EIOPA chairman calls for debate on past pensions promises
Gabriel Bernardino, chairman at European supervisor EIOPA, has called for a public debate on the issue of past pension promises becoming untenable as a result of the low-interest-rate environment.
In an interview with Dutch news daily Het Financieele Dagblad (FD), he argued that a public discussion was necessary to avoid friction between the younger and older generations.
“Some generations getting privileges at the expense of others will not work well forever, and risks won’t just disappear by ignoring the issue,” the FD quoted him as saying.
Bernardino said benefit guarantees were a growing challenge for traditional pension funds in the current economic climate, with those in Germany being a case in point.
Under German law, it is nearly impossible to make changes to pension benefits members have already earned based on their number of work years. Employers have argued that they suffer as a result of this.
Pensionsfonds were given some flexibility to relax minimum guarantees under what has become known as the Lex Bosch law.
More recently, the German government has proposed a pensions reform that would introduce industry-wide pension funds without guarantees, either within existing schemes or new vehicles to be set up by social partners.
Addressing the Dutch pension sector’s objection to having to apply low discount rates for liabilities, EIOPA’s chairman said low rates were “just reality”.
Bernardino, however, sought to put the problems of the Netherlands into perspective by noting that many other countries, contrary to the well-funded Dutch pensions sector, lacked private pensions, adding that “Europe is facing an enormous pensions deficit”.
Bernardino also warned against insurers selling pension products with a guaranteed interest rate for the very long term.
“In my opinion, this is not possible, or sufficiently attractive to clients, in the current economic climate,” he said.
The Netherlands is discussing changing its predominantly defined benefit system into a more sustainable set-up, which is scheduled to come into force from 2020.
At the moment, the Social and Economic Council is weighing the possibility of individual pensions accrual, as well as a “target contract” – with both being combined with collective risk-sharing.
A new government is set to make the final decisions on any new pensions system, following national elections in March.