The year 2002 promises to be remarkable in many ways – not least because two drastic innovations,by their coincidence, could change the European capital markets dramatically.
One of these, obviously, is the introduction of the euro. This will not only be a help to tourists but will also be a chance for EU-wide enterprises to improve the co-ordination and financing of their pension arrangements. The common currency increases comparability as well as the tendency to invest in a powerful capital market.
The probable consequences of Germany’s pension reform, the ‘Riester Reform’ – which also comes into force in 2002 – are less apparent so far. Named after the current employment minister, the law’s official title – Altersvermögensgesetz (‘Old-age-asset-law’) describes its content.
The reform aims partially to shift the financing of retirement pensions from the public pension scheme to private and – especially – to company benefits schemes. This should and will be accompanied by increased capital accumulation for retirement pensions, which will mainly concentrate on Pensionskassen and the newly created Pensionsfonds. Annual increases in funding of between e10bn and e15bn can be expected, with a rising proportion from the company sector.
The financing structure will shift gradually from pay-as-you-go to increased asset accumulation for benefit coverage and at a company level more and more to outside funding. This does not mean that Germany will soon reach the degree of capitalisation seen in the UK or the Netherlands, for example. But it is expected that during the next decade hundreds of billions of euro will be injected into the national and international capital markets in pension assets from Germany, with well-known consequences, opportunities and risks.
For companies this development will open up new areas –for example, picking the right investment to give the best performance or risk hedging capital allocation. Multinational firms will have to deal with the comparability of their pension schemes from country to country but financed by in a single currency, the euro. And they will focus more on question such as whether is it sensible to create a common pension fund for the pension schemes run in different countries, whether it is useful to establish a common institution for top executives’ retirement benefits, or in which country a fund or trust should be established.
At the EU-wide level both the enactment of the pension fund directive – which has been under discussion for years – and the necessary fiscal opening instructions are still missing. With the introduction of the euro and the change in Germany’s course the pressure will increase. And I – probably you, too – can imagine that, in 10 or 20 years, international differences within the EU will be reduced to differences like those today at a national level between different regions, dialects or industries.
Klaus Heubeck is chief executive of Heubeck, the German member of Euracs, the international network of independent actuarial consultants