Dutch MP warns of Europe-wide PPF in wake of Waterford Crystal
EUROPE – A Dutch MP has warned that a recent European Court of Justice (ECJ) ruling could culminate in a European pension protection scheme, forcing healthy funds to prop up those in deficit.
Pieter Omtzigt, a member of the Christian Democrat CDA party and former rapporteur for European pensions issues, said the recent ECJ ruling on the insolvency of Waterford Crystal in Ireland could lead to a "very important bridge" being crossed.
"By crossing the bridge that there has to be a guarantee scheme, that bridge will become wider," he told IPE.
"For instance, why limit it to when a firm goes bankrupt? Why not for everyone and why limit it to 50%? Before you know it, you have a guarantee scheme."
The ECJ ruling saw the Irish government heavily criticised for not putting in place measures that would have protected at least half of the benefits within the defined benefit fund operated by Waterford Crystal.
When the company declared insolvency in 2009, members in the underfunded scheme were left with only 28% of accrued benefits – a fact the court said was a "serious breach" of the European Union's 1980 insolvency directive and in violation of a ECJ court ruling from 2007 that implied at least half of benefits should be guaranteed.
Omtzigt argued that company insolvency was unlikely to lead to rights cuts in countries such as the Netherlands, Ireland and the UK due to the strict separation of pension and company assets.
Even if insolvency were to occur, he expressed doubt that 50% benefit cuts would be imposed very often by Dutch funds.
He added that it was unreasonable to expect a country such as the Netherlands to take on board even greater liabilities given the current fiscal situation.
"The first concern is that the Netherlands has contingent liabilities on its balance sheet that are now so huge, it can't possibly keep them," he said
"Adding another contingent liability of hundreds of billions or even a trillion to that is not feasible in my eyes."
The politician added that as the European Commission was in favour of a European pensions market, he expected the contingent liability would eventually shift to Brussels – potentially in the form of a pensions union, echoing proposals for a European banking union.
However, he said any guarantee scheme would likely be funded by other pension funds – echoing the UK arrangement whereby pension funds pay the Pension Protection Fund an annual levy.
"That means the countries that have their house relatively well in order end up paying for those countries that don't," he said.
The MP was cautious about the introduction of any guarantees, noting that such arrangements usually started at low levels, but ended with "a big guarantee" – potentially even underwriting defined contribution schemes as well.
"Why only guarantee a DB promise and not a DC promise, if someone fiddles the books?" he asked.
"That's what it all started with if you look at the UK and the case of Robert Maxwell – that kind of fraud can still happen, even in a DC scheme."
The case of Robert Maxwell saw stricter regulation introduced in the UK for pension fund investment in sponsor companies, after fund assets were used to prop up the businessman's publishing empire.
While some countries have already introduced guarantee schemes, such as Germany's Pensions-Sicherungs-Verein or the UK PPF, neither is directly underwritten by the government.
However, countries such as Australia have experimented with certain guarantees for DC funds, recently introducing capital reserves that can be used to reimburse members who are victims of fraud.