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A wonderful experience

Alan Pickering is not renowned for blowing his own trumpet. But,when it comes to the part played by the European Federation forRetirement Provision (EFRP) – which he chairs – in urging forward the various EU bodies charged with laying down a legislative framework for pan-European pensions, he is effusive in his praise.
The pensions directive finally burst into existence earlier this year amidst a dramatic flurry of slick political activity – a shock to many who hadfollowed its arduous path for some 10 years, as Pickering himself acknowledges.
“I think the EFRP is one of the institutions that can take credit for the fact that although the directive has been a long time coming, it has arrived,” he says. “While the Spanish and Danish presidencies will rightly get a lot of praise for brokering the deal and Mr Bolkestein and his staff at the Commission will get plaudits for tenacity, I like to think that the EFRP has over the last 10 years played its part in trying to defuse some of the fear of the unknown as well as disentangling financial services themes from social policy in this area.”
Pickering is adamant that this last point was essential in securing the successful ratification of the directive, although he underscores his own view that pensions and politics are two sides of the same coin – a theme he elaborates on later.
“In the case of the directive, which I consider to be very much a framework document, I think it was important to be firmly rooted in the area of financial services rather than social policy, which I see as being ideally suited for the open method of co-ordination between member states.
“Without a financial services framework it is quite difficult to have a meaningful discussion about pan-European pensions.”
The EFRP chairman is also quick to point out that work goes on for the organisation now that the directive is on the table.
“There are those who might think that the EFRP has outlived its usefulness now that the directive is on the statute book, but I don’t think the EFRP is a one dimensional organisation,” he says. “As I mentioned earlier, I see the directive as framework material and during the next couple of years we want to make sure it doesn’t become a straitjacket. We want to encourage every member state as it incorporates the directive into its legislation to use it as a platform on which it can build.”
Pickering explains his desire that both the EFRP and its constituent members play a helpful role in that process. Integral to this, he believes, will be the need for a greater rapport between national pension regulators around Europe.
“I don’t think tax will be the real barrier to pan-European pensions, because I think we can reach accommodation with member state authorities on the hard figures,” he says.
“I’m more sensitive to politicians though in that I see the need for countries to maintain fiscal coherence. If I were a finance minister in a cold country, I wouldn’t stand idly by while people retire in the warmer countries of the south. There’s a real issue there!”
Consequently, Pickering believes the true barrier will be co-operation between regulators: “You can’t have some regulators saying they are going to be a soft touch for pensions and encouraging companies to take their retirement plans there, or vice versa a country with tough regulators saying that they would be the only place for retirement security.”

On a more practical level, Pickering reveals that by the end of October the EFRP is to publish a follow up report to the EIORP (European institution for occupational retirement provision) proposal that was put to the European Commission in September 2000 as a potential solution for the creation of tax-neutral pan-European pensions.
He says the EIORP report mark II will update the organisation’s pre-directive plans for a workable single institution for cross-border retirement incorporating individual sections corresponding to national taxation regimes.
“The report will restate the case for an optional EIORP for those who want it,” he says. “We want to take account of the directive and the EC tax communication then suggest what needs to happen in the next couple of years in the hope that by 2005 when the directive is fully operational the EIORP option will be achievable as well.”
More specifically, the chairman says the document will draw attention to the further tax changes as well as the regulatory balance between home and host country that would be necessary for the EIORP to work.
“We will be trying to do that in a sensitive fashion – acknowledging that ultimately home country supervision is all that is required until we have the necessary trust in Europe to do otherwise, and that we might as a transition have some sort of host country governance structure.
“The publication of the report will hopefully act as a focal point reminding local legislators introducing the directive that they might want to have in mind the impact that it will have on the country’s citizens, be they corporates or individuals, who have a cross-border dimension to their existence.”
In the coming months, Pickering says the EFRP will also issue an evaluation paper looking more closely at the impact of the directive and echoing two themes that he would like to see given prominence.
The first, he explains, is his desire to see the EFRP working more closely with organisations such as FEFSI and the CEA.
“Hopefully this will not be just on a bilateral basis, but a tripartite level where there is a common interest for the organisations.”
The second is to ensure the EFRP plays its part during the two-year implementation phase of the directive.
“We want to look at exactly what it means on a country-by-country basis and try in a modest way to influence the way it is implemented in each country so that it makes sense both domestically and internationally,” he says.
“Governments have to implement the directive, but what we don’t yet know is whether they are gong to implement the spirit or the detail.
“I’m much more keen on incorporating the spirit in legislation and allowing market participants and social partners to hammer out the detail. It would be sad if politicians try to copperplate the directive into domestic provision, which could make it more expensive than it is and even more difficult to have cross-border pension provision.”
At this point, Pickering shifts to some of the broader pensions themes preoccupying governments around Europe. With pensions becoming front-page news across the continent, he elaborates on his view that politics and pensions are intertwined.
“There are those, both in the UK and abroad, that want to keep pensions out of politics and vice versa. I think that is a crass view because the two are inextricably linked. They both involve the distribution of scarce resourcesbetween conflicting priorities.” However, he adds that he does want to prevent politicians forming ‘micro managing’ pensions issues.
“I want to try and prevent pensions from being a party political football, although I think it is healthy for politicians to discuss this rather than pretend there weren’t any issues with pensions,” he says.
To this end, he outlines one of the goals he is seeking to achieve while EFRP chairman should the membership give him another year in the chair at this year’s international conference in Barcelona – a racing certainty as the EFRP board will recommend to members that Pickering carries on for the coming term.
“I want politicians in all countries to appreciate that public and private pensions are not antithetical, but should be seen as complimentary. I am a passionate believer in taxpayer financed, universal, flat-rate, old age provision for pensions.
“I’ve never taken the view that a problem of pensions in mainland European countries is that they are mainly state financed. The problem is that they have been profligate and by simply privatising profligacy you don’t make it any less profligate.”
Subsequently, he argues that a number of politicians around Europe deserve a lot more praise than they have been given, pointing out that it is easy for politicians to leave these issues to one side for the next generation todeal with.
“Whether it is Italy, Austria, Germany or France, I think that the electorates of these countries are not silly and they know that the fact we are living longer must have some impact on the way we organise work, pay and pensions. But I think given brave political leadership and given sensitive transitioning, electorates will rise to the challenge and we will see increased longevity for the boon that it is.”
Pickering argues that while the state retirement coverage will undoubtedly be determined on a country-by-country basis, it should aim to be somewhere around 35% of national average earnings – suggesting a substantial hike in the UK and some trimming in mainland Europe.
Beyond that, he says private retirement savings can provide the required personal benefits top-up.
“I’m also a passionate believer in private pension provision, both of a collective and universal nature and I think that the role of the EFRP is to try and persuade people in each country that there is both a place for universal tax payer financed pension provision and market related private funding arrangements.”
The public/private split, he points out is critical in clearing up the confusion of pension guarantees that has become a stalling point for pension reform in countries like Germany.
He argues that retirement guarantees should be delivered through the state system where politicians and tax payers can price these in and deliver economies of scale across the population as a whole.
“I think for politicians to impose guarantees on the private sector – even if it is no more than a money-back guarantee – then it is asking for the private sector to behave at a sub-optimal level. What we should be looking at is both the state and private sector working at optimal levels with the state providing cost-effective guarantees.
“If private sector players – either companies, commercial providers or their customers want guarantees then they should be properly priced and should be offered on a discretionary rather than obligatory basis.
“You can’t have a meaningful, low cost guarantee – it’s either costly or it isn’t meaningful!”
The EFRP chairman also believes that the trend to defined contribution company pension plans (DC) will increasingly blur the boundary between the traditional labels of 2nd and 3rd pillar pensions. “What I see is that in future there will only be the state pillar and the private pillar, which will have a mixture of DB and DC arrangements offered through a mix of workplace and market place schemes via a mix of pension and mutual funds.”
He points out that in some labour markets and industrial sectors there will be a competitive advantage in offering a good-quality pension plan that may take the form of underwriting some kind of final salary guarantee.
Other employers, he offers, may provide an attractive level of contribution to a DC scheme, believing that this is appropriate to their workforce.
“Personally I don’t think there is a high street or internet solution to everyone’s pension savings needs, but I do think that there is an almost universal workplace solution where you can cost-effectively bring together consumer and provider using the workplace as a catalyst. Collectively you are then dealing with money that is attractive to providers in a way that the high street or the internet would be hard pushed to offer.”
Pickering’s predictions about how tomorrow’s pension provision will shape up is particularly resonant for the new EFRP members joining from the east.
Poland became a member of the EFRP in January 2003, while Hungary comes on board in January 2004. And Pickering is keen to welcome new members from eastern Europe.
“Two of the EFRP principles that I try to articulate whenever I can are subsidiarity and diversity. It’s the job of the EFRP to bring people together in a spirit of open coordination where each country can learn from what has happened within the traditional EU borders. “I’m quite excited about pushing back those boundaries, because I think that we have a lot to learn from the countries of central and eastern Europe. Their politicians and their electorates have had to face up to the pensions challenge from a blank, or torn-up piece of paper. They don’t have the baggage or the infrastructure with pensions, but one thing that means is that they can build without knocking down – the reverse to what is happening in much of Europe – and I think there are lessons to be learned from that.”
This opening of new vistas at the EFRP, he says, mirrors his own experience at the helm of the association.
“For someone whose upbringing has been rather insular and inward looking within the UK it has been a real treat to have my horizons broadened by being elected as chairman of the EFRP – especially at a time when pensions are firmly planted in the political arena.
“I am by nature a broad-brush political animal rather than a technical person, so it is nice to be involved at a time when the issues are political and not technical.
“Without a doubt I can say that my involvement with the EFRP has been a truly wonderful experience.”

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