EFRP sets out its stall
The European Federation for Retirement Provision (EFRP) has called for a more logical, thought-out and co-ordinated approach to pensions policy in the European Union in its strategy paper, "Beyond the crisis: Workplace Pensions".
The paper highlights ageing as a major issue. It looks at the social problems of looming pension shortfalls and establishes possible solutions based on boosting work-based pension activity across the EU. This would have the added benefit of increasing investment capital. The paper also calls on the European Commission to provide a co-ordinating role to enact any advances suggested.
On the issue of ageing, the paper refers to a 2009 European Commission assessment, which notes that by 2060 the EU will have moved from having four people of working age for every person aged over 65, to only two. The paper refers to the "tremendous financial and budgetary challenge of providing adequate retirement income from government budgets". The EFRP, whose associations cover 83m EU pension plan members, spells out the grim fact that "state pension benefit ratios are projected to fall by 20% in the EU 27, while additional expenditure cuts of 6.5% (€800bn) of GDP are required to attain sustainable public finances".
The paper highlights the prospect of poverty for many elderly people by 2060, suggesting that "people will not be able to maintain their living standard after retirement. Some of the elderly could even fall below poverty levels."
On the financial crisis, the federation notes that production may not return to its pre-crisis growth path "for an extended period of time". A lacklustre economy could result in poor investment returns. Furthermore, unemployment could mean people save less in pension assets.
The EFRP, whose members hold approximately €3.3trn of assets in occupational funds, points out that only 40% of EU workers are covered by a supplementary pension scheme accessed through the workplace. The implication here is clearly that the percentage needs to increase.
In fact, the EFRP calls for an urgent build-up of capital funded retirement provision to compensate for the fall in public pension replacement rates, and to deal adequately with problems such as ageing.
It also says that reforms to pension systems at national level are being insufficiently co-ordinated across the EU. Steady-as-you-go sums up EFRP's thinking on harmonising pension rules across the EU. It describes the Institutions for Occupational Retirement Provision Directive (IORPs) as a first step. Clearly, it approves its minimum harmonisation approach "as this has the advantage of accommodating the wide variety of pension fund regulations in the different member states".
The paper warns that attempts to reduce these differences may jeopardise workplace pensions or even eliminate some vehicles that are capable of providing retirement income in an effective and efficient manner. The EFRP suggests setting up "a wide-ranging policy debate which would aim at incentivising and increasing the development of workplace pensions in the member states".
This could, for example, start with the Commission establishing a high-level expert group on workplace pensions. A green paper could follow, perhaps incorporating a road map to encourage more investment in work-place pension schemes.
The EU's Alternative Investment Fund Manager Directive (AIFM) has been passed from the Swedish to the Spanish presidency of the Council. The Swedish estimate that only 20% of work remains to be done. However, the European Parliament's 2009 version, which includes 138 amendments, is likely to face further revisions.
Chris Verhaegen, secretary general at the European Federation for Retirement Provision, states that pension funds are concerned about two of the amendments to AIFM (28 and 30, both to Article 2), and she suggests that the Commission's version of the legislation should be retained.
One of the amendments causing concern is a deletion from the text which excludes IORPs. The other amendment puts banks, insurance and IORPs "in the same bag". Verhaegen comments that Parliament's version may be relevant for banks, but it is not for pension funds.