Hugh Wheelan reports from the 'What next for pensions in Europe' conference in Brussels
If a consensus cannot be reached between member states on the stifling issue of taxation and pan-European pension products, then a serious European social and financial environment will never be born, warned DGXV commissioner Mario Monti at a benchmark Brussels conference 'What next for pensions in Europe' organised by the European Federation for Retirement Provision (EFRP), the European Policy Forum (EPF), the UK National Association of Pension Funds (NAPF) and Konrad Adenauer Stichtung (KAS).
In his keynote address to a prestigious European pensions audience, Monti announced: If no progress is made on the question of complex fiscal barriers applied by member states to supplementary pension schemes, which are proving major obstacles to the proper functioning of the single market in terms of labour mobility, freedom of services and capital movements, then we cannot truly say we have achieved anything in Europe."
However, Monti went on to highlight the achievements he believes have been made by the Commission and its green paper on issues of investment strategy and movement of capital within the supplementary pensions framework.
In the communication he will present to the EU early next year before a final directive is created, Monti confirmed he would be proposing the key elements of allowing pension funds to invest anywhere in the single market and use 'approved' fund managers from any member state.
And on the crux question of fiscal treatment, Monti is currently seeking co-ordination between member states to tackle the obstacles presently hampering the movement of workers with supplementary pensions ar-rangements.
In terms of the investment management of pension funds, he went on to underline his commitment to the prudent man principle. "Pension funds should be free to determine the investment strategy that best fits the the nature and duration of their liabilities. We believe a qualitative regulatory approach will enable higher returns to be achieved without undue risk, whereas regulation limits performance without en-hancing security."
On tax, Monti threw his own weight behind the development of multilateral tax arrangements, whilst conceding that most employers, employees and financial services operators would prefer to move forward on a common set of rules.
"It is vital we have some co-ordination in place though-along the lines of a 'nation of tax' arrangement, and I am chairing a tax policy group at the moment to negotiate this impasse."
And the commissioner once again underlined the ultimate goal of DGXV's pensions endeavours: "I would like to stress that cross-border membership of funds is our target and we are currently considering harmonisation methods to pave the way for this. It is only then that a genuine and effective single market will be in place for these institutions and their members."
However, in terms of the regulation of any common European pension structures, Anne Maher of the Irish Pensions Board expressed her surprise to the conference at the "worrying lack" of any co-ordinated body to ensure "efficiency, financial stability and protect the interests of all parties within acceptable cost levels".
Citing the Maxwell case in the UK as a prime reason to create such a body, Maher continued: "We need to find a middle ground between industry which sees regulation as costly, and governments which see regulation as essential to avoid the potential financial detriment arising from misinformed customers. The EU and member states must work together in establishing such standards, such as introducing quality kite marks to products, because without them there will be no fair progression."
She also offered the case of Ireland as an example of the value of the 'prudent man' principle in pension fund investment, concurred upon by Monti.
Fund returns in Ireland, she pointed out, had been excellent, averaging 15.4% in 1996 and 34.2% in 1997 - playing a major role in the rise of the Irish 'celtic tiger' economy.
"The merits of the prudent man principle include the flexibility to meet rapidly changing economic circumstances and give an investment strategy which is not influenced by political pressures of any kind."
Kees Van Rees, chairman of the EFRP and managing director of the Shell pension fund in Holland, adapted the term 'prudent' to launch an attack on opponents of pension reform and declare 'high noon' in the battle to transform Europe's retirement arena. "Is it 'prudent' for governments and critics of funding to be making promises on the future of the PAYG system that they cannot keep. The evidence is there in black and white that reform is urgently needed."
Van Rees labelled funded pensions the 'White Knight' in the fight to ensure decent retirement income: "The knight promises higher returns on the investments made from premiums paid, leading to higher pensions. In short, efficient market economics are applied to provide for retirement income. It is all about growing a bigger cake and is an opportunity not to be missed."
He added that the time was now propitious to shift to a hybrid state/ private retirement welfare system with the euro focusing people's attention on the issue and Europe enjoying a low inflation environment favour-able for such a move.
"Many UK pension funds and large Dutch funds are enjoying a premium and contribution holiday, cutting some 10% off labour costs. And I would urge governments to look at this and adopt the best practice of a working partnership between public and private welfare provision on pensions, which I can vouch for as being the case in Holland."
Van Rees' argument was echoed in a lunchtime address by NAPF chairman Peter Murray: "There is no better way to make Europe friendly to its citizens than to introduce funded pan-European pensions, guaranteeing rights and reducing the social security burdens in all European member states," he said.
Norbert Walter, chief economist at Deutsche Bank, went a step further arguing that second pillar supplementary schemes alone could not replace 'crumbling' state social security systems. "The provision of a second pension pillar covering all employees cannot be forced on companies. This would require an obligatory system, which would not promote more efficient business sectors, but obstruct them," he said.
Walter then sent out a clarion call for the development of private DC schemes as the only real possibility of ensuring suitable future retirement income. "The sooner this is recognised by governments, the less chance there is no-one will lose in the process of adjustment," he offered.
The issue of the proposed Kvaern-er/Zeneca pan-European pensions legal test case was again firmly on the agenda. Jan Roels, tax partner at Arthur Andersen in Antwerp, painted the backdrop to such a case - running through the intricacies and precedents of the landmark Safir, Wielockx and Bachmann cases as a precursor to the success of the mooted test trial.
"If a legal case is what is finally needed, then I think it should go ahead and I think the chances of success are fairly reasonable. However, I would argue that either Monti will come up with the goods or a better way forward would be to put pressure on the inland revenue bodies of member states and threaten action in the hope that they will capitulate," he concluded.
Jean Claude Thomas, member of France's Assemblée Nationale and instigator of the 'Loi Thomas', the proposal to introduce funded pensions into France, vetoed after the defeat of the last French government, told the conference that France's Jospin government was really in favour of following Monti's pensions lead - despite its reluctance to 'come out' before the French people.
"They accept the demographic reality facing France on retirement provision, and the outline of my proposals has never really been abandoned, it has just been glossed over to appease the unions. The economic reality is that France must go funded and the fiction must end. I expect to see my law renamed the 'Loi Strauss-Kahn' or 'Loi Aubry' and introduced to the country in a different guise within a year," he said.
Bringing the conference to a close, Peter Murray of The NAPF concluded: " If anything, this conference has demonstrated the potential for great co-operation for pan-European pensions for the future."
The conference also proved there is a great deal more work to be done though."
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