The Pensions Directive is rightly within the financial services arena in the view of Alan Pickering, chairman of the European Federation of Retirement Provision when talking to IPE.
But that does not mean trying to lessen the social dimension of the pensions debate in anyway, in particular the open method of co-ordination could be the approach going forward.
“I think the combination of a directive which is predominantly financial services oriented with the open method of co-ordination on the social policy side is a potentially winning combination.”
As far as the impact of the directive on European markets is concerned, the EFRP believes in the partnership between state provision and privately funded arrangements, he says. “The fact that the directive has been built on a political compromise from politicians who are from societies that have traditionally not valued private pensions provision and also those from countries where such provision is seen as more desirable than state provision, we have forever killed the view that there is a totally public or totally private sector solution.”
He hoped this would take a lot of the ideology and fear out of the pension debate. “Within each country we can now find a way of combining the best elements of state and private pension systems.”
His own view is that other things being equal the state is the best provider of guarantees. If the government in a particular country wants to provide a guaranteed level of income for part of their social policy fabric, then the taxpayer is the best provider of finance for that “bread and butter pension”. “I am not a big fan of imposing guarantees on the private sector, whether we are talking about private sector employers or commercial providers.”
He points out that every guarantee has a cost and it should be the parties to a particular deal either in workplace or the marketplace to determine if they want to pay the price for that guarantee. “That’s why I believe the state will always have a role as a provider of benefits as they can deliver such guarantees much more cost effectively than can the private marketplace.”
On the cross border aspects of the directive, Pickering is adamant that the that pan-European pension schemes should not be obligatory, but they should be attainable on a cost effective basis by those who want them. “This directive will take us a little further down the road to create the European-wide market for pensions systems.”
The issue of the inclusion of insurance companies and exclusion of asset managers from the scope of the directive clearly strikes a chord with Pickering. “I do have some disappointment that we are still differentiating between the insurers and the asset managers.
“I do not think that the ability to provide life-long guarantees at the output phase of the pension life cycle should be a bar on the role at the accumulation phase. I do not see why registered asset managers should not be able to operate as easily cross border as would be the case for insurance at the accumulation phase. There are some premier league asset managers is many European countries and they should not have to turn themselves into insurance companies in order to operate on a cross border basis.”
He approaches the tax issues from a more broadly based perspective than most commentators. “My own view is that the relative importance of tax and prudential regulation have not been adequately appreciated in many quarters unless we have a harmonised approach to prudential regulation we will not have effective cross-border pension provision.”
It is very important that the pension regulators in all the European countries to get together and agree of an appropriate level of consumer protection, he says. “I would hate to see a European market where there is regulatory competition. Whether the good guys are being portrayed as tough regulators or as weak regulators, I do not want competition at either end of that spectrum.” In other words, he does not want jurisdictions saying: “Come and do business here because we are a soft touch” or to say “Only buy a pension which is regulated in our country because we are tough cookies”.
The need is for a proportionate approach to regulation across Europe in his reckoning, as he believes that in a way too much emphasis can be placed on the tax barriers when there are these regulatory barriers. There are tangible aspects in a tax environment, where a price can be on doing things differently. “But on the regulatory side you are dealing with philosophy, politics and emotions. There is a greater challenge to try to get a common approach when dealing with those intangible issues, than when dealing with tax issues.”
However, on the taxation front, the European Court of Justice tax cases Pickering says seem to be taking the right direction. “But I hope these cases, however, will be the catalyst for political action rather a substitute for it.”
In particular, Pickering sees real political issues resulting from people accumulating their pensions in cold countries and drawing their benefits in hotter ones. “There are real tangible political issues.” But he would rather see these tackled by politicians rather than depend on what happens in the courts, which can play a very valuable role in making the politicians aware of what they should be paying attention to.