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The journey to single EU financial legislation

The reform efforts of EU financial authorities are mostly focused on life insurance. But there are no grounds for the occupational pensions sector to rejoice – its turn will come later if regulatory plans come to pass.

This is the general picture that emerged at European Insurance and Occupational Pensions conference in Frankfurt at the end of November last year.

On life insurance, the EU authorities are certainly continuing with their drive to ensure capital adequacy and to clean up on mis-selling and transparency.

Relevant to both sectors is financial repression – a topic that received plenty of attention at the conference. This was declared a threat to the survival of insurers and pension funds by Martin Hellwig, director at the Max Planck Institute in Bonn and co-author with Anat Admati of The Bankers’ New Clothes, which advocates a more stable banking system in which institutions hold much higher levels of equity.

In a panel discussion, Hellwig commented that potential clients would simply walk away if life insurers could not offer attractive returns. The challenge was how to invest in strategies that are volatile but which could offer good returns in the long run.

A major challenge faced by the world of pensions is the low proportion of workers with any kind of occupational pension scheme at all. Allan Polack, CEO of Nordea Asset Management said that 47% of EU population has no workplace pension scheme and would need to fall back on pay-as-you-go systems.

Michel Barnier, internal market Commissioner, said the Commission’s aim was to grow pension funds, including in member states where they hardly exist.

Unsurprisingly, the theme of a single European pension regime received due attention. A proposed solution was the so-called twenty-ninth regime. This involves legislation to enable pan-EU schemes to run in parallel with the 28 existing national systems. The problem here is that the diverse national jurisdictions covering social and labour law prevent cross-border harmonisation.

The regime would apply mainly to third-pillar schemes, but could also be applied to workplace-based pensions. The idea was raised by Karel Lannoo, head of the Brussels think tank, the Centre for European Policy Studies.

Again on the single European pension theme, Gabriel Bernardino, chairman of EIOPA, noted that the Commission has requested his authority to deliver advice on the Prudential regulations and consumer protection measures needed to create a single market for personal pensions.

EIOPA is currently working on an interim report for presentation in the first quarter of 2014. “These plans should be based on a simple framework .… and should rely on clear and transparent governance structures and provide full transparency to their members,” Bernardino said. He added that he is looking forward to a common supervisory structure for insurance and pensions.  

Matti Leppälä, secretary general of PensionsEurope, reaffirmed that any single European scheme would be suitable only for third-pillar individual schemes, and not for occupational pensions.

Answering a question on delays caused by national governments and the European Parliament, Bernardino called “for an evolution at the political level”. The background to this is the two-track situation in financial legislation that has emerged in Brussels in recent years.

The Commission, strongly backed by EIOPA, is clearly motivated to create legislation to apply uniformly across the EU.

The European Parliament agrees. But the picture changes when it comes to the 28 EU member state governments when they meet in the squat, granite building that houses the EU Council in Brussels. Here matters can drag on, sometimes for years.

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