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EIOPA to launch investigation of funded first pillar systems

Funded statutory pension funds could be subject to new European regulation, with the European Insurance and Occupational Pensions Authority (EIOPA) to include the sector within an upcoming call for advice on personal pensions.

While accepting the matter was sensitive, as it could be regarded as social policy outside the European Commission’s remit, Jung-Duk Lichtenberger of the Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) said some of the funded statutory pensions were no different from private pension providers within the third pillar.

He told the second-annual pension funds in CEE conference in Prague earlier this week that, as privately owned financial institutions, there could be benefits to a “common approach”, allowing firms to access the European single market.

“Basically, [this could be] achieving greater scale, being able to diversify the risks more widely and trying to come up with better, more innovative solutions,” he said.

Asked to elaborate on which statutory funded pillars were meant – as the definition could potentially capture Denmark’s ATP and Finland’s pension mutuals, but also the so-called 1-bis mandatory funds set up by a number of Central and Eastern European (CEE) member states – Lichtenberger said it was not only an issue for CEE nations but also Nordic countries and Southern European member states.

“This is a very sensitive topic, I realise,” Lichtenberger said, stressing that the Commission was not so far intending to include any new rules within forthcoming private pension proposals, but only asking EIOPA to raise the question.

“What we do want is try to see if financial regulation can help to make these funded tiers more efficient,” Lichtenberger added.

“Because I think there’s been an issue. In some countries, these systems have underperformed in terms of investment returns for many years, with negative investment returns. I don’t think this is a good service to the citizens.”

Justin Wray, head of policy at EIOPA, questioned last year why first pillar funds with similarities to third pillar systems were exempt from disclosure requirements

Speaking earlier in the day, PensionsEurope secretary general Matti Leppälä told attendees the three-month call for consultation would be published by EIOPA in July, with the supervisor aiming to submit advice to the Commission by February 2016.

Leppälä said the consultation would likely look at matters including a member’s ability to select the manager behind a 1-bis scheme, if the manager was a for-profit or non-profit entity and owned the assets under management.

The call for advice will come after a turbulent few years for pension provision in the CEE region.

Hungary in 2010 announced plans that amounted to a nationalisation of pension assets, requiring savers to transfer pots to the state or forego any future state pension.

More recently, Poland transferred the domestic sovereign bonds held by pension funds (OFEs) to the Social Insurance Institution (ZUS) and required them to invest 75% of assets in equities.

The 2014 transfer halved the sector’s size and is now subject to a class action suit.

The Czech Republic has also announced that its voluntary pension pillar will be wound up by 2016.

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