Opportunity or trap?
Fears in the Netherlands that some of the early drafts of the pan-European Pensions Directive – particularly where it mentioned quantitative investment restrictions – could have impacted seriously on Europe’s second largest pension market were allayed by the final adopted version. This took great pains not to restrict any of the continent’s more developed occupational pensions markets.
As Peter Borgdorff, director of the Dutch Association of Industry-wide Pension Funds (VB), notes: “Overall the directive doesn’t have a lot of impact in Holland because when you look at the directive you can say that it is very close to the Dutch and UK models.”
However, Borgdorff points out that the Dutch regulator, the PVK, will now have to start putting in place closer ties with other, less familiar pensions markets. “Until now they have only had agreements with Ireland and Britain, whereas in the other countries they don’t, so there’s a job to do there.”
He points out though that this mostly impacts Dutch company pension schemes, adding that industry-wide schemes are not talking about cross-border pension plans at the moment because of the role of social partners in their set-up.
Nonetheless, he notes: “It could be possible for example for a TV production company in Holland and in Germany that makes a deal with the labour unions in both countries to possibly have one pension fund for both employees that could be an industry-wide based in Holland. It could be one industry fund with members in both countries. But there is not yet a lot of attention being paid to this kind of thing.”
Among the VB’s members, Borgdorff says general reaction to the directive has been positive, noting: “It doesn’t cause any problems, so yes people are rather happy with it.”
Jeroen Steenvorden, director at the OPF association for company pension plans, says the body has also largely welcomed the directive: “We looked at the issue a few months ago when it was accepted by the European council. Speaking in broad terms it fits with the Dutch system more or less and there’s not a big need to change things.”
But he notes that the OPF does have some causes for concern. “One thing we are wondering about is communication and reporting requirements, which are now no longer based on a pension plan level but a scheme level.
“Some of our pension funds have quite a lot of schemes within their funds but they share the actuarial risks. I know one fund that has 20 schemes for different locations and different subsidiaries so they would have to create 20 annual reports!
“Also some pension funds borrow money from the capital markets in order to leverage and try to make their investments more effective with other kinds of financial instruments, but that is something that the directive is also not in favour of.”
He also alludes to changes in the market valuation of pension plans, but adds that such alterations would have happened in any case in the long term.
Interestingly, he believes that the pan-European Pension Fund Directive could pose something of an opportunity or a trap, depending on the situation in different countries.
“I think the directive will make it theoretically possible to work across borders, but in practice it will take a longer time because all the fiscal implications are not in place. This will change in the long-term, though.
“Another interesting development though is that with the new directive every country has to look at each other, and you could have a kind of arbitrage for companies as to whether they want to put their pension funds in the Netherlands or the UK or anywhere else. I think that process will in theory bring solvency requirements closer together, which could be positive.
“If not, and a pan-European pension fund is workable in practice, then a multinational could choose where to place its fund and they aren’t likely to go where there is no supervision.
“I think this will certainly bring countries more in line with each other and keep pension regulation simple, otherwise it could influence decisions on the pension fund location for companies.”
Overall, the OPF chief says his members are happy with the new directive: “We are certainly pleased that it doesn’t threaten any major aspect of our pension system.”
The new directive is expected to be included in changes to Dutch pension fund legislation currently being drafted and scheduled to appear next spring.