A difficult year
For those following the developments in the pensions market in France, 2003 is proving a very difficult year. After months of strikes against the government’s plans to reform the retirement system, the new pensions bill was officially adopted by the French Parliament last month.
The most controversial proposal included in the bill was the harmonisation of the public and private sector pensions systems. Workers in both sectors will have to contribute for 40 years of working life to receive their full pension entitlements. This will be increased to 41 years in 2012 and 42 in 2020, depending on demographic and economic changes.
With this on their plate and discussions on the future of supplementary pensions starting in September, the arrival of the European Pensions Directive hasn’t attracted too much attention among French pension managers. The French retirement system is still mainly based on the big pay-as-you-go reparation schemes and insurance vehicles, which will be unaffected by the EU legislation.
“One of the most important points of the arrival of the directive is that it introduces a new kind of institutional investor, the institutions for occupational retirement provision (IORP),” says Vincent Vandier, executive director of the Association Francaise des Régimes et Fonds de Pension (AFPEN) in Paris. “And this is a major step because in the long term the IORP will be an investor different from any other investors like UCITS or insurance companies. It is different because it’s long-term-oriented and it can assume larger risks in terms of unlisted shares and other equities.
“Also the directive refers to the prudent man rule in terms of investment, which means that if you don’t organise properly your investments and your liabilities you can go to jail,” he says.
Asked about the impact this will have on the French market he says: “We will have two years to adapt to the directive, and it will take time to get to the prudent man rule.”
For Vandier the directive is a very positive development but is missing things. “There are negative aspects related to different tax systems and cross-border fiscal obstacles.”
At Strasbourg-based Aventis Plan d’Epargne, chief investment officer Petra Zamagna welcomes the directive as an important first step in the right direction: “We are very happy with the arrival of the directive because the current debate on pensions is not only pushing the countries to sort their situation out but also is pushing companies to realise how important it is to converge on their approach to pensions. It was very important for companies like ours to get a European standard on pensions.”
For Aventis the directive has come just in time to support decisions regarding pensions management taken in the recent years. “In terms of investment the introduction of the prudent man principle is very important for us because that’s what we were hoping for and it’s important to see that this approach will now be a standard in Europe.”
Zamagna adds: “As a company we have been trying to make the whole pensions subject more transparent than it was in the past. We put together guidelines and started monitoring our pension schemes in other countries. We have also put a lot of effort in co-ordinating our internal knowledge to transfer practices that are successful in countries to other regions less developed in terms of pensions.
“It’s not that the directive has triggered this situation but we had already started going in that direction, but it’s good to have an European legislation that says that this is really the way forward and promotes the debate regarding pensions.”
Regarding the general situation for retirement provision in France she comments: “This is a country that has been falling behind in terms of pensions development. Also, it has been a country that in the past has blocked developments in this area at an European level. So we are talking about a country where things are not the way they should be.
“Any changes in the domestic market will be very slow and so far we haven’t seen much happening.”
Zamagna mentions taxation and fiscal differences as a major obstacle for European pensions. “The directive doesn’t give a solution to the tax situation and without a co-ordinated tax framework we still have a major problem for cross-border pensions.”
Recent decisions by the European Court of Justice (ECJ) regarding tax irregularities across member states are promoting the debate regarding this subject. “It seems the ECJ is being used to sort out the taxation problem. Whether this is going to be the best and faster way to achieve tax harmonisation is something that we will have to wait and see,” she says.
Note: We regret that most of the figures for French schemes are the same as last year’s as the source of these figures no longer collects them