In the prime of life
At 25, the European Federation for Retirement Provision would appear to be in the prime of life having helped to steer the EU pension fund directive through. But it’s work is far from over, with a full agenda which includes helping to ensure the directive is indeed implemented as well as dealing with issues such as pensions portability and the Solvency II project.
EFRP chairman Jaap Maassen sums up the EFRP’s achievements - and the challenges it faces. “It’s interesting to see how the EFRP has developed into a real professional organisation,” he says. “When we started we had a part-time secretary-general and now we have four more or less full-time staff.
This was a reflection of the ambitions of the EFRP and the complexities. “Obviously one of the complexities now is that we are having to deal with 25 different countries.
“We are dealing with many different types of legislation, ranging from typical pension fund issues like IORP to governance issues and issues on securities and so forth. The field is becoming wider and wider.”
“If you ask me what our main achievements have been over the past 25 years I would say that in the IORP directive the concept prudent person rule has been accepted. This basically means that pension funds can invest at least up to 70% in equities and are no longer forced to invest in government bonds only.
“One of the things I have been saying is that good legislation not only legislates but also deregulates – and this is a very good example. At the end of the day, by liberalising the markets you get more money – it’s as simple as that.
“Then there’s the freedom to appoint custodians and asset managers across borders.
“Another point is that of home state supervision – simply meaning that it is the home state which dictates the contents of the supervisory requirements. So you have one institution being the single point responsible for the supervisory requirement and not 25. If you have a pan-European pension fund the last thing you would want is having to deal with 25 different supervisors.”
“I think we are in many ways unique in that we have developed the whole concept – and we are considered to be the founding fathers – of the pan-European pension fund concept.
“If you look at the future, what we are trying to do is to provide systems that ensure in the long run affordable pensions for everybody.”
Maassen, who is also director of pensions at the giant Dutch civil service scheme ABP, says the EFRP is not hung up on any one way to provide pensions. “We promote the idea that there’s no single system that is superior. We really believe in a strongly inter–related three-pillar system.”
“Pay-as-you-go is superior in times of high inflation and low returns, while funding is superior in times of low inflation and high returns. So there, is if you like, a natural hedge.”
Then there was the “paradox” of the former communist countries in Eastern Europe rejecting collectivity and solidarity in favour of individual pension accounts. “I strongly believe in solidarity and collectivity in pensions pays – they tend to outperform by 30%,” he says.
Current agenda items at the EFRP include Solvency II and how it relates to pension funds. “Insurance companies face tougher solvency regime than pension funds.” Then there’s the European Commission’s proposal on pensions portability.
“I introduced portability in the Netherlands so I know how complex it is. We believe it’s a good concept but first you need national portability before cross-border. In the Netherlands it took 10 years to get the system in place so ‘overnight’ is a bit too optimistic.
“You have to move slowly in this regard, this is going too fast.”
As for the insurance lobby, the CEA, it’s “a very powerful group” which does an extremely good job in the third pillar. But pension funds are superior for the second pillar, Maassen argues. “I really don’t think that we are in competition.” And asset managers were indeed also very important – ABP itself after all uses both internal and external asset managers.
“I don’t see asset managers directly providing pensions. One of my hobbyhorses is always transparency. Insurers and asset managers need to be more clear what costs they charge. Insurers and asset managers are not necessarily the most transparent institutions.”
As for the EFRP itself, Maassen admits that they’d like to have more resources. “Money is always a problem with pension funds – not with asset managers!”