EUROPE - The global economic crisis has led to a decreased effectiveness of portfolio diversification for pension funds, according to Chris Verhaegen, secretary general for the European Federation Retirement Provision (EFRP).
Verhaegen has been nominated for an Outstanding Industry Contribution Award at tonight's IPE European Pension Fund Awards 2008, for being the driving force of the EFRP and its recent lobbying work on behalf of European pension funds.
Ahead of tonight's awards she told IPE: "Economies are suffering throughout the globe. Very few industry branches seem to be immune, all leading currencies have low interest rates. What can you now still consider as "alternative investments" as a means of diversification to hedge risk?"
Pension funds must find out how best to safeguard their assets and invest in the current economic recession, according to Verhaegen, who argues providers and Investors should take extra care when deciding how to continue working with "highly complex yet innovative financial products".
In the past year, the EFRP has been working to avert the strengthening of Solvency II rules on Institutions for Occupational Retirement Provision (IORPs) because of their potential devastating effects on pension funds' portfolio management.
According to Verhaegen, new rules would have forced pension funds to "sell off equities while simultaneously calling for more cash deposits from sponsoring companies."
Verhaegen reiterated the need for the European Union to address pension issues and start a debate about an EU-wide pension policy.
"EFRP would like to see a debate on a three-pillar EU pension model to fit in all the different systems into statutory, occupational/supplementary and individual pension provision. This model could then be used for member states to adjust and compare systems," she said.
More information is also needed to figure out how EU member states can work together to agree on a concept for reaching safe, affordable and sustainable pensions in a European context, she believes.
The European Commission is, however, beginning to open up to the idea of starting a debate, says Verhaegen.
"In view of the new European Commission end 2009 there is a window of opportunity to launch this debate as a forward thinking exercise into the coming Commission term. There seems to be some progress because within the Commission the opinion has taken root that the EU is in need of a "holistic approach" on pensions policy," said Verhaegen.
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