Dismally low returns on EU pension fund investments over 15 years? The allegation comes in a study by Better Finance, the European Federation of Investors & Financial Services Users. The report, Pensions Savings: The Real Return, points to excessive fees, points to other charges, and badly framed taxation rules, as the culprits.
“Pension savings did not, on average, return anything close to those of capital markets, and in too many cases even destroyed the real value for European pension savers,” the report states.
While little direct response is on the cards, and at least one Brussels-based observer is highly critical of the report and its methodology, some legislative action is likely.
Jonathan Hill, Commissioner for financial services, makes several relevant points in his current action plan, launched in late September. One is that the Commission is planning “to look at ways to increase choice for consumers and increase the cross border supply of retail financial services”. This will come soon, in a Green Paper, due by the end of 2015.
As leader of the Junker plan to promote capital market union (CMU), Hill has also made statements linking retail investors with the flagship project to cross-border investments across the EU, to boost economic growth and jobs. “Retail investors are consumers who want to save for retirement… They are at the heart of what we’re trying to do,” he has said. Indeed, one of the aims of the Juncker plan is to facilitate retail investment in long-term illiquid asset classes.
Separately and simultaneously, a Commission document describes pension funds and insurance investments, as “underused at present, as reflected by low exposure to equities”.
Hill has also advocated “shining a light” on the subject of investment returns and has raised the need for transparency. Here, he probably has on his mind the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation proposal of November 2014 to provide to pension savers with simple key information documents (KID). The rules would not apply to occupational pension schemes.
The standardised pan-European Personal Pension Product (PEPP) scheme, otherwise known as the twenty-ninth regime is also gaining attention. The Insurance and Occupational Pensions Authority (EIOPA) is due to advise on the scheme early next year.
On transparency, Guillaume Prache, managing director of Better Finance, says: “It can take a ‘leap in faith’ by retail investors, to believe in the soundness of their pensions schemes. They are not informed of realities, such as fees and commissions.” Despite Better Finance’s 10-item wish list, which includes improved voting rights for individual shareholders, the group is not optimistic of much change.
Philip Neyt, chair of the Belgian Association of Pensions Institutions (BAPI), has come out with vocal criticism of the Better Finance report. He describes himself as “very dissatisfied with the methodology used”. Neyt complains variously, including that “returns over different periods of time are presented as if they are fully comparable”. Better Finance responds that its study clearly answers this matter, with due declarations as to sources.
Support for the study comes from Sven Giegold MEP, who represents the Green Party on financial matters and who opposes excessive corporate lobbying.
Overall, what emerges from Brussels is that some tightening up of legislation relevant to the pensions sector is probable. But how, what, and how fast remains a guess.