The EU’s institutional world is starting a new term. Now that the parliamentary elections are over, the commissioners have only until the end of October before their replacements take up office. With the increasing presence of euro-sceptic MEPs, it could be a stressful five years ahead.
For financial services, the legislative initiatives of the Michel Barnier epoch have been prodigious. But the programme is not over and there are plenty of outstanding issues, including for the pension sector.
Despite the euro-sceptic earthquake, the ‘grand coalition’ between the centre-right and centre-left parties will continue to dominate in the European Parliament, albeit with only slightly more than half of the 751 seats. In other words, any ambitions of loosely allied groups of ‘populist’ MEPs to wreck proceedings appear unlikely to succeed. The chances are even less likely if the EU creates a Parliamentary Assembly of national parliaments in the euro-zone.
However, this still leaves a large amount of unfinished legislation. Here, the unpredictable national government representations will still have the last say.
Individual tasks in Brussels include getting parliamentary clearance for the Commission’s overhaul of legislation on occupational pensions, the IORP II Directive. This aims at improving governance and transparency of these funds in Europe, promoting cross-border activity, and promoting long-term investment.
Josina Kamerling, head of the Brussels office of the CFA Institute says the EU should work together with the European Central Bank to agree on how pension funds should be used to stimulate economic EU growth.
How will the new Parliament and national government representations react? The Dutch and UK governments have already shown lack of enthusiasm. Matti Leppälä, the chief executive of PensionsEurope, has warned that the legislation could result in increasing costs – “drastically…. in some member states”.
With solvency issues left out of IORP II, another challenge will be handling the forthcoming holistic balance sheet (HBS) proposals. These are due from the European Insurance and Occupational Pensions Authority (EIOPA) by end-September 2014, with an aim for a proposal by the end of 2015.
A further challenge will be the issue of cross-border IORPs. Here the issue is the lack of harmonisation of Prudential rules between member states.
Other unfinished work concerns the nationalisation of Hungarian and Polish private pension funds – the Czech Republic could follow in 2016. The Irish National Pensions Reserve Fund has been used to bail out banks and France is drawing down on its FRR. A Commission insider asks whether the German government, whose influence in Brussels is likely to increase, might want to push for the recalcitrant member states to reform? Or will contagion spread?
One possibility is a revision to bring all pension-related issues under a single Commission roof. At present, the topic continues to be dealt with by the directorates general for the internal market, for employment and for consumer protection (DG Sanco).
This would probably leave untouched DG Sanco’s on-going public consultation on retirement products, which mainly concerns the third pillar. This covers the development of industry standards on good practice, including transparency, and advocates EU adoption of a common terminology, to “enhance cross-border comparability of products”. The consultation outcome is not expected until 2015.
A further item in the Parliament’s in-tray is the Directive on the Portability of Supplementary Pension Rights. This reform was first proposed by the Commission in 2005 and was adopted by European Parliament in April 2014.
But solvency issues had to be dropped from the package. Optimism on this count can be drawn from the centre-right EPP party. In its recent election manifesto, it writes that it “sees mobility as an absolute right that benefits people, businesses and the economy”.
A final imponderable concerns shadow banking and money market funds (MMFs). Future tightened rules could be part of a global move to reduce 2008-style systemic risk.