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IPE special report May 2018

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Brexit would rob Netherlands of key ally on pensions, legal expert warns

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A pensions law expert has warned that a UK decision to leave the European Union (EU) could derail the Dutch government’s lobbying efforts in Brussels with respect to pensions.

Hans van Meerten, a European pensions lawyer, said the Dutch government, in the event of a Brexit, would lose a key ally in its struggle to carve out a special position for the pensions industry within European financial legislation.

The pension systems in the Netherlands and the UK consist predominantly of capital-funded defined benefit arrangements.

Van Meerten said that Dutch schemes, with the help of their UK peers, had been largely successful in excluding pension funds from harmonised capital requirements for banks and insurers.

He also credited joint lobbying for pension funds’ exemptions from the European Market Infrastructure Regulation and the financial transaction tax (FTT).

Van Meerten indicated, however, that European supervisor EIOPA – separately from the new IORP II Directive – was developing its own solvency framework with capital requirements, “which could become binding”.

“To counter this development, we might need British support again,” he said.

In his opinion, new capital requirements driven by EIOPA would force pension funds to expand their financial buffers.

“Given pension funds’ current weak financial position, this would lead to additional rights discounts and make a switch to defined contribution arrangements inevitable,” said Van Meerten, who is also professor of European pensions legislation at Utrecht University.

He pointed out that EIOPA’s recent stress tests had shown that many pension funds would hit additional turbulence during a crisis, adding that it was “worrying” the Dutch Pensions Federation had tried to downplay these conclusions, “as such a crisis scenario seems to be playing out already”.

The professor suggested, however, that a Brexit could also expedite the change to a sustainable pensions system, “which has been under discussion for far too long”.

He argued that, if Dutch pension funds speed up the innovation process, they could play a pioneering role and even help EIOPA flesh out a solvency framework.

“That would be very sensible, as the Dutch financial assessment framework (nFTK) remains subordinated to European legislation,” he said.

Theo Kocken, chief executive at risk manager Cardano, which also has a UK office, agreed that a Brexit could be bad for Dutch pension funds.

He said a Brexit would be another reason to adopt a new pensions system quickly, “without vague concepts such as buffers, which the EC wrongly considers as a safety margin and a target of wrong regulation”.

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