IAPF sees directive leading to a ‘wall of money’

NETHERLANDS - The head of the Irish Association of Pension Funds says he expects a "wall of money" to enter the equity market as a result of the Pension Funds Directive.

IAPF chairman John Feely told the eighth annual International Fund Management Conference in Amsterdam that the current 2.5 trillion euros in pension assets in Europe was going to build "very significantly" over the next 10 years as a result of the European directive on occupational pensions that was passed by the European Parliament in March.

He estimated European pension assets could grow to six trillion euros in that time. He foresaw a "wall of money" being invested in the equity market. And the growth in pension assets, he said, also meant that the taxation issue would become more and more important.

He expressed concern that various pensions taxation cases at the European Court of Justice could lead to a "free-for-all" scenario where taxation neutrality become an issue. "Nothing is in place," Feely said. "That is the end-game if you don't have a solid system."

Feely did not see the directive leading to the dismantling of existing schemes. The directive was a "step in the right direction" though Feely saw the change it would provoke taking place over a 15-year period. And he conceded that the directive as it stands is a compromise. "This directive is not perfect for everyone," he said.

In terms of asset allocation, Feely said hedge funds have a role to play in pension funds' allocation, though it would not be significant. "You will find a growing allocation to fixed income," he said, noting that risk has become more important in terms of managing pension funds.