payable.”A spokesman for BT said it accepted, but was disappointed, by the court’s decision.The ruling is the latest in a number of court cases for BTPS, which has been seeking to clarify in front of domestic courts the extent of the Crown Guarantee – a guarantee that would require the UK government to support the formerly state-owned company’s pension fund were it to become insolvent.A UK Court of Appeal ruling from July found that the UK government would not be required to meet the costs of a buyout were the sponsor to collapse.,WebsitesWe are not responsible for the content of external sitesLink to European Court of Justice verdict The BT Pension Scheme (BTPS) has seen its exemption from the Pension Protection Fund (PPF) levy confirmed as unlawful state aid.The UK’s second-largest pension fund had been appealing a 2013 ruling by the European Court of Justice (ECJ) that found it was incompatible with the single European market to be exempt from the lifeboat scheme’s levy, and therefore amounted to state support.It followed an investigation by the European competition authorities in 2007 that led to then-competition commissioner Neelie Kroes to order an end to the PPF levy exemption.In its judgement, the court said the appeal was “unfounded” and would be dismissed, ordering BT and the BTPS to cover all associated costs.
Züricher Kantonalbank has agreed to acquire asset manager Swisscanto for CHF360m (€299m).The bank confirmed in October that it was in talks with 23 other cantonal banks to buy their stakes in the company, which manages CHF53bn in assets.According to a survey of Swiss institutional asset managers published in the current issue of IPE, it managed €23.7bn worth of assets for local pension funds.The bank hopes to complete the transaction, which will see it buy the remaining 81.9% stake in Swisscanto, by early next year, with the deal also covering Swisscanto’s pensions business. Hans Frey, currently head of corporate services at Swisscanto Asset Management, has been promoted to chief executive.Current group chief executive Gérard Fischer and its head of asset management and CIO Peter Bänziger are to depart the company, according to a joint statement by the companies.The four remaining executive board members will remain, with minor changes to their responsibilities.Martin Scholl, chief executive at Züricher Kantonalbank, said: “Together with the staff of Swisscanto Group, we are doing our utmost to ensure the cantonal banks remain highly successful in the investment, asset management and pension business.“We intend to position the Swisscanto product brand even more strongly in the future and work even more closely with the cantonal banks.”
For his part, Omtzigt had said he wanted to prevent low interest rates from causing further damage to the predominantly capital-funded pension system in the Netherlands.He said he feared that the Dutch state – with its own central bank DNB being a stakeholder in the ECB – ran an increasing financial risk due to low rates.According to Omtzigt’s estimates, a 0.3% drop in rates would immediately increase combined Dutch pension liabilities by €45bn, while a drop of 1% would increase liabilities by €165bn.He warned that the gradual impact of the ultimate forward rate (UFR) – part of the discount mechanism for liabilities – stood to increase these liabilities to €75bn and €220bn, respectively, in 10 years’ time.If pension-fund participants were to account for these increased liabilities through rights discounts over a 10-year period, it would cost them each, respectively, €600 and €1,800 a year, Omtzigt said.At the same time, he said, a 0.3% drop in interest rates would cause cost-covering contributions to jump to €2bn, and – also owing to the UFR’s impact – double to €4bn in 10 years’ time.In another example, he pointed out that, at present, a 27-year-old had to pay 145% more to reach a pension target of €100 when compared with 2008, when interest rates were at more than 4%.A 62-year-old worker, Omtzigt said, today faces a 25% cost increase to meet this same goal.Dijsselbloem, however, ignored the MP’s call to investigate the impact of low interest rates on the Dutch pension system. The Dutch government will not pressure the European Central Bank (ECB) to reduce its quantitative easing (QE) programme in order to push up interest rates, Dutch finance minister Jeroen Dijsselbloem has said.Speaking at a debate in the Dutch Parliament, Dijsselbloem took pains to emphasise that the government was adhering to the principle that central banks should be independent.Responding to a motion tabled by Christian Democrat MP Pieter Omtzigt, Dijsselbloem said low interest rates were “patently not the ECB’s fault” and argued that they had been falling gradually in Western economies for the last 20 years.Citing the UK and Japan as examples, he also argued that QE was “not an extraordinary financial instrument”.
To keep up with changes in EU regulation “Switzerland should strive for an integrated solution, which should at the least provide a clear mechanism for continuous updates and ensure equivalence,” the researchers suggested.The “best case” would be to “provide complete access to the free movement of services”.Switzerland’s domestic asset management industry manages CHF2.2trn (€1.9trn), the survey found – 12% more than in the previous year. The country’s broader financial sector accounts for 10% of Swiss GDP.However, the report also stated that the “limited size of the domestic market, as well as the fact that competition in asset management is global and very intense, makes it difficult for Swiss asset managers to increase their customer base”.Respondents cited “competition” as the third largest challenge, with a score of six out of 10.As much as 81% of the 60 surveyed Swiss asset managers offer active management; the rest offer both active and passive management.According to the researchers, this was in line with the fact that “asset managers in Switzerland have a strong exposure to alternative asset classes” often based on active strategies.In the study, alternative assets included real estate, which is covered by 38% of the asset managers, followed by hedge funds (35%), private equity (32%), commodities (28%), infrastructure (25%) and insurance linked securities (15%).Together with the Asset Management Platform Switzerland, the university said it had compiled the “first comprehensive study on asset management in Switzerland”. Regulation is “the most pressing challenge” for Switzerland’s asset management industry and its efforts to maintain its EU client base, according to a new survey.On a scale of 10, regulation was rated an average 7.7 by asset managers surveyed by the Institute of Financial Services Zug IFZ, part of Lucerne University of Applied Sciences and Arts.The second largest concern for Swiss asset managers, with a score of 6.7, was “finding new clients” – and the researchers said these challenges were linked.“In the case of asset management, being compliant with international regulatory standards is a fundamental requirement to be able to export Swiss asset management services abroad,” the authors of the study noted.
Borgdorff responded: “Contrary to Knot and Koolmees, in our opinion pension arrangements offering less certainty may lead to a different discount rate.“If the discount rate were to take future returns into account, the coverage ratio would improve to a level at which we aren’t headed for benefit discounts in 2020 or 2021.” The Netherlands’ biggest pension funds have expressed disappointment that they will remain tied to the ultra-low risk-free interest rate as part of a new pensions agreement.Speaking on behalf of the country’s top five pension funds (ABP, PFZW, PME, PMT and BpfBouw), Peter Borgdorff, director of the €203bn healthcare scheme PFZW, said they had expected to avoid benefit cuts in the next few years as a consequence of the planned reforms.Klaas Knot, president of supervisor De Nederlandsche Bank (DNB), argued in a recent letter that the risk-free interest rate should always be used to calculate nominal pension rights. Wouter Koolmees, the minister for social affairs, has supported this view. Peter Borgdorff, PFZWIn a recent opinion piece in Dutch financial newspaper NRC Handelsblad – written with colleagues from the other four large funds – Borgdorff called on the employers and unions discussing the Dutch reform package to reach an agreement quickly to avoid cuts to pension payouts.“It goes against any sense of justice, if we have to apply rights discounts when the economy is doing well,” the five pension fund directors wrote.Borgdorff and his colleagues had expected some leeway from DNB to change the discount rate, in part based on an earlier admission from Knot that the ECB’s quantitative easing policy had led to the low interest rate.Further reading: ECB’s policy could cause Dutch pension system ‘implosion’PGGM’s Agnes Joseph and Niels Kortleve explain how the European Central Bank’s policies affected Dutch pension funds, and the options for fixing the problems it created, in this column from April 2017“We assumed that, given this effect as well as the fact that we have to apply the lowest rate, DNB would show more flexibility,” Borgdorff said.Although the funding ratio of the five schemes has been improving, PFZW, ABP, PME and PMT were all still short of the required 105% minimum funding level at the end of the second quarter of 2018.Benne van Popta, trustee at the PMT, said the DNB’s position would not bring a new pensions contract any closer.“Moreover, Knot’s statement is at odds with what DNB has said earlier and what is accepted elsewhere in Europe,” he told Dutch newspaper FD.Elsewhere, Martin van Rooijen, MP for 50Plus, the party for the elderly, said he would put questions to finance minister Wopke Hoekstra regarding DNB’s position.He also noted that DNB had changed its earlier opinion about the discount rate.Despite recent signs of progress, the social partners are still discussing a new pensions contract – which will form the backbone of a new pensions system – in the Social and Economic Council (SER).
UK local authority pension funds have accused the government of imposing higher costs through changes in its stance towards asset pooling.The Ministry for Housing, Communities and Local Government (MHCLG) published a consultation in January on new guidance for funds within the Local Government Pension Scheme (LGPS) regarding the ongoing asset pooling projects.LGPS funds in England and Wales have set up eight asset pooling vehicles designed to improve scale and cost efficiencies for the 88 schemes in the local authority system.The policy, brought in by former chancellor George Osborne in 2015, has required council finance officers to dedicate thousands of hours of work to setting up the vehicles, obtaining regulatory permissions, appointing new staff and systems providers, and conducting manager searches. With roughly a third of LGPS assets now overseen by the pools, some local councils have expressed “serious concerns regarding the appropriateness” of the latest guidance from central government. Source: Chris McAndrewRishi Sunak, UK local government ministerIn a letter to local government minister Rishi Sunak, the Northern LGPS – a £45bn (€52.5bn) collaboration between the pension funds for Greater Manchester, Merseyside and West Yorkshire – said there were “many inconsistencies between the LGPS investment regulations and the draft guidance”.In particular, the letter highlighted a shift of stance from the ministry to require all pools to set up an entity directly regulated by the Financial Conduct Authority (FCA), the UK’s main finance regulator.The Northern LGPS pool opted not to set up an authorised entity, maintaining that to do so would incur additional costs that would outweigh any benefits of pooling assets. So far it has established an infrastructure vehicle used by Northern’s three member funds along with the three LGPS funds within the Local Pensions Partnership, another pool. GLIL, as it is known, has so far raised more than £1.8bn from its investors.“Based on our research in this area, we estimate that establishing an FCA-regulated company would increase Northern LGPS’ costs by approximately £10m to £15m,” the letter said. Having initially estimated savings of £28m, the pool has since said the total saved could be “substantially higher”.It said it would expect central government to meet these additional costs as part of a 2018 agreement with the MHCLG not to impose excessive cost increases onto council tax payers. Source: timajoThe Merseyside Pension Fund is one of several LGPS funds criticising government plansLondon funds weigh inMeanwhile, local authority pension funds in London have also criticised the MHCLG’s draft guidance. The pension committee for the £2.4bn Wandsworth Pension Fund, one of 32 LGPS funds in the London CIV pool, hit out at the “simplistic” guidance, which it said failed to take into account the diverse nature of individual pension funds.“If too much of the [investment] process is delegated to the pool operator there is a significant risk that offerings will be too generic to allow for differing attitudes to risk appetite, volatility, ESG considerations and… currency decisions,” Wandsworth said.It also argued that “enforcing too strict an approach will hinder the market and restrict who will be able to tender for any mandates”, including potential preventing “good quality boutique managers being able to bid due to capacity constraints”.The £1.5bn Lambeth Pension Fund said the draft guidance “introduces significant risks of consequence falling on council tax payers” due to its “dogmatic” demands on LGPS funds.In particular, the fund’s response highlighted a proposed 5% cap on investments individual funds would be permitted to make outside of the pool after 2020. As not all funds would be able to invest via pools by this point, given the timescales set out for launching new offerings, the proposed limit was “of no effect”, Lambeth argued.The fund called for the 5% limit to be scrapped and for the MHCLG to relax its requirements for investments outside the pool to allow for more time for establish the relevant expertise.In its draft response to MHCLG, the £1.3bn Islington Pension Fund said: “We do not believe the pools have had enough time to prove themselves on selection of managers to achieve optimum performance net of fees and value for money to pay our pensioners and sustain our funds and, as such, the mandated 2020 date should be flexible.”Further readingLGPS pooling: Funds under pressure to comply A consultation paper sent out by the MHCLG in January to funds within the £275bn LGPS system has heightened tensions between policymakers and pension funds
The credit strength of asset managers in the UK and the remaining European Union countries would not “materially” weaken in the event of the UK leaving the bloc without a withdrawal agreement, according to Moody’s.The credit rating agency said the asset managers would face some pressures in the event of a no-deal Brexit – such as uncertainty about the future status of EU employees working in the UK and vice versa – but that it considered these manageable.Temporary measures put in place by UK and EU regulators would minimise the operational disruption of a no-deal outcome, and asset managers’ own efforts to prepare for such a situation would also help protect their credit profiles, Moody’s added.The rating agency highlighted that UK-based asset managers had focussed in particular on creating or expanding entities regulated in the EU under MiFID legislation to prepare for the loss of EU “passporting” rights if the UK left the EU without a deal. This exercise had entailed costs so far contained at estimated 0.1%-0.6% of operating expenses, according to Moody’s.In February, the European Securities and Markets Authority and the UK’s Financial Conduct Authority (FCA) announced an agreement to preserve delegation rules in the event of a no-deal Brexit.These rules allow UK asset managers to create funds that are domiciled and regulated in the European Economic Area (EEA) – which includes EU countries – and market them to clients in the EEA or EU while continuing to manage them from the UK via an outsourcing arrangement.According to Moody’s, about 84% of the assets that UK-based firms manage on behalf of non-UK EEA clients are in funds managed via delegation.In addition, the UK has put in place a “special permissions regime” to allow asset managers based in the EU or EEA to continue operating in the UK for up to three years after a potential no-deal Brexit.Last month the FCA published final rules aimed at providing certain about the financial regime firms would be operating under even in the event of a no-deal Brexit. After an extension of the original deadline, the UK is scheduled to leave the EU on Friday, 12 April. Prime minister Theresa May has yet to secure a majority in parliament for her withdrawal agreement and the outcome of talks with the Labour party about a compromise is uncertain. May is about to visit several European capitals in an attempt to get agreement on postponing the date at which the UK is scheduled to leave the EU. Tomorrow she will meet Emmanuel Macron in Paris and Angela Merkel in Berlin followed on Wednesday by an emergency summit of EU leaders in Brussels.