The challenges lying ahead
Hugo Clemeur of the Association of Belgian Pension Funds, Brussels
Apart from the preoccupations caused generally by the demographic evolution compounded with slow economic growth, the second pillar pensions sector in Belgium faces a number of challenges of which I would mention only three, although many more could be mentioned at this time.
q The transposition of directive 2003/41/EC into Belgian law, and certainly its effects on the longer term, once a number of other issues such as the taxation of cross-border contributions and benefits and the social protection of the participants in a pan-European pension fund are settled will have a profound effect on the future of the sector.
q The application of non-discrimination laws on pension plans and their design. Anti-discrimination laws, if blindly applied without regard for the specifics of additional pensions, may eventually sound the death knell over defined benefit plans in the future.
q The matter of minimum interest guarantees on contributions remains at the time without satisfactory solution. However, there is growing aknowledgement by the government that maintaining minimum interest garantees which are higher than the current risk-free interest rates is not an option in the long term, and imposes too much of a burden,not to mention risk, onto plan sponsors.
Koen de Ryck Pramga Consulting in Brussels
q The inadequacy and unsustainability of state pensions in the private sector (employees and the self-employed) and the near total absence of funding for state pensions. This is particularly the case for civil servants pensions, hence will result in an enormous burden on future taxpayers. The fact is that the Minister of Pensions should be minister of all pensions, not just of state sponsored pensions.
q The inadequacy of supplementary (second and third pillar) pensions. Participation in the second pillar is below 45% compared with 94% in The Netherlands. There are an insufficient number of pension funds and group-insured plans. The changing attitude of employers towards risk-taking, inspired by what is happening in the US and the UK, is also a problem.
q The fact that pension funds are generally well managed – returns have been very good on average and stand up to European comparisons over long periods – but they could still be better managed. There is often a problem of scale to participate efficiently in new developments/asset classes. The country’s inappropriate tax status has handicapped the development of pension funds.
Hugo Lasat of Dexia Asset Management
q Many pension-schemes in Belgium value their liabilities at a too high discount-rate. This keeps funding-ratios at an artificially high level. With current interest rates being low, there will be a real challenge to reach returns in line with the discount-rate applied for valuing liabilities, while respecting risk-budgets.
q Regulatory agencies are tempted to set rules for strict liability-driven investments management (LDI), as in the UK and the Netherlands. However, with long investment horizons, why not allow discount rates in line with mean returns for portfolios with acceptable risk budgets? Risk budgets might depend on the financial strength of the sponsor. A joint challenge for regulatory agencies and pension-funds that calls for close co-operation.
q A significant part of the working population cannot access the second pillar. A challenge lies in creating alternative solutions. Employees should not be punished because their company or industry sector does not offer a supplementary pension scheme. Only then the current standard of living can be maintained. And, why not open the second pillar to the non-working class?
Karel Stroobants of Akkermans Stroobants & Partners in
The government should complete the legal framework for supplementary pensions with special focus on:
q The rules that will apply for defining the under- and over-funding given the long term guarantee as defined in the law Vandenbroucke.
Creating of the framework for ‘Good pension governance’, which means more than paritarian management.
The setting up of pooling vehicles for administration as well as asset management so the small scale (and high unit costs) inherent to Belgium can be overcome with respect for the autonomy of the different sector-wide pension funds.
q Belgium as the host land for pan-European pension funds.
The social partners should take up their full responsibility as managers of pension fund by:
q Convincing and informing the whole organisation and members of the necessity of the complementary pension concept.
q Making a clear distinction between the agenda of the pension fund and the agenda of the negotiations about the Collective Labour Agreements.
q Investing in education and training of the (future) board members.