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Special Report

ESG: The metrics jigsaw


A busy time for the lobbyists

Gail Moss finds out what pension fund associations are doing in response to issues caused by the current financial troubles and reforms across Europe

With many pension funds facing continued deficits, and with the inexorable march of regulation as politicians react to the bleak economic backdrop, Europe's pension fund associations have never had so much on their collective plates.

Leading the way on pan-European issues is the European Federation for Retirement Provision (EFRP). Its main concerns at present are the EU's plans for supervisory reform and a possible revision of the IORP Directive.

Its main criticism of these plans is that although the proposals for a European systemic risk board with macro oversight of the financial sector include pension funds, it is hard to see how IORPs/pension funds' views could be fed into it.

"The new supervisory mechanism at micro level is of even more concern," says Chris Verhaegen, secretary general of the EFRP. "The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) will be replaced by a European system of financial supervisors, but experience has shown us that the supervisors are likely to apply the insurance logic to pension funds. The insurance industry is bigger than the pension funds sector, and in some countries there is a lack of expertise about pension funds."

Instead, the EFRP would like to see the new EIOPA (European Insurance and Occupational Pensions Authority) continue the present CEIOPS approach of having a consultative panel. But, drawing on experience gained in this panel, it says it seems necessary to have a separate configuration of the consultative panel depending on whether the discussion is about insurance or IORPs. The same logic should apply to the supervisory board and the operations of EIOPA.

In order to press its case, the EFRP has had meetings with Commission officials, and made two formal submissions. Once the Commission publishes firm proposals on supervision, the EFRP will be in dialogue with the European Parliament and with MPs at national level.

The EFRP also intends to help shape the open discussion on pension systems at EU level by tabling a strategy paper this month explaining why occupational pensions are necessary to ensure the adequacy of pensions delivery.

A subsidiary goal for the EFRP over the next 12 months is to expand its influence in central and eastern Europe by speaking at conferences and workshops in the region.

"Governments there are scaling back pension reforms because of the financial crisis, and are reducing contributions to the mandatory supplementary pension scheme because they want to reduce today's deficits " says Verhaegen. "But if they cannot guarantee continued contributions which have been legally established and programmed, the pension reform will not deliver adequate income in future. We will be telling them this is not the way to do it, and hopefully politicians will pick this up from the local media."

AEIP: paritarian values
The AEIP exists to promote the paritarian management of social protection within the EU. Its values are based on a balanced representation of employers and employees, and include joint management, solidarity and transparency, as well as social policy developed by collective bargaining.

While chiefly a research and lobbying body disseminating its ideas via conferences and publications, the AEIP has more concrete objectives in sight. It has set up a task force to create a pan-European pension fund for the construction industry. Future plans could include similar funds for health and hospital staff, and for the metalworking industry.

It also has a task force working on plans for territorial pension schemes, and has already had talks with government departments in the Veneto Region about the possibility of a single European scheme enabling it to make investments for all those regions equipped with territorial pension schemes.

The AEIP's agenda for the coming year is to strengthen its network of contacts at EU level following the June elections, while broadening contact with its counterparts worldwide, such as the US-based National Co-ordinating Committee for Multi-Employer Plans and the Multi-Employer Benefit Plan Council of Canada.

On the policy front, the AEIP is lobbying for specific EU rules enabling pension funds to avoid the risks of assessing the value of their assets by the fair value standard.

"The insurance lobby has won a rule change relaxing some of the requirements for end-of-year provisions on balance sheets, and a number of pension funds want a similar concession," says Bruno Gabellieri, secretary general, AEIP. "We need these rules to make it easier to implement medium-term recovery plans."

Germany's aba
IORPS reform, accounting and governance are three main issues on which Germany's Association for Company Pension Schemes (aba) is working closely with the EFRP.
A further priority is insolvency protection for occupational pensions, which aba considers is urgent in the light of the current financial crisis.

Germany has enjoyed this kind of protection for over 30 years, with a shorter history of protection in Sweden and the UK. Luxembourg joined the German protection fund in 2002, but there is virtually nothing in the rest of Europe.

"There is much to do on a European level, therefore it is essential for us to follow that discussion to make sure developments do not interfere with what we already have in insolvency protection in Germany," says Klaus Stiefermann, general manager of aba. "Indeed, part of our job is helping the European Commission to learn from the German system of insolvency protection."

On the domestic front, Stiefermann says it is important for aba to drive home the point that pension saving requires a long-term horizon, and reinforce support for Germany's investment rules that restrict equity investing and which have protected pension funds throughout recent market falls.

The imminent national election this month means a lull in major pensions legislation, so aba is concentrating on the implementation of recent changes in accounting law and pension sharing between couples who divorce.

Aba helped shape the changes, sitting on different working groups for several years, and believes the changes as enacted constitute a major improvement. It works behind the scenes, with a policy of avoiding media headlines.

Unusually for an occupational pensions association, aba is based not in the country's capital, but in Heidelberg. This means it is close to the majority of its members, along the Rhine. It is also close to the supervisor, based in Bonn, and those sections of the ministry for labour and social affairs still based in Bonn. Its distance from Berlin also emphasises that aba is not a lobbying organisation, but a think-tank focusing on workplace pensions.

Nevertheless, aba keeps in daily contact with officials at the ministries of labour and social affairs, and of finance, briefing them about policies that are working and those that are not. This can lead to talks with policymakers themselves, often involving brainstorming sessions.

Contact is strengthened through aba conferences to which policy makers are invited as speakers, panellists or guests, and by aba's own committee which has annual meetings with the supervisor. Aba also regularly exchanges views and information with unions and employers' associations, many of which are aba members. It can, for instance, use its expertise to strengthen specific arguments being presented to the government by these other bodies.

"Occupational pensions is social politics - unions and employers are important, and policymakers listen to them," says Stiefermann.

He says that respect for his organisation is enhanced by its determination to remain neutral, since its members are drawn from all sides of the pensions industry. This means it is unlikely to get caught up in public battles with other interests, which he considers an advantage.

Switzerland: contentious issues
Although Switzerland is not in the EU, the Swiss Pension Fund Association (ASIP) is an EFRP member and supports its opposition to Solvency II. It also believes that there is already over-regulation of pension schemes both in Switzerland and the rest of Europe, and that supervisory authorities must remain decentralised (in contrast to specific financial sectors such as insurance companies), because pension schemes need flexibility in order to operate efficiently.

ASIP is in discussions about this with the Swiss government and with parliament, and has sent the appropriate parliamentary committee a paper to explain the case for decentralisation. There are also regular discussions with the government-appointed Pensions Commissioner, while ASIP has two places on the Federal Commission for pension schemes.

"There are tendencies towards centralising supervision by treating pension schemes like banks or insurers," says Hanspeter Konrad, director of ASIP. "But we are trying to convince parliament that the pensions area is not suitable for centralisation, and I believe they will decide in this direction."

A more pressing priority is the planned referendum next year on the Swiss government's proposal to reduce the conversion rate on pension funds from 6.8% to 6.4%, with which ASIP agrees. Together with other lobby groups, ASIP is running a TV and newspaper campaign to put across the arguments for making the reduction.

Dutch accounting concerns
At international level, the main priority of Dutch Association of Industrywide Pension Funds (VB) is to prompt a rethink on proposals from the International Accounting Standards Board (IASB) - expected to be published later this autumn - to smooth out pension liabilities.

"Our main concern is that the Dutch pensions system doesn't fit into IAS19," says Tomas
Wijffels, policy adviser of VB. "The rules make a clear distinction between DB and DC schemes, while in the Netherlands we have a hybrid of the two. We are trying to convince the IASB not to change IAS19 in a way that will harm the Dutch pension system and those in other countries. The balance sheet should reflect the true situation of a pension scheme and the sponsoring companies."

He says the new rules will make it more difficult for companies to sponsor a DB system, encouraging a shift from DB to DC in the Netherlands, as in the rest of Europe.

Within the Netherlands, VB's priorities are to encourage more communication from pension funds to members, especially in the realm of crisis recovery plans.

Wijffels says: "As long as things are going well, there is not much public interest in pensions in the Netherlands, but public awareness has been heightened as the crisis has continued."

But he adds: "Since the beginning of the crisis, the contact we have with the ministries, the Dutch Central Bank and other supervisory organisations has intensified."

As part of its efforts to tackle the results of the financial crisis, the VB and the Corporate Pension Funds Association (OPF) have jointly recruited a European representative to work in Brussels. Sibylle Reichert, who joined from the European Association of Paritarian Institutions of Social Protection (AEIP), will monitor developments on IAS19 and Solvency II and be the first point of contact in defending Dutch pension fund interests and pinpointing areas of potential future difficulty where the Dutch system differs from other funds at European level.

"A successful lobby is not when people do what you want," says Wijffels. "It is when your opinion is thoroughly listened to before a decision is made."

Europe's largest association
The UK's National Association of Pension Funds (NAPF) has already responded to the economic crisis by lobbying government for a greater issuance of gilts - in particular, long-dated and index-linked - to help DB schemes manage their liabilities.

It is also demanding a clear commitment by the government to be the ultimate guarantor of the Pension Protection Fund - the industry-funded safety net which pays out pensions on behalf of schemes whose sponsors have gone bust - and is calling for the PPF itself to rethink its way of measuring risk.

Over the longer term, the NAPF's policy objectives include the creation of a more flexible regulatory regime for DB schemes, offering employers more choice on risk-sharing, such as raising the retirement age and removing mandatory indexing.

On the DC front, the association is launching a pension quality mark this month, and will shortly publish its research on default funds, to include a review of the issues raised and expert views on how default funds should evolve.

"The financial crisis hasn't changed our high-level objectives, as these are strategic, but it has strengthened our case when we are calling for changes in the technicalities of both DB and DC schemes," says Nigel Peaple, the NAPF's policy director.

A further priority is lobbying on the pension reforms due to come into force in 2012, some of which Peaple says are a mixture of unachievable or very expensive, such as the requirement for employers to enrol new employees in a scheme within a week of joining a company. The NAPF supports the reforms but is keen to ensure they are workable.

As a well-established institution, the NAPF sees civil servants and government ministers regularly, participating in joint working groups. It has equally strong contacts with pensions spokespeople in the opposition Conservative and Liberal Democrat parties - essential in the run-up to the next UK general election, which is widely expected to result in a change of government.

At a European level, the NAPF works directly with the European Commission and through the EFRP, whose preference for the IORP directive (rather than Solvency II) as the vehicle to regulate pension funds it supports. It is also working with the EFRP on a study on DC provision.

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